Canadian Payroll Reporter

5 Canadian HR Reporter, a Thomson Reuters business 2018 Newly hired employee hasn't provided social insurance number QUESTION: The company I work for recently hired several new employees. All but one of them has provided me with their social insurance number (SIN). He has told me he will give it to me, but he keeps forgetting. What should I do? ANSWER: Inform the employee that he is required by law to provide the SIN to the employer. In order to be employed in Canada, an individual must have a valid SIN. Employ- ees can provide the SIN by showing the em- ployer their SIN card, their SIN confirma- tion letter from Service Canada, or another document that shows it. If an employee does not have a SIN, the employer must instruct the employee to go to a Service Canada office to apply for one. Employers must request an employee's SIN within three days of the employee beginning work. Employers who are unable to obtain an employee's SIN should contact Service Can- ada within six days of the individual begin- ning work. If an employee does not provide a SIN, the employer must be able to show that it made a reasonable effort to obtain the number (for example, keep copies of written requests for the SIN). Employers who do not make a reasonable effort to get a SIN may be fined $100 for each time they fail to obtain it. Employees who fail to provide their SIN may also be penalized $100 for each time they fail to provide it. Even if employees re- fuse to provide their SIN, employers must still make the required source deductions from their earnings. CPR | December 2018 ASK AN EXPERT Annie Chong MANAGER OF CARSWELL'S PAYROLL CONSULTING GROUP annie.chong@thomsonsreuters.com | (416) 298-5085 Our company's directors are Canadian residents. How do I source deductions on their fees? QUESTION: The payroll department has recently taken over responsibility for paying fees to our company's directors. Do I take statu- tory deductions from these payments? All of the directors are Canadian residents. ANSWER: The way in which source deduc- tions on director's fees are handled for direc- tors who are Canadian residents depends on whether the employer pays the individual only director's fees or both director's fees and salary or wages. Both options are de- tailed below. i)Employer pays only director's fees: If you pay only director's fees and no other salary or wages to the director for work per- formed in Canada, you have to deduct Can- ada Pension Plan (CPP) contributions (and pay the employer's share). In order to calculate the CPP contribu- tion, payroll must prorate the annual basic exemption over the number of times you pay fees during the calendar year. The fees are not subject to employment insurance (EI) premiums. When it comes to income tax, director's fees are not taxable at source when paid to a director who is not an employee of the com- pany if the total estimated fees for the year do not exceed the claim amount on the TD1 form or, if no TD1 has been filed, the basic personal amount. If the total estimated fees for the year ex- ceed the claim amount on the TD1 form or the basic personal amount, where appli- cable, then you must go ahead and deduct income tax. To calculate the amount to deduct, divide the current fee by the number of months since the last fee was paid or since the first of the year, whichever is later. Determine the income tax deduction us- ing the Canada Revenue Agency's (CRA) monthly Payroll Deductions Tables (T4032), and multiply by the same number of months. Since director's fees are not insurable for EI, you must add to the income tax deduc- tion the EI credit amount that is found in section A of the tables. For Quebec employers, director's fees are subject to Quebec Pension Plan (QPP) con- tributions, prorated as explained earlier for the CPP. If the director reports to one of your work locations in Quebec or, if not required to re- port to any of your business establishments, is paid from one of your business places in the province, the fees are also subject to Quebec Parental Insurance Plan (QPIP) pre- miums and the employer contribution to the Health Services Fund (HSF). Director's fees are not subject to the prov- ince's labour standards levy. For Quebec provincial income tax, when paying fees to a director who is not an em- ployee of the company, no income tax de- ductions are required, provided that the es- timated fees for the year do not exceed the net amounts indicated on lines 10 and 19 of a Source Deductions Return (TP-1015.3- V). If the estimated fees exceed these val- ues, determine the income tax deduc- tions in the same manner as for federal income tax, using the 12-pay-periods-per- month table in Revenu Québec's Source De- duction Table for Quebec Income Tax (TP- 1015.T1-V). In terms of Quebec provincial income tax, there will be no employee insurance credit involved. ii)Employer pays both director's fees and salary or wages: Director's fees paid to a director who also receives a regular salary or wages may be subject to CPP contributions depending on the director's employment conditions as a director and as an employee. If unsure, con- tact the CRA for more information. The director's fees are not subject to EI premiums, although the salary portion may be, depending on the director's employ- ment status. For federal income tax, add the amount of the fees to the regular pay period earn- ings and deduct income tax at the regular rates. In Quebec, if you pay director's fees to a Canadian resident in addition to regular salary or wages, the fees are pensionable. To calculate the QPP contribution, add the amount of the fees to the regular pay-period earnings and calculate the contribution in the usual way. The fees are also subject to QPIP premi- ums and the employer contribution to the HSF, provided that the director reports to one of your work locations in Quebec or, if not required to report to any of your busi- ness establishments, is paid from one of your business places in the province. The fees are not subject to the province's labour stan- dards levy. For Quebec income tax purposes, add the amount of the fees to the regular pay-period earnings and deduct income tax at the regu- lar rates. Different rules apply for directors who are not Canadian residents.

• Cover