Employment Income – Regular Earnings – Comprehensive Bullet-Point Notes

Learning Objectives

• Explain the four components of total employment income.
• Detail the various forms of regular earnings available to employees.
• Perform pay-period calculations for regular earnings and translate these into gross-to-net figures.
• Determine Canada/Québec statutory withholdings and describe them to employees.

Introduction & Big Picture

• Regular net-pay calculation requires first isolating regular earnings.
• Statutory deductions (CPP/QPP, EI, QPIP, income tax, NT/NU payroll tax) differ for regular vs. non-regular payments.
• Non-regular earnings and non-statutory deductions are presented later in the course (link to Payroll Compliance Legislation chapter).
• Ethical / practical stakes: incorrect categorization → wrong deductions → penalties, audit exposure, & employee distrust.

Components of Employment Income

• Earnings (dollar payments for work).
  • Salary, hourly wage, piecework, disability payments, vacation pay, overtime premiums, shift premiums.
  • Pensionable, insurable, and taxable → all statutory deductions apply.
• Allowances (anticipatory payments for personal property or living costs).
  • Examples: car, meal, uniform allowances.
  • Sometimes non-taxable if conditions met; otherwise subject to deductions.
• Benefits (employer-provided goods/services or payments on behalf of employee).
  • E.g., company car, employer-paid group life premiums.
  • Some benefits non-taxable in specific circumstances.
• Expense reimbursements
  • Business-related: generally outside payroll; no deductions if processed through AP with receipts.
  • Personal living reimbursements = taxable, included in income.

Regular vs. Non-Regular Payments

• Regular = predictable frequency (weekly salaries, scheduled wages).
• Non-Regular = ad hoc (annual bonus, retro payments).
• Categorization dictates prescribed C/QPP & tax calculation methods.
  • Example: Fraser Co. – bi-weekly salary (regular) vs. annual bonus (non-regular).

Pay-Period Frequencies (Statutory Minimums)

• Federal & Ontario: on established payday within 30 days (federal) / any recurring payday (ON).
• At least monthly: AB, NT, NU, SK (salary), QC (senior mgmt.)
• At least semi-monthly: BC, MB, NL, NS, SK, YT.
• At least every 16 days: NB, PE, QC.
• Common organizational frequencies: weekly (52/53 pays), bi-weekly (26/27), semi-monthly (24), monthly (12).
  • Employers may mix frequencies by employee group (Galaxy Ltd. example).

Types of Regular Earnings

Salary

• Fixed pay per period.
• Pay-period salary $=\dfrac{\text{Annual salary}}{\text{Number of pays}}$
• Hourly rate derivations
  • $\text{Hourly}=\dfrac{\text{Salary per pay}}{\text{period hours}}\quad\text{or}\quad \dfrac{\text{Annual salary}}{\text{annual hours}}$
• Daily rate derivations analogous.
• Example (Marie, Hans, Norbert, Loretta)
  • $\$45{,}110/26= \$1{,}735$ bi-weekly, etc.
• Lorraine example: weekly salary $=\tfrac{36{,}400}{52}=\$700$; hourly $=\tfrac{700}{35}=\$20$; daily $=\tfrac{700}{5}=\$140$.

Wages (Hourly / Daily)

• Regular earnings $=\text{Rate} \times \text{hours (or days)}$
• Examples
  • George: $19.50 \times 37.5 = \$731.25$.
  • Linda: $24.00 \times 75 = \$1{,}800$ bi-weekly.
  • Susan (daily): $68 \times 3=\$204$.

Piecework

• Regular earnings $=\text{Piece rate} \times \text{units}$
• Example: Joelle $20 \times 40=\$800$.
• Compliance risk: must still satisfy jurisdictional minimum-wage tests.

Self-Insured Disability (Sick Pay, STD, LTD)

• Sick Pay
  • Paid leave for illness/injury. Legislated paid days only under Federal (10), BC (5), PE (1 after 5 yrs), QC (first 2 days after 3 months).
  • Formal vs. Informal plans; informal plans pose fairness/legal risk.
• Wage-Loss Replacement Plans (WLRP)
  • STD (usually 66 ⅔ %–100 % of earnings; up to 70 % of employers use third-party carriers).
  • LTD begins after STD exhaustion; often insured externally due to liability.
  • Payroll must track pre-leave earnings for benefit calculations.
  • Pensionable/insurable status depends on funding/control of plan.

Vacation

• Statutory entitlement: generally two weeks after 1 year service; some jurisdictions scale with service.
• Vacation pay percentages (Exhibit 2-2)
  • 2 wks → 4 %; 3 wks → 6 % (3/52 in SK); 4 wks → 8 % (4/52), etc.
• Formula \text{Vacation pay}=\text{Vacationable earnings} \times \text{vacation %}
• Examples
  • Gary: $45{,}000 \times 0.04 = 1{,}800$.
  • Vanessa (5 wks =10 %): $60{,}500 \times 0.10 = 6{,}050$.
  • Hannah (SK, 3 wks): $67{,}800 \times \tfrac{3}{52}=3{,}911.54$.

Overtime

• Triggered after legislated threshold hours (e.g., ON 44 hrs/wk).
• Typical rate $1.5 \times \text{hourly}$, but:
  • NB & NL use $1.5 \times$ minimum wage, not employee rate.
  • BC: >12 hrs/day at $2 \times$ rate.
• Formula $\text{OT Pay}=[(h_r \times 1.5) \times (\text{hours} - \text{OT threshold})]$ with modification for straight-time portion to threshold if employer standard < legislation.
• Example (ON): $15.50/hr, 48 hrs, threshold 44 hrs.
  • Straight-time OT portion: $15.50 \times (44-37.5)=100.75$.
  • Time-and-a-half: $15.50 \times1.5 \times 4=93.00$.
  • Total $=193.75$.
• Employer / CBA may provide richer terms (e.g., Jordan Foods 40-hr threshold).

Shift Premiums

• Paid for evening/midnight shifts; formulas vary.
  1. % of hourly rate: $\text{Premium}=(h_r \times \% ) \times \text{shift hours}$ (Ray: $(12.25\times10\%)\times40=49.00$).
  2. Fixed $ per hour: $\$1.25 \times 70=87.50$ (Angela).
  3. Fixed $ per shift: $25 \times 3=75$ (Veronique).

Statutory Withholdings

CPP/QPP

• Pensionable earnings = earnings + taxable allowances + benefits.
• Pay-period exemption applied once per period (table: weekly $67.30/66.03$, bi-weekly $134.61/129.62$, semi-monthly $145.83$, monthly $291.66$).
• First contribution
  • $\bigl( PE - \text{exemption}\bigr) \times \text{rate}$.
  • 2025: CPP 5.95 % (max $4{,}034.10$); QPP 6.40 % (max $4{,}339.20$).
• Second contribution (enhanced CPP/QPP)
  • $PE \times 4.00\%$ (max $396.00$).
• Examples
  • Maria AB semi-monthly $[(3{,}125-145.83)\times0.0595=177.26]$.
  • Amy QC salary+OT same pay; exemption still once.
  • Separate payment (Ken’s missed OT) → straight 5.95 % with no exemption.

Employment Insurance (EI)

• Insurable earnings = earnings + taxable allowances + cash benefits.
• No exemption → straight %.
• 2025 rates
  • Non-QC 1.64 % (max $1{,}077.48$ on $65{,}700$).
  • QC 1.31 % (max $860.67$).
• Examples: Maria ($3,125 \times 1.64\% = 51.25$); Sylvain QC ($3,000 \times 1.31\% = 39.30$).

Québec Parental Insurance Plan (QPIP)

• QC only. Rate 0.494 % (2025) on same insurable earnings; max $484.12$ on $98,000$.
• Examples: Sylvain ($3,000\times0.494\%=14.82$); Lyne ($2,360\times0.494\%=11.66$).

Income Taxes (Federal + Provincial)

• Base = Net Taxable Income = earnings + taxable allowances/benefits − allowable deductions.
  • Deduction for enhanced C/QPP contributions
  • $\text{1st contribution} \times \tfrac{0.01}{\text{CPP rate}}$.
  • 2nd contribution is fully deductible.
  • RPP, RRSP (employee & employer), union dues (not QC prov.), northern-zone deduction, CRA/RQ-authorized letters.
• Employee must file TD1 (or TP-1015.3-V) → claim/deduction code.
• Payroll may use manual tables, PDOC, WebRAS, software formulas.
• Example: Mona (AB) weekly GTE $1,760$; NTI $1,573.07$ pre-second CPP; after 2nd CPP starts NTI $1,519.60$.

NT/NU Payroll Tax

• 2 % on remuneration under ITA §§5-7.
• Exempt if <$5,000 earned in territories during year.
• If >½ workdays in NT/NU, full annual remuneration taxed.
• Examples
  • Full scenario 3,100 hrs, >½ in NU → $100,000 \times 0.02 = 2,000$.
  • John bi-weekly $1,947.50 \times 0.02 = 38.95$.

Payroll Calculation Template (12-Step Synopsis)

1. Determine Gross Taxable Earnings (GTE).
2. Calculate Pensionable Earnings (add all taxable benefits).
3. Calculate Insurable Earnings (add deemed cash benefits).
4. Compute CRA Net Taxable Income (NTI) = GTE + taxable benefits − allowed deductions.
5. Compute RQ NTI similarly (QC rules differ: no union-dues deduction).
6. Calculate first & second CPP/QPP contributions.
7. Calculate EI premiums.
8. Calculate QPIP premiums.
9. Use tables/formulas to derive Fed + Prov/Terr (non-QC) tax.
10. Determine QC income tax (if applicable).
11. Add all statutory & authorized deductions (RPP, garnishments, etc.).
12. Net Pay = Total Gross Payments − Total Deductions.

• Manual pay-statement layout provided; CRA column values feed CPP/EI/federal & non-QC tax; RQ column feeds QPP/QPIP/QC tax.

Worked Payroll Examples

• Andrew (AB) salary $3,384.62$, RPP $250$, CPP first contribution $193.38$, EI $55.51$, Fed + Prov tax $842.75$ → Net $2,042.98$.
• Frieda (QC) hourly $675$, QPP $38.89$, EI $8.84$, QPIP $3.33$, Fed tax $65.95$, QC tax $87.99$ → Net $470.00$.
• Demonstrates impact of ending CPP/EI maximums on net pay (Andrew’s subsequent illustrations).

Payroll Metrics & Continuous Improvement

• Payroll Error Rate $=\dfrac{\text{Pays with errors}}{\text{Total pays}}\times100\%$ (example 2 %).
• Avg. Days to Resolve Issues $=\dfrac{\text{Total resolution days}}{\text{Issues}}$ (example 3.5 days).
• Best practice: maintain detailed error/delay log (EE ID, date, type, source, days, off-cycle needed).
• Philosophical lens: transparency & accountability foster trust; metrics turn ethical obligation into measurable KPI.

Practical / Ethical / Real-World Connections

• Compliance with employment standards ensures minimum wage, OT, and vacation pay fairness.
• Misclassification of payments can result in under/over-withholding, CRA/RQ penalties, or class-action grievances.
• Consistency principle (salary/hourly formulas) guards against discrimination claims.
• Accurate, timely payroll sustains employee morale; errors erode trust and may violate psychological contract.
• Privacy & data-security: sensitive payroll data (SIN, salary, taxes) must be protected under PIPEDA & provincial privacy acts.

Key Formula Summary (LaTeX ready)

• Pay-period salary \dfrac{\text{Annual salary}}{\text{# pays}}
• Hourly (salary basis) $\dfrac{\text{Salary per pay}}{\text{hours}}$
• Regular wages $\text{Rate} \times \text{hours (or days)}$
• Piecework $\text{Rate} \times \text{pieces}$
• Vacation \text{Vacationable} \times \text{vac% (or fraction)}
• Overtime $[(h_r \times 1.5) \times (H - OT_th)]$
• Shift premium formulas (\%, $/hr, $/shift) per examples.
• First C/QPP $\bigl( PE - \text{exemption}\bigr) \times \text{rate}$
• Second C/QPP $PE \times 0.04$
• EI $IE \times \text{rate}$
• QPIP $IE \times 0.00494$
• Deduction for enhanced CPP $\text{CPP 1st} \times \dfrac{0.01}{0.0595}\ (\text{or }\dfrac{0.01}{0.0640})$
• NT/NU Payroll $\text{Remuneration} \times 0.02$

Quick Reference – 2025 Statutory Rates & Maximums

• CPP 5.95 % (max $4,034.10$) | CPP2 4 % (max $396$).
• QPP 6.40 % (max $4,339.20$) | QPP2 4 % (max $396$).
• EI 1.64 % (non-QC, max $1,077.48$) | QC 1.31 % (max $860.67$).
• QPIP 0.494 % (max $484.12$).
• NT/NU Payroll Tax 2 % (>$5,000 earnings in territory).

These notes capture every substantive concept, formula, jurisdictional nuance, worked example, compliance requirement, and performance metric presented in the transcript, enabling a student to reproduce all calculations and explain the rationale and legal context behind each payroll element without revisiting the original text.