Components of Payroll in Canada

by | Jun 1, 2022

If you’re starting in business or have a new company, you probably wonder what it takes to run a payroll system. So, what is your employer’s responsibility to your employee? As an employer, it is your job to pay your employees correctly once you recruited them, as this is one of the CRA’s laws. Moreover, many crucial components of the payroll system must be examined and maintained. But, running this system correctly is one of the more difficult challenges you may face. So, have no fear; Yogi & Associates is here to help you understand the importance and components of payroll.

1. What is Payroll System?

The payroll system includes analyzing employees’ earnings and figuring the taxes. Payroll can also refer to the following:

  • Paychecks given to employees.
  • Employee’s financial business records
  • Annual history of employee’s salary.

‘A day’s pay for a day’s work is more than adequate when both the work and the pay are appreciated as much as expected.’ Cullen Hightower

2. What Are The Components Of Payroll?

The payroll system consists of a wide range of income transactions to fulfill the requirements of its employees. Payroll management consists of four essential components.

  1. Gross Income
  2. Employee Benefits Conributions
  3. Employee Insurance
  4. Payroll Taxes
components of payroll

1. Gross Income

Gross income is the total salary you pay to your employees before making deductions. So, it is also known as ‘pre tax’ and ‘before tax.’

Gross income is calculated if you pay the employee hourly or are a salaried worker. Moreover, the gross income of hourly paid employees is calculated by multiplying their hourly pay by the total number of regular hours worked. For example, If an employee is working overtime, his overtime hours are calculated with the overtime pay rate. Then the two amounts are added together to calculate the total gross wages per employee.

2. Employee Benefits Contributions:

Benefits are the financial contributions you give to your employees. Hence, the most popular types of benefits are health insurance, paid leaves, retirement programs. However, it would be best to take out the expected benefits from your employee’s pay. The worker is eligible for repayment of the deducted amount after presenting documents.

“Employees engage with employers and brands when treated as humans.” -Meghan Biro.

3. Employment Insurance:

According to Canadian laws, employers must deduct funds to Canada Pension Plan (CPP) Employment Insurance (EI) premiums for all 18-70 aged people. In addition to this, employers and employees contribute to Employment Insurance since the money can be used for maternity/paternity leave, sickness, and other essential matters.

4. Payroll Taxes:

Payroll taxes are the most popular deductions. These taxes are deducted from an employee’s gross income. Furthermore, the CRA has made it compulsory for employers to create an account to get a Business Number (BN) with the help of the Business Registration Online (BRO) service.  So, after setting an account before the tax submission date, you pay the taxes to the Canadian government. Furthermore, you can use the payroll calculator for calculating employees’ gross pay, deductions, and taxes. If you want to learn more about payroll taxes, go to payroll taxes

components of payroll

3. Payroll And Employee’s Self-Esteem:

“You never want to be in a position where you can’t make payroll” Brian Acton

The payroll system can have a direct impact on employees’ self-esteem. So, running a proper payroll system makes the employees more satisfied. On the other hand, paying late or not total amount can cause problems between employers and employees, affecting employees’ trust in their employers. So you must pay your employees on time and consistently. 

‘Note to salary setters: Pay your people the least possible, and you will get from them the same’ Malcolm Forbes

Wrap it up!

Running a proper payroll system is a difficult task for everyone as it has lots of components to deal with. So don’t hesitate to contact Yogi & Associates as we will guide you on all the aspects of payroll and how to deal with these aspects. In addition, our professionals are here to make you understand the fundamentals of payroll and will keep track of your company’s finances.