Canadian Payroll Reporter

3 Canadian HR Reporter, a Thomson Reuters business 2018 News CPR | July 2018 Defining those obscure payroll terms BY SHEILA BRAWN PENSIONABLE. Insurable. Taxable. Source deductions. These are all terms that payroll professionals get to know very quickly when they begin work- ing. After all, understanding key terms and phrases is essential for complying with federal payroll deductions rules. Yet, there are other terms that may not come up as frequently, but that are just as important to understand. Here is a brief refresher of some payroll terms and phrases that may seem similar, but have important differences: Fair market value vs. cost: Knowing the difference between these two terms is important for properly calculating the value of taxable benefits provided to em- ployees. The Canada Revenue Agency (CRA) requires employ- ers to assess taxable benefits based on their fair market value (FMV) minus any amounts that employees paid for them. The CRA defines FMV as "the price that can be obtained in an open market between two indi- viduals dealing at arm's length." For some taxable benefits, the FMV may be the same as the amount it cost the employer to purchase the benefit. This could apply for benefits such as gift cards or subsidized meals. For other benefits, the em- ployer's cost may have no re- lationship to the FMV. For ex- ample, for employer-provided parking, the FMV depends on a number of factors other than the employer's cost, such as where the employer's location, whether it offers scramble parking, and the price of parking in compa- rable commercial lots. Wages in lieu of notice vs. severance pay: While these terms are sometimes used inter- changeably, they have different meanings for source deductions and employment standards rules. Wages in lieu of notice are payments required under an em- ployment contract or employ- ment standards law if there is a termination of employment and the employer is not having the employee work a required notice period. When paying wages in lieu of notice, employers must comply with minimum employ- ment standards requirements. Severance pay is an amount paid to employees when or af- ter they retire in recognition of long service or for the loss of a job. Only two jurisdictions in Canada — Ontario and the Canada Labour Code — require employers to pay severance pay in certain situations, although employers in any jurisdiction may choose to pay it. For federal payroll deductions, wages in lieu of notice are regu- lar employment income, subject to Canada Pension Plan (CPP) contributions, employment in- surance (EI) premiums, and in- come tax deductions. The CRA considers severance pay to be a retiring allowance, exempt from CPP and EI. Tax deductions are calculated using lump-sum tax rates. Staff who meet certain conditions may transfer some or all of the pay- ment tax free to a registered pen- sion plan (RPP) or a registered retirement savings plan (RRSP). Different rules apply in Que- bec. Revenu Québec considers wages in lieu of notice required under the Act respecting labour standards to be a retiring al- lowance. The payments are ex- cluded for Quebec Pension Plan (QPP) contributions, but in- cluded for Quebec Parental In- surance Plan (QPIP) premiums (following EI rules) and income tax deductions. see CASH page 8

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