The rise of remote work Sponsored by Wagepoint

The rise of remote work: A mini guide to the compliance and tax implications of paying remote employees in Canada
Sponsored by Wagepoint

In a world where people can work from anywhere, businesses have been making headlines by offering workplace flexibility to stay competitive as employers. But, behind the scenes, accounting and payroll professionals are bracing for compliance and tax implications that affect locations and, more specifically in Canada, province of employment.

Grab your cuppa and we’ll take a look into why where you live and where you work matters so much as well as how you can help your clients and their employees. 

Defining province of employment and other key terms.

Before jumping into the compliance and tax implications of location and province of employment, here are some key terms to keep in mind: 

●     Province of employment

• For onsite employees — The province or territory where the employee physically reports to There’s no minimum amount of time the employee has to report to that place.
• For remote employees — The province or territory where the employer's business is located and from where they pay the employee's wages.
• For further clarity, check out the Canada Revenue Agency’s (CRA’s) guidelines to determine the province of employment. 

●     Province of residence

• The province or territory where your employee is physically 
   
• Province of taxation: The province or territory that your employee uses for personal tax filing purposes and/or for their TD1 Personal Tax Credit forms.
  • Note: When an employee files a personal income tax return, the province of taxation will revert to the province of residence on December 31 of said tax (More on this in a little bit). 

• Establishment of the employer / Permanent or deemed establishment: Any place or premises in Canada that’s owned, leased or rented by an employer and where employees report to work or from which employees are paid. Keep in mind, this doesn’t have to be a physical workplace — it can be a PO box, too!
  •  Note:
    • If you don’t have a fixed place of business, your permanent establishment is the principal place in which your business is conducted.
    • If you have employees working in Canada, but you DON’T have a place of business or an employer’s establishment in Canada, use the Payroll Deductions Supplementary Tables - In Canada Beyond the Limits of Any Province/Territory or Outside Canada to deduct income tax at source. 

★ Resource: The CRA’s policies on place of employment provide essential guidelines to follow.

 

How province of employment affects employees.

Employees are taxed based on the province of employment, not where the employee resides. However, the TD1 Provincial Personal Tax Credit form is based on where the employee resides.

 Change is inevitable and consequently, people can pack their bags and relocate at any point during the year. When this happens, their taxes at year-end will be recalculated based on their province of residence as of December 31 of that tax year, regardless of what they filled out on the TD1 form and where their employers are located. This means they can see unanticipated statutory deductions being taken off their pay cheque.

 

Pro tips and resources for employees:

• For employees in Quebéc that don’t want to wait until tax time to reconcile the taxes due, filling out Form TP-1016-V, Application for a reduction in source deductions of income tax will help put money back in their pocket with each pay.
• For those in the Northwest Territories (NWT) or Nunavut, check below to determine if applicable wages have additional tax implications:
  • NWT Payroll Tax is levied on all employees who work, perform duties, or provide services in the NWT, regardless of their province or territory of residence or
  • Nunavut employees must use these guidelines to determine if their wages are taxable under the Nunavut Payroll Tax Act.

 

How province of employment impacts employers.

Payroll deduction amounts depend on the province or territory of employment, so employers need to use the correct provincial or territorial tax tables. Keep in mind that employers are also required to calculate and remit source deductions for:

• Canada/Quebéc Pension Plan (C/QPP)
• Employment Insurance (EI)
• Quebéc Parental Insurance Plan (QPIP)
• Income taxes

★ Pro tip: If you do your small business payroll manually, without using software, you’re responsible for every step of the payroll process from calculating withholding amounts to managing remittances. However, when you use self-service payroll software, like Wagepoint, you can automate a majority of this process, including your remittances.

 

Quebéc and other provincial considerations like Workers’ compensation.

As with employee source deductions, employer payroll taxes can also be determined by the employee’s province of employment. Some of the employer payroll taxes in question include (but aren’t limited to):

• British Columbia Employer Health Tax (BCEHT)
• Ontario’s Employer Health Tax (EHT)
• Manitoba Health and Post Secondary Health Tax Levy (HE Levy)
• Newfoundland and Labrador Health and Post Secondary Education Tax
• Québec
  • Québec Health Services Fund (QHSF)
  • Commission des normes, de l'équité, de la santé ET de la sécurité du travail (CNESST)
  • Contributions to the Workforce Skills Development and Recognition Fund (WSDRF)

 

The employer’s premiums for workers’ compensation are also based on the employee’s province of employment. All provinces and territories have workers’ compensation boards (WCBs) and most require you to apply once you have employees working in the province. This is important because if you’re a remote employer, you’ll have workers’ compensation obligations and filing requirements in numerous provinces.

 ★ Resource: Here’s a thorough list with links to employer provincial tax and workers’ compensation websites.

 Keep in mind, if your remote employee has a set up where they work out of two or more provinces, each workers’ compensation board should be contacted as premiums may need to be pro-rated. 

Year-end reporting.

The province of employment declared in Box 10 of the T4 information slip must always match the province of employment for which income taxes were assessed. This ensures that in the government’s eyes, you’ve correctly “done your job”. 

However, as mentioned earlier, even if the employer accounts for all taxes and deductions perfectly, it can all change when the employee files their taxes because taxes will be calculated based on where the employee resides on December 31 of that taxation year. Knowing this, it's best practice to have employees fill out a new TD1 form every year. This’ll keep your records straight and reduce potential tax implications affecting employees.

 

Statutory holidays.

In Canada, we have federally and civic or provincially observed statutory holidays. Civic holidays are regulated by each separate provincial authority and vary across the country. This is important because employers and payroll providers have to adjust and accommodate according to each individual employee (and we all know the pain points involved in determining stat pay qualification!). On a similar strain, this impacts scheduling. You may have employees off on different days and need to plan in advance to ensure you have workforce coverage. 

Make tax season easier with payroll software.

With a payroll BFF, like Wagepoint, in your corner, paying your remote employees can be less taxing on you and your brain. Our payroll software helps automate the headache-y parts of the process — like source deductions, remittances and workers’ compensation calculations and payments, just to name a few — to make your life easier. If you’d like to learn more, contact us today!

  

About the author: Bianca Mueller, CPB is a fintech socialite, award-winning Certified Professional Bookkeeper and Wagepoint’s Community Manager. When she’s not nurturing Wagepoint’s bookkeeping and accounting partner relationships, you might find her nursing a glass of wine in her vegetable garden.