24
Jan, 2018
phoenix pay system project

Phoenix Pay System: What went wrong?

The Government of Canada’s project to centralize their payroll and reduce cost was initiated in 2009 and dubbed “Phoenix”.

This was a calibration of several years between the Public Services and Procurement Canada and vendor, IBM, to customize the popular PeopleSoft platform to handle the all the setup and pay rules of all the departments and agencies.

By now you’ve heard the ongoing problems, attention and grief this new pay system has had on the Employees of the Government of Canada.

We found the this great report from the Auditor General of Canada that outlines in details what the problems are, where they originated from and what it could possibly take to resolve all the issues.

This is a good example of a payroll / HCM implementation project gone wrong and what we as professionals can learn and use in our own methodologies.

Any thoughts, comments?

16
Jan, 2018
contractor or employee canada

Hiring a: contractor or employee?

It is very important to determine this relationship prior to any hiring is done. There are a lot of expense savings in hiring a contractor (self-employed individual), however if its determined down the road this contractor is actually considered an employee by CRA you will have much more expenses, taxes and penalties to remit.

Here is what you need to know:

The contract
Is it a Contract of service (employment contract) or a Contract for services?

Who is in control?
Can you clearly identify when and where the work or services have to be done (employee)? Or can there be a negotiation and or compromise on both sides (contractor)?
Can the individual get someone else to perform the work (contractor) or the worker has to perform the work assigned (employee).

Reporting authority
Is there a chain of command where the individual reports work and is assigned work by a manager (employee) or the individual has access go straight to the top for any work or issues (contractor)

Training
Are you providing training to the individual (employee)? Or should the individual already be equipped or if needed seek training from another party (contract)

Work environment
Is there a designated area for the individual (employee)? Or can they work independently as long as the services is completed in the agreed timeframe (contractor).

Is someone overseeing the individuals work? (employee)

Can the individual refuse work? (contractor)

Equipment
Are you providing the tools and equipment for the work (employee)? Who owns the equipment?

Risk
Who is liable for any damages that may result in financial loss? The contracted individual should have his or her owns insurance for these situations.

CRA reporting and remittances
Are you deducting and submitting the employee and employer portions to CRA (employee)? Are you providing a T4 (employee)? Or the individual is responsible for submitting these on their own under their own business name. (contractor)

We found a great guide provided by Wage Point here. You’ll find all the details of each side of the employment and also how to handle special situations like transitioning contractors to employees.

Always contact an employment lawyer and CRA to help you avoid costly penalties and future audits down the road.

8
Jan, 2018
cra tax update

CRA update: Personal Tax Filing 2017 CRA is making it easier

It was just announced by the CRA that measures starting now are in place to help of filing taxes easier for two groups of tax filers. For these groups of individuals not only is it now more helpful but also saves them money by not needed to purchase a tax filing service or have a tax expert involved.

Individuals with low or fixed income
950,000 eligible individuals will be sent a simple way to report and submit their 2017 tax filings. Based on the communication sent out by CRA they will be able to answer a few questions over the phone and they are done.

Individuals who still submit paper forms
These individuals will now receive in the mail the complete tax package to help them complete their filings. They will not need to go to the local post office to retrieve this.

For the official release from CRA please click on this link.

8
Jan, 2018
t2200-employee expenses

T2200: Expense Deductions for Virtual Employees

Do you have employees that work from home? If so, you must understand if you need to fill out or sign a T2200 form for anyone.
A general understanding is if the employee needs to allocate a work space at home in order for them to carry out their job duties, it is a strong possibility that they require a T2200 to be filled out. This helps the employee at tax time with expense deductions related to work.
Be prepared as you may get requests from employees who have been advised by their tax accountants at year end. Most cases, employees may bring a completed T2200 form and ask the HR team to sign it. You must be aware and review the terms of their employment and ensure the amounts filled out by the employee are reasonable.

Questions to ask yourself:
1. Does the employee generally work from home the majority of the time (more than 50%)?
2. Does the employment agreement indicate they must cover the cost of expenses related to working from home?
3. Does the employee hold meetings where client may visit their home?
4. Would working from home have the employee incur more cost on things like internet charges, phone fill, lighting, heating etc..?
5. Are they required to use their personal vehicle?

Not all expenses you can deduct. Internet is one of those, that most employee believe they are entitled to deduct based on their employment. CRA provides the list here of what can and cannot be used for an expense deduction.

References to take a look at:
A great questionnaire is found here from HR insider.
We also found a detailed walk thru to help determine and fill out the proper way from McMaster University here. We recommending looking at this one.
Detailed information on each expense type are listed here from great resource we found on the University of Alberta website.

Québec
The Quebec equivalent is TP-64.3-V – General Employment Conditions form. This can be found here.

Additional Resources:
Reasonable automobile kilometer rates from CRA here
CRA employment expense form guides here
Quebec employment expense guide here

3
Jan, 2018
taxes on bonus pay

Bonus Pay: How to properly calculated the taxes

It’s quite common for your payroll service provider to have problems with this tax. We have experience a number of reputable companies that did not have the engine built to calculate Bonus payments properly. It is your responsibility to ensure the bonus calculations are accurate to the best of your abilities.

Result of incorrect taxing on bonuses:
– employee being unhappy when filing taxes. They end of paying more instead of getting a refund.
– employers responsible for paying the CPP and EI company portions
– employers responsible for paying the all the taxes for the bonus because the employee has left and you cannot recoup the amounts.
– CRA PIER audit can be triggered which cases more headaches
– possible further audits going years back if suspected of not handling bonuses properly which amounts to much more time and money spent

A general rule to understand: CRA considers these payments as being an increase to your pay rate. Taxes are calculated on your pay rates.

Another key note: This special tax calculation is also use for irregular payments like retro pay. Review these other payment types here.

Calculating CPP on Bonuses:
The difference in calculating CPP on bonuses than a regular payment is the CPP basic exemption. You do not take the basic exemption of $3500/year (as of 2018) in consideration. Therefore take the taxable amount of the bonus (Pensionable amount) by the CPP contribution rate (4.95% as of 2018). Also provide the employer matching amount.

If the employee is exempt or has reached his maximum contribution for the year, you can ignore calculating CPP.

Calculating EI on Bonuses:
Calculating EI is exactly the same. Multiply the EI rate by the taxable amount of the bonus (Insurable Earnings). Also provide the employer contribution amount.

If the employee is exempt of has reach his maximum for the year, you can ignore calculating EI.

Calculating Income Taxes on Bonuses:

Total taxable income is less or equal to $5000
If the total the taxable income and the bonus year to date is $5,000 or less use 15% tax (10% in Quebec) for the bonus payment.

Total taxable income is greater than $5000
There are 2 bonus tax methods listed (one-time bonus or more than one bonus), however understand the concept is the same. Whether is one bonus or 52 bonuses a year, you have to include all bonus amounts year-to-date when calculating the taxes.

The employee regularly gets $1500 salary per cheque. An now you’re paying the employee $1000 bonus.

Let’s say you are bi-weekly pay with 26 pay periods a year. Take the amount of the bonus divided by the number of periods in the year = $38.46 ($1000 / 26) This now is added to the regular salary amount = $1538.46.

Calculate the taxes on $1538.46 = $211.58 (assuming using claim code 1 with no pre-tax deductions, or taxable benefits in Ontario)

Calculate the taxes on the regular salary amount $1500 (you can refer to last pay run) = $204.38 (assuming using claim code 1 with no pre-tax deductions, or taxable benefits in Ontario)

Subtract the difference = $7.20 (211.58 – 204.38)

Annualize the taxes per year: $7.20 multiple by 26 pay period = $187.20

Regular Taxes = $204.38, Bonus Taxes = $187.20 Total Taxes Paid = $391.58

CRA provides good information here on how to calculate bonus taxes