Let's discuss an important part of running your company: payroll deduction remittances. Don't worry; we'll break it down in simple terms!
When it comes to payroll remittance, employers are the middlemen between employees and the Canada Revenue Agency (CRA). As an employer, you're responsible for deducting certain amounts from your employees' paychecks and sending them to the CRA. Employers are also responsible for GST/HST amounts owed to the CRA.
These deductions include federal income tax, Canada Pension Plan (CPP & CPP2) contributions, and Employment Insurance (EI) premiums. It's a big responsibility, but it's crucial for keeping everything above board with the Canadian government.
The CRA’s Employers’ Guide to Payroll Deductions and Remittances outlines when and how to make these payments. Sticking to the remittance schedule is super important to avoid any penalties for late payments.
In this comprehensive guide, we'll walk you through everything you need to know about managing your payroll remittances like a pro. We’ll spill all the beans out in the open for all those who administer payroll. Let's dive in to ensure you're handling this essential part of your business confidently!
Required Payroll Remittances
Required payroll remittances include the following source deductions taken from your employees’ incomes. It includes the employer’s share of contributions and premiums:
- Canadian Pension Plan (CPP) and CPP Enhancement contributions (CPP2)
- Employment insurance (EI) premiums
- Federal, provincial, or territorial income tax
- Categorization and schedule of remittance
The remittance submission schedule for payroll deductions is determined by the business's average monthly withholding amount (AMWA) or the sum of all payroll deductions paid to the CRA within a calendar year, averaged monthly.
Your remittance classification and subsequent remittance due dates are categorized by your company’s yearly AMWA data and information return.
What is CPP2?
The second additional CPP Contribution (CPP2) is CPP’s newest feature. It took effect on January 1, 2024. This contribution applies to earnings exceeding the annual maximum pensionable earnings (AMPE), which for 2024 is set at $73,200.
The contribution rate for both employees and employers is 4%, resulting in a maximum annual contribution of $188 for each party. Self-employed individuals, who must pay both the employer and employee portions, will face a maximum annual contribution of $376 in 2024.
The rates and maximums for CPP2 are set to increase in 2025, with the AMPE rising to $81,200. Consequently, the maximum annual contribution for employees and employers will increase to $396 each, while self-employed individuals will see their maximum rise to $792.
It is the responsibility of employers to deduct CPP2 contributions from their employees' remuneration and remit these amounts to the Canada Revenue Agency (CRA). The CPP2 aims to provide Canadian workers with increased retirement benefits in the future.
Remitter Types
Don’t know which type of remitter you are? We’ll run through all the remitter types in Canada:
You are a New Remitter if:
- You are a new employer or an employer who has never made remittance payments before for CPP and CPP2 contributions.
- New employer remittances have the due date on the 15th day of the month following the one in which deductions were made from my business account.
You are a Regular Remitter if:
- You are a new employer with less than two years of AMWA history or an average two-year monthly withholding amount of less than CAD $25,000 and the remittance voucher.
- Canadian remittances are due on the 15th day of the month following the one in which deductions were made from your employment income for the Canada Pension Plan.
You are an Accelerated Remitter if:
A) You are an employer with a two-year AMWA of $25,000 to $99,999.99 (Threshold 1)
- Threshold 1 Accelerated Remitters: Remittances for payroll are processed within the first 15 days of the month and are due on the 25th day of that same month.
- If the payroll deduction is processed on the 16th day of the month to the end of that same month, the remuneration is due by the 10th day of the following month.
B) You are an employer with a two-year AMWA greater than $100,000 (Threshold 2)
- Threshold 2 Accelerated Remitters: Remittances for processed payroll are required up to four times a month. They are due by the third business day (excluding Saturdays, Sundays, and public holidays) after the end of the following periods—from the 1st to the 7th day of the month, the 8th to the 14th day of the month, the 15th to the 21st day of the month, and the 22nd to the last day of the month.
- Regarding the above-excluded dates, the CRA considers payments expected to be on time if received on the next business day.
You are a Quarterly Remitter if:
- It is a small business with an AMWA of less than $3,000 in the previous two years and maintained with complete compliance history with the CRA and tax deductions.
- Payments for quarterly remitters are scheduled before April 15, July 15, October 15, and January 15 for the total payroll accounts processed in the previous quarter.
- The due dates for remittances are based on the exact date on which your employees were paid the federal tax and collected pensionable earnings.
Payroll Remittance Process
The payroll remittance process includes completing the following Statement of Account for Current Source Deduction remittance voucher forms. The following forms include:
- Form PD7A for regular, monthly, and quarterly remitters
- Form PD7A(TM) for accelerated remitters
- Form PD7A-RB is the remittance voucher for the accelerated remitter.
Payroll deductions must be held in trust of a separate payroll account from your normal operating program account.
Remittance payments and remuneration should be submitted electronically, in person at your local financial institution, or by mail. It has the exception of threshold 2 accelerated remitter payments, which must be remitted electronically or in person.
Related Reading: Income tax tips for small business owners and other financial institutions in Canada.
Common Payroll Remittance Errors
Deduction errors in calculating the payroll remittances occur frequently. You may discover the under-remitted or over-remitted amount after the pay period. Employers must alert the CRA and rectify any discrepancies as soon as possible. This will help you get all the taxable benefits you’re entitled to.
You can use a payroll deduction online calculator to get the exact payable amount. This financing tool helps prevent under or over-remittance on the social insurance number (SIN).
What if you remit less?
If you remitted less, remit the amounts to the CRA immediately and indicate the remitting periods they apply for the same. Note that the CRA may apply a late remitting penalty and interest to my business account if your correct remittance is late.
What if you remit more?
If you remitted more, reduce your next remittance for this year by the amount of the over-remittance. If the over-remittance occurred last year, you can request a transfer or refund of the credit from the CRA.
Note: The over-deductions and under-deductions for the income tax could be adjusted with subsequent pay in the statement of account when caught in the current year.
If the mistake is found by the administrators in the following calendar year, the adjustment will be made once the employee files his or her next personal tax credits return.
Learn more about handling over-deductions and under-deductions of EI premiums.
Learn more about handling over-deductions and under-deductions of CPP and CPP2 contributions.
Late Remittance Penalty Charges
Timeliness and accuracy are key when it comes to submitting your remittances! The CRA issues high penalty charges for late payroll deduction remittances.
These penalties are charged for non-compliance with deducting the correct CPP and CPP2 contributions, EI premiums, or provincial income tax from the amounts paid to your employees. Missed payment fines are also applied to outstanding balances of $500 or more. These penalties are based on daily compound interest of employees’ pay.
The minimum penalty is 10% of the outstanding total. If the failure to deduct is found to have been made intentionally or due to gross negligence, the charge percentage increases to 20%, according to the information return.
The CRA’s penalty structure for late or missing payments is as follows for different contribution rates.
- 3% if your payment is 1-3 days late
- 5% if your payment is 4-5 days late
- 7% if your payment is 6-7 days late
- 10% if your payment is more than 7 days late or if your payment is not submitted
- 20% for repeat failures and violations
Remittances are considered to have been made on the day they are received by the CRA.
Payroll administrators need to avoid penalties for remitting their payroll deductions. It is ideal to make remittances to their financial institution two to three days before the due date to avoid fines and exemptions.
Payroll Remittances For Quebec Employers
Things are a little different in Quebec. In addition to the CPP, CPP2, EI, and tax deductions to the CRA, Quebec employers with a Quebec-registered business number must also remit amounts for the Quebec Pension Plan (QPP), provincial income tax, and the Quebec Parental Insurance Plan (QPIP) to the Revenu Quebec.
To make this easier, employers should use payroll software or payroll deductions online calculator for accurate amounts payable to Revenu Quebec.
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