Employment Income – Regular Earnings

Learning Objectives

• Explain the four components that make up total employment income.
• Describe the various forms in which regular earnings are provided.
• Calculate regular earnings on a per-pay-period basis.
• Perform a gross-to-net calculation for a regular pay.
• Communicate to employees how earnings and deductions were determined.

Chapter Map (quick reference)

• Introduction → Employment income fundamentals → Pay-period frequencies → Regular-earnings types → Statutory withholdings → Gross-to-net template → Payroll metrics.

Key Terminology & Concept Groups

• Remuneration = compensation for services.
• Employment income (4 pillars)
▪ Earnings
▪ Allowances
▪ Benefits
▪ Taxable expense reimbursements
• Regular payment = occurs with a fixed frequency (weekly, bi-weekly, etc.).
• Non-regular payment = no set frequency (bonus, retro adjustment, etc.). Choice of regular vs. non-regular dictates statutory-deduction method.

Category Details

• Earnings (always pensionable, insurable & taxable)
▪ Salary (fixed amount / pay period)
▪ Hourly or daily wages (rate × time)
▪ Piecework (rate × units)
▪ Self-insured disability payments (sick pay, STD, LTD)
▪ Vacation pay (legislated % of vacationable earnings)
▪ Overtime premiums (legislated multiple of regular rate beyond threshold)
▪ Shift premiums (extra amount for evening/night work)
• Allowances = up-front payment to cover personal property/living expenses used for work (car, meals, uniforms). Under specific conditions may be non-taxable.
• Benefits = $ value of employer-provided goods/services (e.g. company car, employer-paid life-insurance premium). Taxability depends on circumstance.
• Expense reimbursements
▪ Business-related (substantiated) → outside payroll / non-taxable.
▪ Personal-living → taxable, subject to all withholdings.

Pay-Period Frequencies

• Legislative minima (must pay at least):
▪ Monthly – AB, NT, NU (also QC only for senior mgmt; SK for monthly-salary group).
▪ Semi-monthly – BC, MB, NL, NS, SK, YT.
▪ Every 16 days – NB, PE, QC (general workforce).
▪ No minimum beyond “regular payday” – Federal; Ontario.
• Common cycles & # of pays/yr:
▪ Weekly 52 (53 every 7 yrs)
▪ Bi-weekly 26 (27 every 11 yrs)
▪ Semi-monthly 24
▪ Monthly 12
• Employers may use different cycles for different employee groups (e.g. part-time weekly, full-time bi-weekly, executives monthly).

Regular-Earnings Calculations

1) Salary
• \text{Salary/Pay} = \frac{\text{Annual salary}}{\text{# of pays}}
• Derive hourly or daily equivalents:
▪ $\text{Hourly} = \frac{\text{Salary per pay}}{\text{period hours}}$
▪ $\text{Daily} = \frac{\text{Salary per pay}}{\text{period days}}$
2) Hourly/Daily Wages
• $\text{Regular earnings} = \text{Rate} \times \text{regular hours (or days)}$
3) Piecework
• $\text{Earnings}=\text{piece rate} \times \text{units}$
4) Vacation Pay
• Legislated using % table (OR 1/52 fraction in SK):
▪ 2 wks → 4 % 3 wks → 6 % 4 wks → 8 % 5 wks →10 %
• \text{Vacation pay}=\text{Vacationable earnings} \times \text{% or fraction}
5) Overtime (Ontario example)
• Threshold 44 h; overtime rate 1.5×.
• Split calc: hours up to 44 at regular rate + hours >44 at 1.5×, or use combined formula
$\text{OT pay}=[(r \times 1.5) \times (h-\text{threshold})]$
6) Shift Premiums
• By % of rate: (r \times \text{premium %}) \times \text{shift hours}
• By fixed $/hour: $(\$\text{premium}) \times \text{shift hours}$
• By fixed $/shift: (\$\text{premium}) \times \text{# shifts}
7) Self-Insured Disability
• Sick Pay (formal vs informal plans)
• Wage-Loss Replacement Plans
– STD (usually 66 ⅔ % of earnings)
– LTD (after STD exhausted; often insurer funded)
• Taxability depends on employer funding/control.

Statutory Withholdings (Regular Payments)

• Order of calculation: CPP/QPP → EI → QPIP → Income tax → NT/NU payroll tax.

1. CPP/QPP

• Pensionable earnings = earnings + all taxable benefits (cash & non-cash).
• Apply pay-period exemption once per regular pay only.
Exemption amounts (2025):
– Weekly $\$67.30$ (52 pays) | $\$66.03$ (53 pays)
– Bi-weekly $\$134.61$ (26) | $\$129.62$ (27)
– Semi-monthly $\$145.83$
– Monthly $\$291.66$
• 2025 rates & maximums
– CPP 5.95 % → max $\$4,034.10$
– QPP 6.40 % → max $\$4,339.20$
– Second contribution (enhancement) 4.00 % → max $\$396.00$ (no exemption)
• Formulas
– First contrib: $(PE-E)\times\text{rate}$
– Second contrib: $PE\times4\%$

2. Employment Insurance

• Insurable earnings = earnings + taxable allowances + cash taxable benefits.
• No exemption; straight percentage.
• 2025 employee rates & max premiums
– Non-QC $1.64\%$ → $\$1,077.48$
– QC $1.31\%$ → $\$860.67$
• Formula $IE\times\text{rate}$

3. Québec Parental Insurance Plan (QPIP)

• Applies only to QC employees.
• 2025 rate $0.494\%$ → max $\$484.12$.
• Formula $IE\times0.00494$

4. Income Taxes (federal & provincial/territorial)

• Base = Net Taxable Income (NTI).
• NTI = GTE + taxable benefits − allowed deductions.
Allowed deductions include:
▪ Deduction for enhanced C/QPP ($\text{first CPP} \times \frac{1\%}{0.0595}$, or full 2nd CPP)
▪ Employee RPP, employee+employer RRSP
▪ Union dues (except for QC prov. tax)
▪ Prescribed-zone deduction, CRA/RQ letter of authority.
• Determine withholding using TD1 claim code / TP-1015.3 deduction code and CRA/RQ tables, PDOC, WebRAS, manual formulas, or software.

5. NT/NU Payroll Tax

• 2 % on remuneration earned in NT or NU.
• Exempt if < $\$5,000$ earned in territories for the year. • If >50 % of annual work time performed in NT/NU, all remuneration (even outside territories) becomes taxable.
• Formula $\text{Remuneration}\times0.02$ per pay.

Payroll Calculation Template (12-Step Synopsis)

1 Gross Taxable Earnings (GTE) = taxable earnings + taxable allowances + taxable reimbursements.
2 Pensionable Earnings (PE) = GTE + all taxable benefits (cash & non-cash).
3 Insurable Earnings (IE) = GTE + deemed-cash benefits.
4 NTI – CRA = GTE + taxable benefits − approved deductions.
5 NTI – RQ = same as CRA list but without union-dues deduction.
6 Compute CPP/QPP (first & second).
7 Compute EI.
8 Compute QPIP.
9 Determine federal & non-QC provincial tax.
10 Determine Québec provincial tax.
11 Add any other deductions (RPP, union, garnishments, charity).
12 Net Pay = Total Gross Payments − Total Deductions.

Worked-Example Highlights (see transcript for full numeric detail)

• Bi-weekly salaried employee (AB)
– Salary $\$3,384.62$; after CPP, EI, RPP, income tax → net $\$2,042.98$.
• Weekly hourly employee (QC)
– Earnings $\$675.00$; after QPP, EI (QC rate), QPIP, income taxes → net $\$470.00$.
• Ceiling transitions
– When first CPP max is hit: 1st CPP stops, 2nd CPP starts; EI continues → net pay increases slightly (enhanced deduction smaller).
– When EI & both CPP tiers maxed → only income tax & other deductions remain; net pay rises further.
– Payroll professionals must explain these step-changes to employees.

Payroll Metrics

• Purpose: quantify accuracy, timeliness, compliance; share with management.
• Maintain an issue log (employee, date, department, issue type, days to resolve, off-cycle required, etc.).
• Key formulas
– Payroll Error Rate $=\frac{\text{Pays with errors}}{\text{Total pays}}$
– Avg. Days to Resolve $=\frac{\text{Total resolution days}}{\text{Issue count}}$
• Use metrics for continuous improvement and resource justification.

Ethical / Practical Notes

• Employers must comply with minimum employment-standards (wage, vacation, overtime) AND with payroll-statutory remittance deadlines.
• Consistency principle: once an hourly-rate or salary-split method is chosen, apply it uniformly to avoid discrimination & audit exposure.
• Proper record-keeping (hours, wages, benefits) is critical for audits, especially for overtime & minimum-wage tests.
• Transparent communication with employees (e.g. explaining ceiling effects) builds trust and reduces enquiry load.