“Payroll tax” provincial legislation details: the rates, exemptions, & how to make it all a breeze

Did the term “payroll tax” give you a bit of a jolt? Fair enough; after all, it’s not a remittance common across all provinces and territories in Canada. In fact, there are only five jurisdictions that have such legislation – British Columbia (BC), Manitoba, Ontario, Québec, and Newfoundland and Labrador (NL) – and it’s better known as an Employer Health Tax (EHT), a Health Services Fund (HSF), or something else to that effect.

Regardless of their official names, here’s what the different provinces’ “payroll taxes” have in common:

• Businesses operating within the jurisdiction are legislatively required to pay a tax on their total remuneration paid to employees within the province.
• Funds collected through this tax are generally used for health and education initiatives within that province.
• Like all payroll legislation, compliance is critical!

With that said, the exact parameters for compliance between them differs. Let’s take a closer look at the details for each of the provinces where the legislation is applicable:

BC'S EHT

• EHT does not apply to businesses that have under $1 million in BC payroll remuneration – those businesses are exempt from EHT.

The exemption amount was increased from $500,000 to $1 million as of January 1, 2024.

• EHT is calculated for businesses that have between $1 million and $1.5 million in BC payroll remuneration at 5.85%.

Those businesses receive an EHT exemption on the first $1 million of their payroll. As an example, if a business has $1.3 million in BC payroll remuneration, they would receive a $1 million exemption and would pay 5.85% on the remaining $300,000. 

• EHT is calculated for businesses with $1.5 million+ in BC payroll remuneration at 1.95%.Those businesses do not receive the $1 million exemption outlined above.

While the exemption amount and the EHT rate for the first threshold increased in 2024, the EHT rate for organizations with $1.5 million or more in BC remuneration has remained the same.

• EHT in the province applies differently to charitable or non-profit employers.
• Businesses remitting EHT in BC are required to register for an EHT account (eTaxBC). For more info on how to register, visit: https://www2.gov.bc.ca/gov/content/taxes/employer-health-tax/employer-health-tax-overview/eht-register.

For businesses without a workforce management solution like Payworks that can assist them in EHT calculations (more on that below!), the province has an EHT online calculator to help them figure out the amount owed: https://forms.gov.bc.ca/taxes/employer-health-tax-calculator.

For more info on EHT in BC, visit: https://www2.gov.bc.ca/gov/content/taxes/employer-health-tax/employer-health-tax-overview.

Manitoba’s Health and Post-Secondary Education Tax Levy (HE Levy)

• Salary, hourly wages, bonuses, commissions, taxable allowances, and benefits are some examples of the pay elements used to calculate the remuneration for the HE Levy.
• The HE Levy applies to employers that have a permanent establishment in Manitoba. The remuneration to calculate the HE Levy is for employees who either report to that location or are paid from that establishment. For those who report to a physical location outside the province, their remuneration is not included within those calculations.

As an example, if a business does not have a permanent establishment in Manitoba and a Manitoba-based employee is paid through the Alberta head office, that employee would fall under payroll legislation in Alberta and therefore is not subject to the HE Levy.

• The HE Levy exemption is pro-rated for businesses who’ve had a permanent establishment in the province for a portion of the past year. The pro-rate reflects the number of days in the year during which there’s been a permanent establishment. This is applicable to new and seasonal businesses, as examples.
• For HE Levy purposes, businesses that are part of an associated group calculate their Manitoba payroll remuneration based on the group’s annual combined Manitoba payroll, not the payroll of the individual business. This can include relationships such as certain corporate partnerships. For more information on associated employers in Manitoba, visit: https://www.gov.mb.ca/finance/taxation/taxes/payroll.html.
• The HE Levy does not apply to businesses with $2.25 million or less in Manitoba payroll remuneration – those businesses are exempt from the HE Levy.

In 2023, the exemption threshold was $2 million, and as of January 1, 2024, it’s increased to $2.25 million.

• The HE Levy for businesses in excess of $2.25 million and up to $4.5 million in Manitoba payroll remuneration is 4.3%.
  • Those businesses also receive a HE Levy exemption on the first $2.25 million of their payroll.

For example, if a business has $2.5 million in Manitoba payroll remuneration, it would receive a $2.25 million exception and would pay 4.3% on the remaining $250,000.

In 2023, the reduced rate threshold was $4 million, and as of January 1, 2024, it’s increased to $4.5 million.

• The HE Levy for businesses with more than $4.5 million in Manitoba payroll remuneration is 2.15%.
  • Those businesses do not receive the $2.25 million exemption outlined above.
• The HE Levy has several filing and reporting requirements. Businesses in excess of $2.25 million up to $4.5 million in Manitoba payroll remuneration are required to file a monthly return by the 15th of every month. An annual report for the previous year is also required by March 31.
• Businesses remitting the HE Levy in Manitoba are required to register for a TAXcess account. For more info on how to register, visit: https://taxcess.gov.mb.ca/TAXcess/_/.

Manitoba is one of the jurisdictions where the HE Levy is more commonly referred to as “the payroll tax”, “the Manitoba payroll tax”, or “the health and education tax”. For more info on the HE Levy in Manitoba, visit: https://www.gov.mb.ca/finance/taxation/taxes/payroll.html.

Ontario's EHT

• EHT does not apply to businesses with $1 million or less in Ontario payroll remuneration. Those businesses are exempt from EHT in the province.
• The rate for EHT is 1.95% for businesses who exceed $1 million in annual Ontario payroll remuneration.
  • Those businesses receive the EHT exemption on the first $1 million of their payroll.

For example, if a business has $2.50 million in Ontario payroll remuneration, it would receive a $1 million exemption and would pay 1.95% on the remaining $1.5 million.

• Businesses in excess of $5 million in Ontario payroll remuneration do not receive the $1 million exemption. The EHT rate also changes for those organizations.
• For EHT purposes, businesses that are part of an associated group calculate their Ontario payroll remuneration based on the group’s annual combined Ontario payroll, not the payroll of the individual business. . This can include relationships such as individual owners, partnerships, and trusts. For more information on associated employers in Ontario, visit: https://www.ontario.ca/document/employer-health-tax-eht/associated-employers.

• Businesses who are remitting EHT in Ontario are required to register for an EHT account. For more info on how to register, visit: https://forms.mgcs.gov.on.ca/en/dataset/on00155.
• Mark your calendars now! There’s a planned adjustment to the EHT exemption amount on January 1, 2029.

According to the Province of Ontario, EHT “is a payroll tax on remuneration (for example, salaries, wages, bonuses, taxable benefits, stock options, etc.) that employers in Ontario provide to current and former employees. The purpose of this tax is to assist in providing the government with revenue to fund health care in Ontario.” For more info on EHT in Ontario, visit: https://www.ontario.ca/document/employer-health-tax-eht#section-2.

Québec’s HSF

• HSF is an employer-paid contribution, which is remitted to Revenu Québec.
• The amount paid is dependent on the business’ total remuneration for the year and what type of industry within which the business operates.
• The rate at which HSF is calculated is based on the business’ total payroll for the year, of which there are three thresholds.

The purpose of the HSF “is to ensure that everyone helps finance Québec’s health services,” reads Revenu Québec’s website. For more info on HSF calculations in the province, visit: https://www.revenuquebec.ca/en/businesses/source-deductions-and-employer-contributions/calculating-source-deductions-and-employer-contributions/employer-contributions-to-the-health-services-fund/total-payroll-threshold-and-health-services-fund-contribution-rate/.

NL’s Health and Post Secondary Education Tax (HAPSET)

• HAPSET does not apply to businesses with NL payroll remuneration under $2 million. They are exempt from the HAPST.

The exemption threshold for HAPSET increased from $1.3 million to $2 million as of January 1, 2023.

• The rate at which HAPSET is calculated for businesses with $2 million or more in NL payroll remuneration is 2%. Those businesses also receive the HAPSET exemption for the first $2 million of their payroll.

For example, if a business has $2.5 million in NL payroll remuneration, it would receive a $2 million exemption and would pay 2% on the remaining $500,000.

• For the purposes of allocating the exemption, an allocation agreement is required of employers associated with other corporations (including those in partnership with other employers who pay remuneration).
• Businesses in NL who remit HAPSET are required to register their business with the province’s electronic tax service. For more info on how to register, visit: https://www.gov.nl.ca/fin/tax-programs-incentives/business/taxefile/.

In NL, HAPSET is often referred to as the “Payroll Tax.” This tax is “payable by the employer with respect to remuneration paid or credited to employees who report for work in Newfoundland,” reads the government website. For more info on HAPSET in NL, visit: https://www.gov.nl.ca/fin/files/publications-hapset.pdf.

How Payworks can help

In the jurisdictions outlined above, it’s legislatively required that businesses meeting the outlined criteria contribute their respective “payroll tax.” In some provinces, like BC, online calculators are a great tool to figure out the amount owed – but businesses can also make this process simpler by using a solution like the Payworks Payroll application.

Our Payroll solution will not only calculate EHT, the HE Levy, HSF, and HAPSET for our clients, it can generate annual reports to further streamline processes, and we submit the remittances on our clients’ behalf. Our tools are also designed to set up Canadian businesses for success when it comes to compliance. By looking at either the year-end reports or the Business Numbers page within our application, it’s easy to understand if the payroll remuneration is close to exceeding the exemption amount (applicable in the provinces where legislation dictates as such). That way, our clients can be proactive in registering their business for “payroll tax” remittances.

Plus – as with all of our solutions - our clients receive unlimited, dedicated support from a trained Client Service Representative (CSR). When it comes to the “payroll tax” and more, consistent, expert support is only a click or call away for those burning payroll questions.

Simply put, we’re payroll experts so that you don’t have to be! To learn more about how your business can get the most out of a solution like ours, visit: https://www.payworks.ca/landing-pages/product/payroll.