Canadian payroll legislation: Special payments

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A special payment is remuneration provided to an employee asides from a regularly scheduled payment. Special payments can include advances, compassionate care benefits, bonuses, retroactive pay increases, director's fees, retiring allowances, wage loss replacement plans, worker's compensation awards, lump-sum vacation payment, employee profit sharing plans, and the list continues on... What Canadian business owners need to know for payroll compliance is whether or not to deduct Canada Pension Plan (CPP) contributions, employment insurance (EI) premiums, and/or income tax on these special payments. Depending on the type of special payment the amount could be subject to any combination of deductions or none at all!

Luckily Payworks has a special payments chart to help guide you through this process: 

Special payments CPP Contributions1 EI Contributions1 Tax deductions
1.) Bonuses and retroactive pay increases Yes Yes Yes
2.) Director's fees paid to residents or non-residents      
- Fee Only Yes2 No Yes3
- Fee in addition to salary Yes/No4 Yes/No4 Yes
3.) Employees profit sharing plans (EPSP) No No No
4.) Overtime pay, including banked overtime payment Yes Yes Yes
5.) Prescribed plans or arrangements-on amounts received Yes/No6 Yes/No6 Yes
6.) Retroactive lump-sum payments Yes Yes Yes
7.) Retirement compensation arrangements (RCA) No No Yes
8.) Retiring allowances (also called severance pay) No No Yes5
9.) Salary deferral arrangements-on amounts received Yes Yes Yes
10.) Vacation pay, public holidays and lump-sum vacation payment Yes Yes Yes
11.) Wages in lieu of termination notice Yes Yes Yes
12.) Wage Loss Replacement Plans      
- Payments from uninsured plans Yes Yes Yes
- Payments from insured plans Yes Yes Yes
13.) Worker's compensation awards      
- Employee's salary paid before or after a worker's compensation board claims is decided Yes Yes Yes
- Advances or loans equal to the workers' compensation award No No No
- Amount paid in addition to an advance or loan before the claim is accepted Yes Yes7 Yes
- Top-up amounts paid after claim is accepted Yes No Yes
- Top-up amounts paid as sick leave after the claim is accepted Yes No Yes

 

1If you have already deducted the total yearly maximum contributions from the employee’s income, do not deduct more contributions. Do not consider amounts deducted by previous employers during the same year unless there was a restructure or reorganization.

2Do not deduct CPP contributions when the employment is performed totally or partly outside of Canada.

3Do not deduct income tax if you estimate that the total fee will not be more than the total claim amount on form TD1.

4Determination to deduct CPP, EI, or both, depends on the status of a resident director’s employment. Do not deduct EI on the fees portion.

5Do not deduct income tax on the amount of eligible retiring allowance that is transferred directly to the recipient’s RPP or RRSP (up to the amount of the employee’s available RRSP deduction limit).

6To determine if you have to deduct CPP, EI, or both, check government policies.

7An amount you pay in addition to an advance or loan is not a top-up amount if you pay it while waiting for a decision on a workers’ compensation board claim. This amount is considered as employment income.

Other resources you can consult regarding special payments includes the Government of Canada website's special payments chart or the website's calculating deductions alphabetical index.

For more up-to-date Canadian payroll resources, check out the Resources section on Payworks' website by clicking here

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