What do Canadian businesses need to know about dues and membership fees?

As a Canadian business owner, it’s important for you to have a good understanding of all things “dues” – whether they’re union-related, tied to professional membership or otherwise! Dues serve many purposes; they’re also calculated, deducted and claimed differently, and employer and employee rights and responsibilities vary, depending on their type and specialty. As such, it’s vital for business owners like you to be well-informed so you can make sure you’re compliant in your payroll and beyond.

We’ll be going over the following to help you get a solid grasp on the topic of dues and membership fees:

• What are dues and membership fees?
• What do employers need to keep in mind when it comes to dues and running payroll?
• Which dues are taxable and who can claim them?
• What are some common challenges employers face when dealing with dues? What are some best practices to stay on top of dues?

What are dues and membership fees?

Dues are payments made to an organization in which an employee is a member. These payments are made on a pre-determined schedule and often deducted during a payroll run (but not necessarily on every run). They also may or may not be tax deductible – more on that later.

Dues are divided into two main categories: union and professional (in which case they’re also called membership fees; we’ll use “dues” and “fees” interchangeably when referring to professional membership payments going forward).

Union dues

These are mandatory deductions sent to a trade or association union for unionized employees, including daycare workers, electricians, miners, plumbers, auto workers, hospitality and retail clerks (just to name a few!).

Parity dues (also known as parity committee or advisory dues) are mandatory under provincial law: they pay for the committees that ensure agreed-upon union and collective agreement standards are respected.

Professional dues

These membership fees are paid out to professional associations of which employees are members. This can look like:

• Mandatory professional board or membership dues – these are almost always regulated under provincial or territorial jurisdiction.
• Professional membership dues required for the maintenance of a professional status (but not required by law).
• Liability insurance premiums, such as professional or malpractice dues. These may need to be paid in order for an employee to complete their duties, depending on the industry in which they work.

What isn’t a due? Licenses, special assessments, and initiation fees are not considered dues; pension plan charges also can’t be claimed as membership dues.

What do employers need to keep in mind when it comes to dues and running payroll?

For union dues

Reporting:

Under an employee’s collective agreements or employment contracts, there are obligations that fall to their employer. Depending on the collective agreement, employers may need to send reports to unions regarding the work done by employees, including information on the type of work completed and total hours worked (sometimes by task). The frequency with which this information is submitted is set by the union, with hours often being submitted with every pay run. Based on the submitted details, the union will then determine the due rate for each employee and communicate it back to the employer; this rate will be used to calculate the amount to be deducted from an employee’s pay.

Remittances:

Due rates are either calculated as a percentage of the employee’s salary or as a flat rate. Depending on the union, legislative jurisdiction and many other variables, these calculations can be complex! It should also be noted that, depending on the collective agreement, part-time workers may or may not have the same dues deducted as full-time employees. Business owners need to be well-informed about guidelines for the relevant unions and for their employee’s province or territory.

Employers should also know that many ( but not all) collective agreements stipulate that union dues may not be calculated on bonuses, overtime or retroactive pay.

Remittance to the union is deducted from an employee’s pay by the employer and is typically remitted to the union monthly. Every union is different and the way in which remittances are paid out may differ as a result. Dues are typically remitted to unions via wire transfer, electronic payment, or cheque.

Payworks pro tip: Do you have an employee newly reporting into a union? Don’t forget to check if there’s an initiation fee that needs to be remitted when your employee first joins them. Note: these aren’t considered a pre-tax benefit.

For professional dues

Professional or membership dues or fees can be paid by the employer or the employee, depending on the type of due. Employers must first determine if their employee is legally obligated to maintain a professional status in order to carry out their duties.

Typically, these fall into one of three categories:

• Professional status is legally necessary to perform duties, in which case membership dues are to be paid by the employer.
• Professional status isn’t legally required to carry out duties, in which case membership dues are paid voluntarily by the employee.
• Professional status isn’t legally required, but the employer has deemed it important for the carrying-out of duties; under these circumstances, the employer pays for the membership dues.

Important note: Employers paying an employee’s membership fees that aren’t legally required to maintain professional status may be asked by tax authorities to justify their decision.

For professional liability insurance premiums, the general rulings are in line with those of the professional status membership dues outlined above.

Which dues are taxable, and who can claim them?

As explained above, some dues are taxable and some can be claimed - where they appear on year-end documents and slips will vary by type and situation.

Union dues

As dues are deducted from an employee’s pay and remitted by the employer, the employer is responsible for reporting these on an employee’s T4 and/or RL-1 so that the employee can claim them. This amount should appear in Box 44 of a T4, as well as Box F on a RL-1 in Québec.

Advisory or parity committee dues are compulsory under jurisdictional law and are treated in the same manner as union dues.

Professional memberships

The necessity of maintaining the status afforded by paying professional membership dues is typically dictated by provincial or territorial regulations. Depending on the profession and location, dues may need to be paid out to more than one jurisdiction (for example, if you havean employee working in two different provinces).

Once you know that, the next question to ask yourself is: who benefits from these dues being paid and this employee’s professional status being maintained?

In the case where the functions performed by an employee legally require them to pay membership fees, the employer is deemed as the main beneficiary of those fees being paid. Either the employer can pay for the membership or the employee can pay and be reimbursed by the employer. In this case, the fees wouldn’t be considered a taxable benefit and therefore wouldn’t appear on an employee’s T4 or RL-1.

When functions performed by an employee don’t legally require their maintenance of professional status and payment of membership fees, but the employee still wishes to maintain this status, then they typically pay for the membership themselves In this case, the employee is considered the main beneficiary and should keep their receipt in order to claim the expense on their personal taxes. However, if the employer choses to reimburse the employee for the membership fees, these are then considered a taxable benefit, which will appear in an employee’s T4 or RL-1.

On the other hand, if membership isn’t a condition of employment but the employer is still the primary beneficiary of the employee maintaining their professional status, the employer may pay the membership fees to the governing body (and it wouldn’t be considered a taxable benefit). As mentioned above, employers should be prepared to justify this position if asked by Revenue Canada (and Revenue Québec in the case of employees subject to Québec legislation).

For professional liability insurance premiums – such as professional or malpractice dues required by law – if the payment of these premiums is legally required for an employee to complete their duties, the premiums must be paid by the employer. At the end of the year, the employer claims this amount as they’re the main beneficiary of this premium.

When professional liability insurance premiums aren’t required by law but are required by the employer for an employee to be able to fulfill their duties, the employee pays for the premiums and keeps the receipts to claim them in their personal income taxes. In the case where an employer reimburses the fees, these are reported as an income. These should show up in box 44 of the T4, which the employee can then claim.

Do you have employees in Québec? Mandatory professional membership dues paid to maintain a professional status are considered a taxable benefit for the employee, as you (the employer and main beneficiary) pay for or reimburse an employee for these dues. Therefore, these dues should be added into the appropriate boxes of the employee’s RL-1.

What are some common challenges employers face when dealing with dues? What are some best practices to stay on top of dues?

While dues vary in type, the dues you as a business owner are likely to deal with will also vary depending on the legislation of the province or territory in which you run your business, as well as the industry in which you operate. Here are a few of the frequent challenges business owners encounter when it comes to dues – and how we can help!

Managing multiple union agreements

Depending on the industry in which your business operates, the various tasks your employees need to complete, and whether or not you run your business out of more than one province or territory, you may need to keep on top of various union agreements or membership requirements. These factors will influence how dues are calculated, as well as pay period frequency and applicability of rates.

Maintaining good communication with union reps and setting up different profiles and rules for each agreement within your payroll system will help reduce the chance of payroll errors.

Proper payroll deductions and handling remittances

Employers must keep in mind that union dues are typically withheld from net pay and don’t have a bearing on EI, CPP or QPP pensionable earnings. Remittances must be submitted based on union guidelines for the frequency and method of payment.

Depending on your payroll setup and system, you may be able to set up special payroll deduction codes for your employees. Once a rate’s been determined by the union, calculations can be automated, making things simpler for business owners not only during every payroll run, but also when it’s time for year-end reporting!

Handling due rates and rate changes

Determining the correct rates to deduct from an employee for union dues can be challenging; same goes for ensuring any necessary deduction codes are correct. Employers need to keep in mind that, from time to time, rates may change… and this needs to be reflected in your payroll calculations. As professional dues are typically paid out annually, it’s good practice to build in regular check-ins and plan ahead when you’re working on your yearly calendar and budget.

Again, employers need to nurture positive relationships with union reps in order to ensure the proper deduction codes and rates are put in place and updated as needed; this will help you avoid any potential issues later on, like at year-end. Designating someone on your team to monitor changes or setting up a calendar with periodic reminders could also help you stay on top of any important dates (such as rate change dates) or upcoming payments in the case of membership dues.

Knowing deduction sources and taxable status

Understanding which dues must be deducted from an employee’s pay and remitted by the employer, which ones are fully paid by the employee or reimbursed by the employer – all of this is necessary to determine which dues are taxable and who can claim them.

Thankfully, the previous section of this article gave you a quick rundown of the general guidelines to help put you on the right track (scroll back up if you missed it!). If you’re still unsure, it’s always good practice to refer back to the organization (union, membership entity) itself for more clarity.

Ensuring compliance with provincial, territorial and federal laws

While unions generally fall under provincial or territorial jurisdiction, some professional membership organizations may also be subject to federal regulation; this depends on your activities, location and the work your employees carry out. Business owners also need to keep in mind compliance in respect to paying dues, as well as fiscal compliance come year-end.

Employers should make sure to clarify and confirm union due rates as early as possible. Checking back regularly with unions for rate changes and keeping a pulse on legislation updates is also critical.

For membership fees, it’s important to understand the legislation around them to determine earlier on if they’re mandatory to the duties carried out by the employee and if they’re eligible to be claimed either by the employer or employee. Our earlier section on which dues are taxable and who can claim them gives you the basics so you can get started.

Looking to get challenging union calculations sorted and settled, deductions and remittances handled accurately and on time, and some peace of mind when it comes to compliance?

We’ve been helping Canadian business owners achieve that delicate balance for over 25 years and we’d love to give you a hand too! Book your no-obligation demo today and explore our user-friendly (and union-friendly!) Payroll solution for yourself: https://www.payworks.ca/landing-pages/campaigns/book-a-demo.