GridTracks App

In Depth Tutorial on Using GridTracks

Payroll

An inevitable part of any business is the act of hiring people to allow your business to grow. This can become a rather complex process. For example, in Canada, you require a business number (BN) from the federal government, as well as the Social Insurance Numbers of all your employees. The Social Insurance Numbers are particularly important, because they determine whether your employee is eligible to work in Canada or not. As well, the taxes and other benefits provided to employees reply on this unique number.

Pay Period

When you have employees, it is important to pick a period of which you pay them. This will determine how many times a year you will have to deal with payroll. The most common ones are:

Weekly
Here you will be paying your employees per week. As there are 52 weeks in a year, you will be dealing with payroll 52 times a year.
Bi-weekly
You will be doing payroll every other week. As there are 52 weeks in a year, you will be dealing with payroll 26 times a year.
Semi-Monthly
You will be paying your employees twice a month. Typically, this is on the 15th of the month, and then on the last day of the month. As there are 12 months in a year, you will be doing payroll 24 times a year.
Monthly
You will be paying your employees once a month. As there are 12 months in a year, you will be doing payroll 12 times a year.

Regardless of what payment modle you choose to use, it is most important to be consistent with it. If you pay your employees hourly, be sure to keep track of the hours worked over the time period. Also make sure that how much you pay your employees per hour is in the legal range (must be at or above minmimum wage). If your employee is salaried, divide the entire salary by the amount of times you pay them per year, and pay them that amount for each pay period. For example, if your salaried employee makes $60,000.00 per year, if you pay weekly, you would pay around $1,153.84 per week.

Employee Taxes

As the bookkeeper/employer, it is your responsibility to figure out income taxes for your employees. For example, in Canada you must consider the Canada Pension Plan (CPP), Employment Insurance (EI), and combined federal/provincial income taxes.

When you pay your employees, be sure to take these taxes into consideration. You can determine net pay by taking gross pay and subtracting CPP, EI, and income taxes from it. Furthermore, your employees may ask to take out voluntary deductions from gross pay, such as for charitiable organizations, retirement savings, or for Tax-Free Savings Accounts (TFSA).

If you provide benefits for your employees, you should be careful of which are taxable and which are not. Please refer to your government site for more on this.

Paying your employees

When you pay employees by hour, by salary, or by commission, it is important to calculate the right amount.

When paying employees by hour, you need to worry about overtime. In Ontario, any hours worked over 44 hours/week is considered overtime, and your employee deserves 1.5 times the standard. For example, if you pay your employee $20/hour and they work 50 hours in a week, you would pay them $20/hr for the first 44 hours, and $30/hour for the 6 hours after that.

For salaried employees, paying them is much simplier. Just take their total yearly salary, and divide that by the amount of times you pay them per year. This number of times you pay them per year depends on your payment period, which is discussed above.

For paying by commission, there are two options. You can either pay them purely based off commission, or you can provide a base salary and offer commission on top of that.

Tips and Gratuities

There are two types of tips and gratuities:

Controlled Tips
These are tips that are controlled by the employers. For example, mandatory service charges for restaurant tables greater than 5 people would be considered a controlled tip. In Canada, these are considered by the Canada Revenue Agency (CRA) to be pensionable (CPP), insurable (EI), and income taxable.
Direct Tips
These are tips, of which the quantity is determined by the customer. As these tips go directly to the employee, these are not subject to pension or employment insurance deductions. However, the employee is required to document this income in their own tax returns.

Journal Entries for Payroll

For logging payroll into the General Journal, you will need (in Canada):

Salaries and Wages Expense
This account is for the gross pay of the employee. Note that if you please, you can create separate expense accounts for each employee or group of employees and such.
Employee Withholding Taxes Payable
From the gross pay, there is the portion that will go to income taxes. Note that this is a liability account, representing the money that will eventually go to the government.
CPP Payable
This is the money withheld for the Canada Pension Plan in Canada. It is a liability account, as you owe this money to government at a later date.
EI Payable
This is the money withheld for Employment Insurance in Canada. It is a liability account, as you owe this money to government at a later date.

Here is what a transaction would look like for a payroll payment:

Date	Post	Debit	Credit
Aug 22	Salaries and Wage Expense (5115)	1,000.00
	Withholding Taxes Payable (2210)		150.00
	CPP Payable (2220)		75.00
	EI Payable (2230)		75.00
	Cash (1000)		700.00
	Paid employee payment for J. Smith.

Note that because Withholding Taxes Payable, CPP Payable, and EI Payable are all liability accounts, it makes sense to credit them to signify money owed to the government. Cash is credited because that money is "owed" to the employee.

There are some benefits, such as CPP Payable and EI Payable, of which the employer must match that paid by the employee. This expense goes into an account called Employee Benefits Expense.

Date	Post	Debit	Credit
Aug 22	Employee Benefits Expense (5215)	150.00
	CPP Payable (2220)		75.00
	EI Payable (2230)		105.00
	Paid employer benefits payment for J. Smith.

Note that as CPP Payable and EI Payable are both credited, this means that more money is owed to the government. Notice also that the amount for CPP Payable matches the employee payment shown above. The employer EI Payable portion is 1.4 times that paid by the employee ($75.00 × 1.4 = $105.00).

Paying the Government

Be sure that you pay the government on time for Tax Payables. An example of paying would be (money taken from bank):

Date	Post	Debit	Credit
Aug 22	CPP Payable (2220)	75.00
	Bank (1010)		75.00
	CPP owed to government is paid.

Here, CPP is paid to government. You could replace Bank with another asset or liability as you choose.

Employee Information

Please note that you may also be liable for paying for employee's insurance in case they get injured on the job, particularly in industries where accidents are common.

Finally, it is best to keep track of certain information for each of your employees. If you make separate expense accounts for each employee, GridTracks will allow you to put this information in the Accounts Description portion. These include:

Name, address, e-mail address, and phone number
Social Insurance Number (SIN)
Job Title
Department or Division in Business
Start Date in Business
Pay Rate
Pay Period (weekly, biweekly, semi-monthly, monthly)
Paid Hourly or by Salary
- Keep track of overtime if hourly — total pay and taxable benefits
Benefits Information
Payroll Deductions
- Income Tax
- Canada Pension Plan (CPP)
- Employment Insurance (EI)
- Union Dues
- Optional Deductions
- Total Deductions
Net Payment

Finally, if the employee leaves the business or has an interruption in earnings in Canada, you must file a Record of Employment (ROE). This is the primary document used in Employment Insurance (EI). The ROE determines whether a person qualitifies for EI, how much they get, and the duration of their claim.

You must file the ROE within 5 calendar days, when the employee leaves due to pregnancy, injury, illness, adoption leave, a layoff, leave without pay, or dismissal. Your employee will need this to file for EI. It is best to file for your T4 in the process.

Next Steps

Credits

Please note that most of the information from this site is taken from the book "Bookkeeping for Canadians for dummies" by Lita Epstein and Cécile Laurin.

(Epstein, L., & Laurin, C. (2019). Bookkeeping For Canadians For Dummies. Hoboken, New Jersey: John Wiley & Sons, Inc.)