PF1 Chapter 2 - Employment Income - Regular Earnings

Chapter
Employment Income – Regular
2
Chapter 22 Earnings
1
Learning Objectives:
Upon completion of this chapter, you should be able to:
1. Describe the following four components of employment income

• Earnings
• Allowances
• Benefits
• Expense reimbursements
2. Identify pay period frequencies
3. Identify regular employment income
4. Calculate regular earnings on a pay period basis
5. Calculate statutory withholdings on regular earnings
6. Calculate net pay
Communication Objective:
Upon completion of this chapter, you should be able to explain to employees how
their pay was calculated from gross earnings to net pay.
© National Payroll Institute – Payroll Fundamentals 1

Vs 17.0 2-1
Chapter 2
Employment Income – Regular Earnings
Chapter Contents
Introduction ........................................................................................................................ 2-3

Employment Income .......................................................................................................... 2-3
Content Review.............................................................................................................. 2-6
Review Questions .......................................................................................................... 2-7
Pay Period Frequencies ...................................................................................................... 2-8
Content Review.............................................................................................................. 2-9
Review Questions ........................................................................................................ 2-10
Types of Regular Earnings............................................................................................... 2-11
Salary ........................................................................................................................... 2-11
Wages ........................................................................................................................... 2-13
Piecework ..................................................................................................................... 2-14
Self-Insured Disability ................................................................................................. 2-14
Vacation ....................................................................................................................... 2-16
Overtime ...................................................................................................................... 2-17
Shift Premiums............................................................................................................. 2-19
Content Review............................................................................................................ 2-21
Calculation of Statutory Withholdings ............................................................................ 2-25
Canada/Québec Pension Plan ...................................................................................... 2-25
Employment Insurance ................................................................................................ 2-27
Québec Parental Insurance Plan................................................................................... 2-28
Income taxes ................................................................................................................ 2-29
Northwest Territories/Nunavut Payroll Tax ................................................................ 2-31
Payroll Calculation Template .......................................................................................... 2-32
Net Pay Calculations ........................................................................................................ 2-36
Content Review............................................................................................................ 2-40
Chapter Review Questions and Answers ......................................................................... 2-47
© National Payroll Institute – Payroll Fundamentals 1 2-2

Chapter 2
Introduction
In this chapter, we will discuss the calculation of an employee’s regular net pay. To do this
calculation properly, we need to first identify and calculate the employee’s regular earnings
on a pay period basis. As statutory withholding calculation methods can differ depending on
whether the payment is of regular or non-regular earnings, it is important to be able to
identify regular earnings.
Once we have determined what regular earnings are, we will look at how they are calculated
on a pay period basis and then how to determine the statutory withholdings of
Canada/Québec Pension Plan contributions, Employment Insurance premiums, Québec
Parental Insurance Plan premiums, federal and provincial income taxes and the Northwest
Territories and Nunavut payroll taxes.
We discuss regular earnings in this chapter; non-regular earnings, as well as non-statutory

deductions, will be addressed later in this course. Our final objective for this chapter is to
calculate the employee’s net pay, or the regular earnings, less the statutory deductions.
Employment Income
An individual working for an employer receives compensation or pay, known as
remuneration, for the services they perform. Where an employee-employer relationship
exists, remuneration is referred to as employment income. Employment income can be
categorized into earnings, allowances, benefits and taxable expense reimbursements.
Earnings
Earnings are dollar amounts the employer pays an employee for the work they perform.
Earnings can be paid as:
• a salary
• a rate for each hour worked
• a rate per piece of goods produced or picked
• a disability payment for time off work due to illness
• payment for vacation time
• premium pay for overtime hours worked
• premium pay for hours worked on shift
Deciding which types of earnings are paid and how they are calculated is primarily a decision
made by the employer. Earnings are pensionable, insurable and taxable and therefore subject
to all statutory deductions.

Chapter 2
Allowances
Allowances are additional dollar amounts paid to employees for the use, or anticipated use,
of their personal property for business purposes. Allowances can also be provided to
employees to cover the cost of personal living expenses associated with employment.
The most common types of allowances cover the costs incurred by the employee for cars,
meals, uniforms, safety shoes or other particular types of clothing for business reasons.
Under certain conditions, allowances are not considered employment income and therefore
are not subject to statutory withholdings.
Benefits
Benefits are dollar values attributed to something the employer has either provided to an
employee or paid for on an employee’s behalf. Usually, when an employer provides an
employee with something (for example, a company-leased automobile is given to the
employee for both business and personal use) or pays for something on an employee’s behalf
(for example, group term life insurance premiums), it results in a benefit to the employee.
There are certain situations where benefits are not included in the employment income and
therefore are not subject to statutory withholdings.
Expense Reimbursements
Similar to allowances, expense reimbursements are also dollar amounts paid to employees to
cover expenses that they incurred while performing their job. For the most part, expense
reimbursements generally fall outside of payroll because they are business-related and,
therefore, not employment income to employees. These expenses are claimed on an expense
report, supported by receipts, and usually submitted directly to the accounting department for
reimbursement. As such, they are not considered in the calculation of an employee’s pay.
Some organizations choose to reimburse expenses through payroll, in which case they are not
subject to any statutory deductions; they will, however, affect the net pay.
Any reimbursements made to an employee for personal living expenses are considered
taxable to the employee, included in income and subject to statutory withholdings.
Note:
We will examine allowances, benefits and expenses and their taxability/non-taxability in
greater detail in a subsequent chapter.
Regular and Non-Regular Payments of Employment Income

Once you have determined if the payment is employment income, you must establish
whether it is a regular or non-regular payment as follows:
• regular payments have an established frequency, such as weekly-paid salary or wages

• non-regular payments do not occur each pay period; for example, a bonus or a
retroactive adjustment

Chapter 2
Example:
Fraser Co. pays all salaried employees every two weeks; this is considered a regular
payment.
The company also has a compensation plan where qualified employees are paid an annual
bonus. The payment of the annual bonus is considered a non-regular payment.
Whether the payment is regular or non-regular, and whether it is paid separately from the
regular pay, has an impact on the prescribed methods used to calculate statutory deductions
for Canada/Québec Pension Plan (C/QPP) contributions and income taxes.
In this chapter, we will focus on calculating:
• regular earnings
• statutory withholdings
• net pay
Note:
The prescribed methods for calculating statutory deductions on non-regular payments are
explained in a subsequent chapter.

Chapter 2
Content Review
• Remuneration is compensation or pay for services performed.
• Employment income can be categorized into earnings, allowances, benefits and
taxable expense reimbursements.
• Earnings are dollar amounts the employer pays an employee for the work they
perform.
• Earnings are pensionable, insurable and taxable and therefore subject to all statutory
deductions.
• Allowances are additional dollar amounts paid to employees for the use, or
anticipated use, of their personal property for business purposes.
• Benefits are dollar values attributed to something the employer has either provided to
an employee or paid for on an employee’s behalf.
• Expense reimbursements are dollar amounts paid to employees to cover expenses that
they incurred while performing their job; they are not considered in the calculation of
an employee’s pay.
• A regular payment has an established frequency, such as a weekly-paid salary or
wages.
• A non-regular payment has no established frequency, for example, a bonus or a
retroactive adjustment.

Chapter 2
Review Questions
1. What are the four categories of employment income?
2. List five methods an employer can use to pay earnings.
3. What are allowances? Provide an example of an allowance.
4. What are benefits? Provide an example of a benefit.
5. What are expense reimbursements?

Chapter 2
Pay Period Frequencies

Employment/labour standards legislation in all jurisdictions, except for federal (Canada
Labour Code, Part III) and Ontario, requires that employees receive their pay according to a
specified frequency.
Exhibit 2-1
MINIMUM STANDARD JURISDICTION
On the established regular payday and Federal (Canada Labour Code, Part III)
within thirty days of the entitlement to
the wages
On the established recurring payday Ontario
At least monthly Alberta, Northwest Territories, Nunavut.
Quebec for senior management positions only.
Saskatchewan if paid a monthly salary.
At least semi-monthly British Columbia, Manitoba, Newfoundland
and Labrador, Nova Scotia, Saskatchewan,
Yukon
At least every 16 days New Brunswick, Prince Edward Island, Québec
As long as an employer meets the minimum standard requirement, they can select the pay
period frequency that best suits their organization. Some factors that may be considered when
selecting a frequency are accounting cycles, payment delay time (the time between the last
workday of the pay period and the actual date of payment) and pay period frequencies that
have been negotiated in a collective agreement.
The most common pay period frequencies are:
• Weekly 52 pay periods a year (53 every seven years) – 18% of employers
• Bi-weekly 26 pay periods a year (27 every eleven years) – 60% of employers
• Semi-monthly 24 pay periods a year – 15% of employers
• Monthly 12 pay periods a year – 7% of employers
An organization can establish different pay frequencies for different groups of employees.
Example:
Galaxy Ltd. has three pay period frequencies:
Part-time employees Paid every Thursday (weekly)

Full-time employees Paid every other Friday (bi-weekly)
Executives Paid on the last business day of the month (monthly)

Chapter 2
Content Review
• Employment standards legislation in all jurisdictions, except for federal (Canada
Labour Code, Part III) and Ontario, requires that employees receive their pay
according to a specified frequency.
• As long as an employer meets the minimum standard requirement, they can select the
pay period frequency that best suits their organization.
• An organization can establish different pay frequencies for different groups of
employees.
• The most common pay period frequencies are weekly, bi-weekly, semi-monthly and
monthly.

Chapter 2
Review Questions
6. Which jurisdiction(s) have employment standards legislation that requires that employees
must receive their pay at least semi-monthly?
7. List two of the most common types of pay period frequencies.

Chapter 2
Types of Regular Earnings

Regular earnings are the dollar amounts paid to employees on a pay period basis for the
performance of their day-to-day job duties. There are many types of regular earnings; in this
chapter, we will look at salaries, hourly wages, piecework, self-insured disability payments,
vacation pay, overtime and shift premiums.
Employers determine whether to pay an employee by salary, hourly wage or by piecework.

However, as explained in Payroll Compliance Legislation, employment standards legislate
the minimum wage, overtime rates and vacation pay requirements in each jurisdiction.
Employers must ensure that the employee’s regular earnings meet the minimum wage
requirements and that overtime and vacation pay are calculated according to the
provincial/territorial legislation in each jurisdiction. Employers should retain records on both
hours worked and wages paid to prove, in the event of an audit, that they have met or
exceeded the minimum standards.
Salary
Salary refers to a fixed amount of earnings paid to an employee per pay period. The payment
of salary is not specific to any industry type; it is simply an employer-chosen method of
payment.
The formula used to calculate a pay period salary using the employee’s annual salary is:
Salary per pay period = Annual salary

Number of pays
Example:
MARIE HANS NORBERT LORETTA
Annual salary $45,110.00 $48,100.00 $58,800.00 $75,906.00
Pay period Bi-weekly Weekly Semi-monthly Monthly
frequency (26) (52) (24) (12)
(number of
pays)
Formula $45,110.00 $48,100.00 $58,800.00 $75,906.00
26 52 24 12
Pay period $1,735.00 $ 925.00 $2,450.00 $6,325.50
salary
If it is necessary to determine a salaried employee’s hourly rate of pay, calculations are made
using either the employee’s pay period or annual salary.

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Hourly rate = Salary per pay period

Pay period normal working hours
Hourly rate = Annual salary

Annual normal working hours
Similar calculations can be used to determine a salaried employee’s daily rate of pay.
Daily rate = Salary per pay period

Pay period working days
Daily rate = Annual salary

Annual working days
It is the employer’s choice of which formula to use; however, once a method is chosen, it
should be applied consistently to all employees.
Example:
Lorraine earns $36,400.00 a year and is paid weekly. Lorraine works 7 hours a day, 5 days a
week, for a total of 35 hours a week. Annually, Lorraine works 260 days (5 days x 52 weeks)
and 1,820 hours (35 hours x 52 weeks). The salary per pay period is calculated as follows:
Weekly salary = Annual salary

Number of pays
Weekly salary = $36,400.00 = $ 700.00

52
Hourly Rate Calculations

Using the pay period salary and working hours, the calculation of Lorraine’s hourly rate is:
Hourly rate = Salary per pay period

Pay period normal working hours
Hourly rate =
$700.00 = $ 20.00
35
Using the annual salary and working hours, the calculation is as follows:
Hourly rate = Annual salary

Annual normal working hours
Hourly rate = $36,400.00 = $ 20.00

1,820

Chapter 2
Daily Rate Calculations

Using the pay period salary and working days, the calculation of Lorraine’s daily rate is:
Daily rate = Salary per pay period

Pay period working days
Daily rate =
$700.00 = $ 140.00
5
Using the annual salary and working days, the calculation is as follows:
Daily rate = Annual salary

Annual working days
Daily rate = $36,400.00 = $ 140.00

260
Wages
Wages are earnings that are based on the amount of time worked, usually at a rate per hour or
per day. An hourly rate is a fixed dollar amount paid for each hour of work performed during
the pay period. A daily rate is a fixed dollar amount for a day’s work. Hourly rates are a
common method of payment in manufacturing, production and unionized environments.
Casual employees, who are hired to do a job on an unscheduled, non-regular basis, are
usually paid an hourly or a daily rate.
The formula used to calculate regular pay period earnings for an hourly-paid employee is:
Regular earnings = Hourly rate x pay period regular hours worked
Example:
George earns $19.50 per hour, works 37.5 hours a week and is paid weekly.

= $19.50 x 37.5
Regular earnings = $ 731.25
Example:
Linda, who is paid bi-weekly, earns $24.00 per hour and works 75 hours every two weeks.

= $24.00 x 75
Regular earnings = $1,800.00

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The following formula is used to calculate regular pay period earnings for an employee paid
a daily rate:
Regular earnings = Daily rate x pay period days worked
Example:
Susan earns $68.00 a day and works three days in the weekly pay period.
Regular earnings = Daily rate x pay period days worked

= $68.00 x 3
Piecework
Piecework is a rate of pay earned per unit of production, regardless of the length of time
taken. For example, a worker is paid $3.50 for each cuff they sew on a shirt. This type of
payment is common in the garment and fruit harvesting industries.
The formula used to calculate regular pay period earnings for an employee paid by piecework
is:
Regular earnings = Rate x number of pieces
Example:
Joelle earns $20.00 for each basket of apples picked in the weekly pay period. This week 40
baskets were picked.
Regular earnings = Rate x number of pieces

= $20.00 x 40
Self-Insured Disability
Employers often offer disability coverage that provides their employees with income in the
event of an absence due to illness or injury. The main types of coverage are sick pay, short-
term disability and long-term disability plans. Disability plans not covered under an
insurance contract with a third party, such as an insurance company, are often referred to as
self-insured plans and are considered employment income. Payments from third parties that
are not considered employment income will not be discussed in this material.

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Sick Pay
Sick pay is an amount paid to an employee who is absent from work due to illness or injury.
Although some jurisdictions (Alberta, Manitoba, New Brunswick, Newfoundland and
Labrador, Northwest Territories, Nova Scotia, Prince Edward Island, Québec, Saskatchewan
and Yukon) require employers to provide employees with unpaid time off for reasons of
sickness, the decision to pay employees while on sick leave is left up to the employer. Paid
sick leave is only legislated under federal jurisdiction (10 days per calendar year) and in three
provinces: British Columbia (five paid sick days per year), Prince Edward Island (one paid
sick day after five years of service) and Québec (first two sick days paid after three months
of service, combined with family responsibility).
Organizations may have a formal or an informal paid sick leave plan. In a unionized
environment, sick leave may be negotiated under the terms of the collective agreement. In
most organizations, sick leave is 100% self-insured and paid by the employer.
1. Formal Plans
Organizations may establish formal plans to provide equitable sickness benefits to all
their employees for personal or family sick leave. A formal plan is structured to balance
both the needs of the employee and the needs of the employer. Formal plans will outline
provisions for the amount of sick leave available, the amount of sick pay the employee
will receive when on sick leave, and whether the leave can be carried over to the
following year.
2. Informal Plans
Informal, unwritten plans exist in organizations that have no formal policy for sick leave.
This type of leave is granted at the employer’s or the manager's/supervisor’s discretion.
These plans are declining in number as employers recognize the risks associated with an
informal arrangement.
Wage-Loss Replacement Plans

A wage-loss replacement plan (WLRP) is generally an arrangement between an employer
and employees, or between an employer and a group or association of employees, under
which the employees are compensated with payments on a periodic basis for the loss of
employment income as a result of sickness, disability, maternity, or injury.
WLRPs are commonly used to provide benefits for two types of situations:
1. Short-Term Disability Plans

Short-term disability (STD) plans provide income for a predetermined period to an
employee who is absent from work due to illness or injury. STD plans include wage-loss
replacement and weekly indemnity plans. Statistics show that approximately 70% of
employers use third parties for STD coverage.

Chapter 2
The amount of the payment is usually based on a percentage of the employee’s earnings,
up to a maximum, as stated in the plan document. These plans commonly provide for
benefits equal to 66 2/3% of the employee’s regular earnings for the duration of the
leave; some plans are more generous, offering payments of up to 100% of the employee’s
earnings.
2. Long-Term Disability Plans

Long-term disability (LTD) plans provide disability income to employees who have
exhausted their short-term disability coverage and are still unable to return to full-time
employment. Many employers have their LTD plans insured by third parties due to the
potential for long-term employer liability and significant monthly benefit expenses.
For all disability plans, whether self-insured or covered by a third party, the payroll
professional is responsible for accurately tracking plan participants and their pre-leave
earnings to establish the amount of any possible long-term disability benefits.
Note:
Benefit payments made to an employee under a wage-loss replacement plan may be
considered pensionable and insurable income depending on whether the employer funds any
part of the plan, exercises a degree of control over the terms of the plan, and determines
eligibility for benefits.
Vacation
Employment standards legislation in each jurisdiction requires that employers grant their
employees vacation time away from work. Generally, the legislated vacation time entitlement
is two weeks after completion of one full year of service. In some jurisdictions, the amount of
vacation time entitlement increases with the employee’s length of service.
Vacation pay is the amount paid to an employee while off work on vacation leave. The
amount of vacation pay the employee will receive is legislated; vacation pay is based on a
prescribed percentage of the employee’s vacationable earnings during a specified period.
One week of vacation time is paid at a rate equivalent to 2% of the employee’s vacationable
earnings; therefore, if an employee’s vacation time entitlement is two weeks, the vacation
pay will be calculated as 4% (2% x 2 weeks) of vacationable earnings. Employers in
Saskatchewan use a fraction to calculate vacation pay, which is 1/52 of vacationable earnings
per week of vacation time.
Exhibit 2-2
VACATION PAY VACATION PAY FRACTION
VACATION TIME
PERCENTAGE (SASKATCHEWAN)
2 weeks 4% N/A
3 weeks 6% 3/52
4 weeks 8% 4/52

Chapter 2
The formula used to calculate an employee’s vacation pay is:
Vacation pay = Vacationable earnings x vacation percentage (fraction) entitlement
Example:
Gary has worked for Rapid Delivery Service for a full year and is entitled to two weeks’
vacation leave. The vacationable earnings for the calculation of vacation pay are $45,000.00.
Vacation pay = Vacationable earnings x vacation percentage entitlement

= $45,000.00 x 4%
= $1,800.00
Example:
Vanessa is entitled to five weeks’ vacation due to the length of service with the employer.
The vacationable earnings for the year are $60,500.00.
Vacation pay = Vacationable earnings x vacation percentage entitlement

= $60,500.00 x 10%
= $6,050.00
Example:
Hannah works for a Saskatchewan employer and is entitled to three weeks’ vacation. The
vacationable earnings for the year are $67,800.00
Vacation pay = Vacationable earnings x vacation fraction entitlement

= $67,800.00 x 3/52
= $3,911.54
Overtime
Overtime is time worked beyond the normal workday or workweek; overtime pay is the
dollar amount paid for the overtime hours. Overtime pay must be paid after the employee
works an established number of hours, either daily or weekly, according to employment
standards legislation. For example, in the province of Ontario, overtime pay is required after
qualifying employees have worked a threshold of 44 hours per week.

Chapter 2
The formula for calculating overtime pay is generally one and one-half times the employee’s
regular hourly rate multiplied by the number of overtime hours worked, except for New
Brunswick and Newfoundland and Labrador, where the overtime rate is 1.5 times the
minimum hourly wage for hours worked. Also, British Columbia legislates that any time
worked over and above 12 hours in one day is paid at two times the employee’s regular
hourly rate.
Employers must use the required calculation for overtime pay according to the legislation for
their jurisdictions. Employers are not required to pay overtime rates until the employee has
reached the overtime threshold established by the jurisdiction; employers pay the employee’s
regular rate for all hours worked up to the threshold.
The formula used to calculate overtime pay is:
Overtime pay = [(Hourly rate x 1.5) x (hours worked - legislated overtime threshold)]
Example:
An Ontario company has a regular workweek of 37.5 hours. Legislated overtime pay in
Ontario applies after 44 hours worked in the week. An employee making $15.50 per hour
works 48 hours in a week. Overtime pay is calculated in three steps as follows:
Step 1 – Overtime pay at the regular hourly rate
Overtime pay = [Hourly rate x (legislated overtime threshold - standard hours)]

= [$15.50 x (44 - 37.5)]
= [$15.50 x 6.5]
= $100.75
Step 2 – Overtime pay at 1.5 times the hourly rate
Overtime pay = [(Hourly rate x 1.5) x (hours worked - legislated overtime threshold)]
= [($15.50 x 1.5) x (48 - 44)]
= [$23.25 x 4]
= $93.00
Step 3 – Overtime pay owing
Steps 1 + 2 = $100.75 + $93.00

= $193.75

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An organizational policy or a collective agreement may provide a higher overtime rate of pay
than legislated, for example, two times the regular hourly rate once the employee has worked
over the overtime threshold hours. Organizational policy or a collective agreement may also
provide for the payment of overtime rates after the standard hours determined by the
organization are worked.
Example:
Under Employment Standards legislation in New Brunswick, overtime must be paid after an
employee works 44 hours a week. Jordan Foods has a standard workweek of 40 hours. The
company policy states that all eligible employees are entitled to overtime pay at 1.5 times
their hourly rate for any hours worked over the company’s standard of 40 hours.
Shift Premiums
Some organizations have continuous operations, 24 hours a day, seven days a week, resulting
in three separate shifts, for example:
• Day shift (8:00 am to 4:00 pm)

• Evening shift (4:00 pm to midnight)
• Midnight shift (midnight to 8:00 am)
Shift premiums, also known as shift pay, are additional amounts paid over and above an
employee’s normal salary or hourly rate for working on an evening or midnight shift.
Employers can use various formulas for calculating shift premiums; these formulas may be
established through an organizational policy or required by a collective agreement as follows:
• A percentage of the hourly rate per hour worked on shift
Shift premium = (Hourly rate x shift premium %) x hours worked on shift
Example:
Franklin Industries pays employees 10% of their hourly rate as a premium for working the
evening shift. Ray’s regular hourly rate is $12.25; this week, 40 hours on the evening shift
were worked.
Shift premium = (Hourly rate x shift premium %) x hours worked on shift

= ($12.25 x 10%) x 40
= $1.225 x 40
Shift premium = $49.00
The $49.00 would be paid in addition to the hours worked on the evening shift at the
employee’s regular rate.

Chapter 2
• A fixed dollar amount per hour worked on the shift
Shift premium = Fixed dollar amount x hours worked on shift
Example:
Price Foods pays employees $1.25 for each hour they work on the midnight shift. Angela
worked 70 hours on the midnight shift over the two weeks in this pay period.
Shift premium = Fixed dollar amount x hours worked on shift

= $1.25 x 70
The $87.50 would be paid in addition to the hours worked on the midnight shift at the
employee’s regular rate.
• A fixed dollar amount per shift worked
Shift premium = Fixed dollar amount x number of shifts
Example:
Marine Refrigeration pays $25.00 for each shift worked. Veronique worked 3 shifts in this
pay period.
Shift premium = Fixed dollar amount x number of shifts

= $25.00 x 3
The $75.00 would be paid in addition to the hours worked on the shift at the employee’s
regular rate.

Chapter 2
Content Review
• Regular earnings are the dollar amounts paid to employees on a pay period basis for
the performance of their day-to-day duties.
• Employment standards legislate the minimum wage, overtime rates and vacation pay
requirements in each jurisdiction.
• Salary refers to a fixed amount of earnings paid to an employee per pay period.
• Wages are earnings that are based on the amount of time worked, usually at a rate per
hour or per day.
• Piecework is a rate of pay earned per unit of production, regardless of the length of
time taken.
• The main types of disability coverage are sick pay, short-term disability and long-
term disability.
• Payments from sickness plans administered and funded by an insurance carrier,
commonly called a third-party plan, are not considered employment income.
• Sick pay is an amount paid to an employee who is absent from work due to illness or
injury. Paid sick leave is only legislated under federal jurisdiction and in the
following three provinces: British Columbia, Prince Edward Island and Québec.
• A wage-loss replacement plan (WLRP) is generally an arrangement between an
employer and employees, or between an employer and a group or association of
employees, under which the employees are compensated with payments on a periodic
basis for the loss of employment income as a result of sickness, disability, maternity,
or injury.
• WLRPs are commonly used to provide benefits for two types of situations:
o Short-term disability (STD) plans provide income for a predetermined period
to an employee who is absent from work due to illness or injury.
o Long-term disability (LTD) plans provide disability income to employees who
have exhausted their short-term disability coverage and are still unable to
return to full-time employment.
• Vacation pay is legislated in every jurisdiction.
• Overtime is time worked beyond the normal workday or workweek. Overtime pay is
the dollar amount paid for overtime hours.
• Overtime must be paid after the employee works an established number of hours,
either daily or weekly, according to employment standards legislation.
• Shift premiums, also known as shift pay, are additional amounts paid over and above
an employee’s normal salary or hourly rate for working on an evening or midnight
shift.

Chapter 2
Review Questions
8. Choose the correct description for each of the earning types provided by entering the
letter in the middle column.
EARNING TYPE ANSWER DESCRIPTION

Wages a. A rate of pay earned per unit of production
b. A fixed amount of earnings paid to an
Overtime pay
employee per pay period
Self-insured c. Earnings paid for hours worked over the
disability legislated standards
d. Earnings based on the amount of time
Salary
worked, usually at an hourly or daily rate
e. Earnings paid to an employee who is absent
Piecework
from work due to illness or injury
9. Using the information provided, calculate the pay period salary, hourly rate and daily rate
for the following employees, showing all calculations.
JAMEEL RUDY SHANTI CLAIRE

Annual salary $41,375.00 $32,000.00 $75,625.00 $50,071.25
Pay period Semi-monthly Weekly Monthly Bi-weekly
frequency (24) (52) (12) (26)
Salary
calculation
Pay period
salary
Hours per pay 86.67 40.00 162.50 75.00

period
Hourly rate
calculation
Hourly rate
Days per year 260 260 260 260
Daily rate
calculation
Daily rate

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10. Using the information provided, calculate the pay period earnings for the following
employees, showing all calculations.
JODY ROGER JULIE MARY

Rate $3.65 $14.90 $316.00 $17.00
Per Piece Hour Day Hour
Pay period regular 270 pieces 75 hours 12 days 37.5 hours
time worked/
pieces produced
Pay period regular
earnings
calculation
Pay period regular

earnings
Overtime rate N/A 1.5 times N/A N/A
regular rate
Overtime hours N/A 13 hours N/A N/A
worked in period
Overtime earnings N/A N/A N/A
calculation
Pay period N/A N/A N/A

overtime earnings
Shift premium N/A N/A N/A 7.00% of
regular hourly
rate
Shift hours N/A N/A N/A 37.5 hours
worked
Pay period shift N/A N/A N/A
premium
calculation
Pay period shift N/A N/A N/A

premium earnings
Total pay period
earnings

Chapter 2
11. True or false. An employer administered disability plan is commonly called a third-party
plan.
12. What are the main types of disability coverage?
13. True or false. Paid sick leave is legislated in Québec, Saskatchewan and Nova Scotia.
14. What are the payroll professional’s responsibilities when the organization offers a
disability plan?
15. Using the information given, calculate the vacation pay for the following employees,
showing all calculations.
HELENA TROY ALAIN SALLY

Jurisdiction Alberta Ontario Nova Scotia Saskatchewan
Vacation time 3 weeks 2 weeks 1 week 4 weeks
Vacationable $42,375.00 $56,000.00 $30,249.00 $68,731.00
earnings
Vacation pay
calculation
Vacation pay

Chapter 2
Calculation of Statutory Withholdings

The withholding of statutory deductions from employment income is required by legislation
and will be illustrated using the following order:
1. Canada/Québec Pension Plan contributions

2. Employment Insurance premiums
3. Québec Parental Insurance Plan premiums (only applicable to Québec employees)
4. Federal and provincial income taxes
5. Northwest Territories and Nunavut payroll taxes (for employers with Northwest
Territories or Nunavut payrolls)
Note:
Statutory deductions on non-regular payments, as well as non-statutory deductions, such as
legal, company-compulsory and voluntary, will be discussed in a later chapter.
Canada/Québec Pension Plan

In Payroll Compliance Legislation, the methods of determining Canada and Québec Pension
Plan (C/QPP) contributions on pensionable earnings were explained using both the
government-provided payroll deduction tables and manual calculations. Pensionable earnings
include earnings, taxable allowances and cash, near-cash and non-cash taxable benefits.
One of the most important considerations before calculating C/QPP contributions is

determining whether to apply the pay period exemption. When payments are made regularly,
such as salary or wages, a C/QPP pay period exemption should be applied before the
contributions are calculated. The pay period exemption can only be applied once per pay
period; otherwise, the employee will receive more than the annual allowable exemption.
Other payments, paid separately from the employee’s regular pay, should not have the pay
period exemption applied before calculating the contribution amount. For this reason, the
payroll deduction tables cannot be used for other payments paid separately.
The current pay period exemptions, by pay frequency, are:
Exhibit 2-3
PAY NUMBER OF
PAY PERIOD
PERIOD YEAR’S BASIC EXEMPTION PAYS PER
EXEMPTION
TYPE YEAR
Weekly $3,500.00 52 $ 67.30
Weekly $3,500.00 53 $ 66.03
Bi-weekly $3,500.00 26 $134.61
Bi-weekly $3,500.00 27 $129.62
Semi-monthly $3,500.00 24 $145.83
Monthly $3,500.00 12 $291.66

Chapter 2
Employers have the option of using the government-provided payroll deduction tables, the
government-provided formulas for computer programs, or they can manually calculate the
C/QPP contributions using the current year’s rate (CPP is 5.95% and QPP is 6.40%),
ensuring contributions stop once the annual maximum is reached. The annual maximum CPP
contribution is $3,754.45, and for QPP is $4,038.40. These calculations are based on the
yearly maximum pensionable earnings of $66,600.00.
Note:
The online tools used as illustrations throughout this chapter are not necessarily those of the
current year
Example:
Maria Carbone receives a semi-monthly salary of $1,575.00. Maria’s CPP contribution is
manually calculated as:
Pay period pensionable earnings $1,575.00

Semi-monthly CPP exemption − $145.83
Contributory earnings = $1,429.17
CPP contribution rate  5.95%
Employee CPP contribution = $ 85.04
Example:
Bicycles Inc. makes a monthly salary payment of $3,450.00 to Toni Fletcher.

Monthly CPP exemption − $291.66
Example:
Amy Wong earned $2,200.00 in salary and $175.00 in overtime on this bi-weekly pay. The
employer, located in Montreal, is making both payments on the same cheque.

Bi-weekly QPP exemption − $134.61
QPP contribution rate  6.40%
Employee QPP contribution = $ 143.38

Chapter 2
If an overtime payment is paid on a separate cheque, then the payroll deduction tables cannot
be used, as the C/QPP exemption can only be applied once per pay period; the straight
percentage method must be used.
Example:
Ken’s employer missed paying overtime earnings of $843.43. As the bi-weekly salary has
already been paid, the pay period exemption was applied to that payment; the company is
issuing a separate cheque for the overtime and will not apply the exemption when
calculating the CPP contribution.
Pensionable earnings 843.43

Employment Insurance
In Payroll Compliance Legislation, the calculation of Employment Insurance (EI) premiums
on insurable earnings was explained using both the government-provided payroll deduction
tables and the manual method. Insurable earnings are an employee’s earnings, taxable
allowances and cash taxable benefits.
As there is no pay period exemption for EI, employers may use either the payroll deduction
tables or the straight percentage method to determine the required EI premium withholding,
whether the earnings are regular or non-regular and whether they are paid on a separate
cheque. Regardless of the calculation method used, EI premiums are deducted only up to an
annual maximum. The 2023 EI rate for non-Québec employees is 1.63%; the annual
maximum is $1,002.45. The EI rate for Québec employees is 1.27%; the annual maximum
premium is $781.05. These calculations are based on the annual maximum insurable earnings
for 2023 of $61,500.00.
Example:
Maria Carbone works for an Alberta employer and receives a semi-monthly salary of
$1,540.00. Maria’s Employment Insurance premium is calculated as follows:
Insurable earnings $1,540.00

EI premium rate  1.63%
Employee EI premiums = $ 25.10

Chapter 2
Example:
Jupiter Textiles, located in Nova Scotia, makes a bi-weekly salary payment of $2,150.00
and an overtime payment of $200.00 to David Desrosiers on the same cheque. David’s
insurable earnings for the period are $2,350.00.

The Employment Insurance premium rate is lower for Québec employees, as they also pay
QPIP premiums.
Example:
Francine Lemay works for a Québec employer and receives a bi-weekly salary of
$1,535.00. Francine’s Employment Insurance premium is calculated as:

Québec Parental Insurance Plan

Québec Parental Insurance Plan (QPIP) premiums are calculated on a Québec employee’s
insurable earnings. The premiums can be calculated using either the government-provided
table for QPIP premiums or by applying the annual percentage rate; the rate is 0.494%. As
there is no pay period exemption for QPIP, either method can be used for both regular and
non-regular payments. Regardless of the calculation method used, QPIP premiums are
deducted only up to an annual maximum of $449.54. The insurable earnings for QPIP
premiums are based on the Québec Workers’ Compensation (CNESST) assessable earnings
maximum, which is set every year by Québec government regulation ($91,000.00 for 2023).
Example:
Francine Lemay works for a Québec employer and receives a bi-weekly salary of
$1,542.00. Francine’s Québec Parental Insurance Plan premium is calculated as:

QPIP premium rate  0.494%
Employee QPIP premiums = $ 7.62

Chapter 2
Example:
Magasins Metro makes a bi-weekly salary payment of $2,000.00 and an overtime payment
of $360.00 to Lyne Corbeil. Lyne’s insurable earnings for the period are $2,360.00.

QPIP premium rate  0.494%
Employee QPIP premiums = $ 11.66
Income taxes
In Payroll Compliance Legislation, the methods for calculating federal and provincial
income taxes were explained. Federal and provincial income taxes are based on an
employee’s net taxable income. Net taxable income is the total of an employee’s earnings,
taxable allowances and taxable benefits, less any deductions allowed by the Canada Revenue
Agency (CRA) or Revenu Québec (RQ).
Deduction for enhanced C/QPP contributions

Starting in 2023, a deduction for enhanced C/QPP contributions now applies in each pay
period an employee has C/QPP contributions withheld. The deduction for enhanced C/QPP
contributions is calculated as:
Pay period C/QPP contribution x (1% ÷ C/QPP rate)
Example:
Mona is paid weekly and has pensionable earnings of $720.00 and will have a CPP
contribution of $38.84 withheld. The reduction to net taxable income for the deduction for
enhanced C/QPP contributions will be:
$38.84 x (0.01 ÷ 0.0595) = $6.53
Claim Code or Deduction Code

The claim codes from the employee’s federal and provincial Personal Tax Credit Return –
TD1 forms or the deduction code from the Québec employee’s Source Deductions Return –
TP-1015.3-V form are required to determine the correct amount of income tax to withhold
when using the payroll deduction tables.
Methods of calculating income tax

When employers make regular payments of earnings, taxable allowances and taxable
benefits, they have the option of using the government-provided payroll deduction tables, the
federal Payroll Deductions Online Calculator (PDOC), Québec’s WebRAS online program
(for Québec employees), manually calculating the income taxes or allowing their payroll
software to calculate income taxes using the formulas for computer programs.

Chapter 2
Note:
The income tax rates used for purposes of demonstrating process and practice are not
necessarily those of the current year. To obtain current federal rates, go to www.cra.gc.ca.
For current Québec rates, go to http://www.revenuquebec.ca. Please use the income tax
tables provided in the Student Information Guide for assignment purposes.
Example:
Mona Mansour works for Blair Tool and Die in Edmonton, Alberta. Mona earns $18.00 an
hour, works a standard 40 hour week and is paid weekly. Mona’s claim codes on the
federal and provincial TD1 forms are 1. Mona has no allowable deductions for income tax
purposes.
Regular earnings = Hourly rate  hours worked
= $18.00  40
= $720.00
Less:
Deduction for enhanced CPP contributions − $6.53
Net taxable income = $713.47
We can determine Mona’s income tax withholdings using the Alberta weekly pay period
federal and provincial tax tables.
Federal income tax $91.55

Alberta provincial income tax $44.30

Chapter 2
Northwest Territories/Nunavut Payroll Tax

The Governments of the Northwest Territories (NT) and Nunavut (NU) impose a 2% tax on
employees’ remuneration. The tax is deducted at source from the employee’s remuneration at
the time the employee is paid.
Remuneration subject to the deduction is defined as any amount included as taxable income
under Sections 5, 6, or 7 of the federal Income Tax Act. This includes all salaries, wages,
taxable benefits, and allowances. This does not include income from pensions or
superannuation.
No tax is payable by an employee who normally works outside of the Northwest Territories
or Nunavut and does not earn more than $5,000.00 in the Northwest Territories or Nunavut
during the year. If an employee earns more than $5,000.00 in a calendar year in the
Northwest Territories or Nunavut, the payroll tax is payable on the full amount of
remuneration earned while in the territories. The earnings must be reported on the annual
return, whether the tax was deducted or not.
If an employee works more than half of their total working time for the calendar year in
either the Northwest Territories or Nunavut, their entire remuneration earned both within and
outside of the territories becomes subject to the payroll tax.
Example:
An employee is paid for 1,500 hours working on a project in Alberta over a 6-month period
and earns a total of $48,000.00. This employee then works on a project, for the same
employer, in Nunavut over a period of 5 months. The project takes 1,600 hours, for which the
employee is remunerated $52,000.00. Because more than half of the 3,100 hours were
worked within Nunavut, the entire $100,000.00 would be subject to the 2% payroll tax for a
total of $2,000.00.
Example:
John works in the Northwest Territories and earns $1,947.50 on a bi-weekly basis.
NT Payroll Tax = Remuneration x annual payroll tax rate

= $1,947.50 x 2%
= $ 38.95

Chapter 2
Payroll Calculation Template

In Payroll Compliance Legislation chapter 4, you were introduced to the following payroll
calculation template.
Exhibit 2-4
Step Value Description
1 Earnings
Gross Taxable The Canada Revenue Agency (CRA) and Revenu Quebec (RQ) have
Earnings (GTE) established legislative policies regarding payments that are considered
taxable employment income. These include, but are not limited to:
• Earnings such as a salary or wage, commissions, overtime
premiums, legislated entitlements for paid statutory holidays,
vacation or certain leaves of absence, employer benefits such
as bonuses
• Non-accountable allowances
• Taxable reimbursements (cash taxable benefits paid to the
employee through the payroll)
The total of all such payments is considered Gross Taxable Earnings
(GTE), which becomes part of the value on which statutory withholding
amounts are calculated.
Total Gross An employer may also process payments that are not subject to
Payments statutory withholding, such as
• Reasonable non-taxable allowances
• Expense reimbursements
These amounts are added to the GTE value for Total Gross Payments
NOTE: For Steps 3, 4 and 5, there are two columns:

• The CRA column determines values used for CPP contributions, EI
premiums, federal income tax and income tax for all jurisdictions
except Quebec.
• The RQ column determines values used for QPP contributions, QPIP
premiums and Quebec provincial income tax.
2 Pensionable To calculate the pay period amount for Canada or Quebec Pension Plan
Earnings (PE) (C/QPP) contributions, we must determine Pensionable Earnings.
In addition to the GTE amount from Step 1, this also includes all taxable
benefit values, non-cash, near-cash and deemed cash.

Chapter 2

3 Insurable Earnings To calculate the pay period amount for Employment Insurance (EI) or
(IE) Quebec Parental Insurance Premiums (QPIP), we must determine
Insurable Earnings.
In addition to the GTE amount from Step 1, this also includes any
deemed cash taxable benefit values (e.g. taxable reimbursement
already processed through accounts payable that must be reported as
employment income).
4 Net Taxable Income To determine the pay period federal and jurisdictional income tax to
(NTI) (CRA) withhold, we must determine Net Taxable Income.
In addition to the GTE value from Step 1, this also includes all taxable
benefit values less any of the following deductions:
o Deduction for enhanced C/QPP contributions

o RRSP contributions (employee and employer)
o Employee registered pension plan contributions
o Union dues (except for Quebec provincial income tax)
o Deduction approved by a tax services office
o Amount for living in a prescribed northern zone
5 Net Taxable Income To determine the pay period Quebec provincial income tax to withhold,
(NTI) (RQ) we must determine Net Taxable Income.
In addition to the GTE value from Step 1, this also includes all taxable
benefit values (non-cash, near-cash and deemed cash) less the
following deductions permitted under the legislative authority of RQ:
o Deduction for enhanced C/QPP contributions
o RRSP contributions (employee and employer)
o Employee registered pension plan contributions
o Deduction authorized by a tax services office
o Amount for living in a prescribed northern zone
6 Calculate CPP or • CPP Contributions are calculated using the CRA Pensionable
QPP contributions Earnings (PE) value as follows:
(PE – pay period exemption) ✕ CPP contribution rate
• QPP contributions are calculated using the RQ Pensionable Earnings
(PE) value as follows:
(PE – pay period exemption) ✕ QPP contribution rate
7 Calculate EI • EI Premiums are calculated using the CRA Insurable Earnings (IE)
premiums value as follows:

Chapter 2

IE ✕ EI premium rate
8 Calculate QPIP • QPIP premiums are calculated using the RQ Insurable Earnings (IE)
premiums value as follows:
IE ✕ QPIP premium rate
91 Determine federal Using the manual tax tables provided:

income tax and • Federal income tax is determined using the CRA Net Taxable
provincial or Income (NTI) value.
territorial income
tax (excluding Determine provincial or territorial income tax (excluding Quebec)
Quebec) • Provincial and territorial income tax for all jurisdictions except
Quebec is determined using the CRA Net Taxable Income (NTI)
value.
10 Determine Quebec Using the manual tables provided:

provincial income Quebec provincial income tax is determined using the RQ Net Taxable
tax Income (NTI) value.
11 Total Deductions In addition to statutory deductions for C/QPP contributions, EI or QPIP

premiums and income taxes include any other deductions applicable to
the current pay period, e.g. pension contributions, union dues,
garnishments or charitable donations.
12 Net Pay Net pay is the result of:

Total Gross Payments less Total Deductions
1
For jurisdictions outside of Quebec payroll software may total the federal and jurisdictional tax or may display
the separate amounts. Either method is acceptable as both amounts are remitted to the CRA.

Chapter 2
MANUAL PAY STATEMENT

Taxable Payments
+ Earnings
+ Taxable allowances
+ Taxable reimbursements
= Gross Taxable Earnings (GTE)
Non-taxable Payments
+ Non-taxable reimbursements
= Total Gross Payment
CRAi RQii
GTE
+ Non-cash taxable benefits
+ Near-cash taxable benefits
+ Deemed cash taxable benefits
= Pensionable Earnings (PE)
GTE
= Insurable Earnings (IE)
GTE
+ Non-cash taxable benefits
+ Near-cash taxable benefits
− Deduction for enhanced C/QPP contributions
− Deductions approved by CRA or RQ
= Net Taxable Income (NTI)
Statutory Deductions
− C/QPP contributions (PE − exemption)  C/QPP rate
− EI premiums IE  EI rate
− QPIP premiums IE  QPIP rate
− Income tax [federal + provincial (except Quebec)] [F] $ + [P] $
− Quebec income tax [Q] $
Authorized Deductions
−
Company Compulsory Deductions
−
Voluntary Deductions
−
= Total Deductions
= Net Pay (Total Gross Payment − Total Deductions)
i
The CRA values are used to determine CPP contributions, EI premiums and federal and non-Quebec income tax.
ii
The RQ values are used to determine QPP contribution, QPIP premiums and Quebec provincial income tax.

Chapter 2
Net Pay Calculations

To determine the employee’s net pay, the payroll professional must be able to identify and
calculate the employee’s gross earnings, pensionable earnings, insurable earnings, net taxable
income, statutory deductions and other deductions as illustrated in the payroll calculation
template.
Example 1:
Bainbridge Manufacturing, located in Alberta, has salaried and hourly-paid employees.

The salaried employees are paid bi-weekly, and the hourly employees are paid weekly.
Andrew Murphy earns an annual salary of $78,000.00.
Annual Salary
Salary per pay period =
Pay period frequency
78,000.00
26
Andrew's pay period salary = $3,000.00
There are no taxable benefit values or authorized deductions for this pay. Andrew will
have a CPP contribution withheld; therefore, a deduction for the enhanced C/QPP
deduction will apply.
Deduction for enhanced C/QPP contribution:
170.49 x ( 0.01 ÷ 0.0595 ) = $ 28.65
Andrew has submitted federal and provincial TD1 forms to the employer and is considered
a Claim Code 1.

Chapter 2

Taxable Payments
+ Earnings $3,000.00
+
+
= Gross Taxable Earnings (GTE) $3,000.00
+
= Total Gross Payment $3,000.00
CRAi RQii
GTE $3,000.00
+
+
+
= Pensionable Earnings (PE) $3,000.00
GTE $3,000.00
+
= Insurable Earnings (IE) $3,000.00
GTE $3,000.00
+
+
+
− Deduction for enhanced C/QPP contribution 28.65
−
= Net Taxable Income (NTI) $2,971.35
− C/QPP contributions ($3,000.00 − $134.61)  5.95% 170.49
− EI premiums $3,000.00  1.63% 48.90
− QPIP premiums Not applicable
− Income tax [federal + provincial (except Quebec)] $547.40 $251.55 798.95
− Quebec income tax Not applicable
−
−
−
= Total Deductions $1,018.34
= Net Pay (Total Gross Payment − Total Deductions) $1,981.66
i
ii

Chapter 2
Example 2:
Bainbridge Manufacturing also has a plant in Québec. The salaried employees are paid bi-
weekly, and the hourly employees are paid weekly.
Frieda Campion earns $18.00 per hour and works 37.5 hours a week.
Weekly earnings = Hourly rate x hours worked
= $18.00 x 37.5
= $ 675.00
There are no taxable benefit values or authorized deductions for this pay. Frieda will have
a QPP contribution withheld; therefore, a deduction for the enhanced C/QPP deduction
will apply.
Deduction for enhanced C/QPP contribution:
38.89 x ( 0.01 ÷ 0.0640 ) = $ 6.08
Frieda has submitted a federal TD1 form to the employer and is considered a Claim Code
2, and on the TP-1015.3-V, a Deduction Code B.

Chapter 2

Taxable Payments
+ Earnings $675.00
+
+
= Gross Taxable Earnings (GTE) $ 675.00
+
= Total Gross Payment $ 675.00
CRAi RQii
GTE $ 675.00
+
+
+
= Pensionable Earnings (PE) $ 675.00
GTE $ 675.00 $ 675.00
+
= Insurable Earnings (IE) $ 675.00 $ 675.00
GTE $ 675.00 $675.00
+
+
+
− Deduction for enhanced C/QPP contribution 6.08 6.08
−
= Net Taxable Income (NTI) $ 668.92 $ 668.92
− C/QPP contributions ($675.00 − $67.30)  6.40% 38.89
− EI premiums $675.00  1.27% 8.57
− QPIP premiums $675.00  0.494% 3.33
− Income tax [federal + provincial (except Quebec)] 65.95
− Quebec income tax 87.99
Legal Deductions
−
−
−
= Total Deductions $ 204.73
= Net Pay (Total Gross Payment − Total Deductions) $ 470.27
i
ii

Chapter 2
Payroll professionals need to be prepared to answer questions for employees when there are
changes to their net pay. These changes may be the result of a combination of events.
• C/QPP contributions stop for the balance of the year

• EI or QPIP premiums stop for the balance of the year
• Once an employee has paid the maximum C/QPP contributions for the year the
reduction to net taxable income based on the enhanced portion of the contribution
also stops, resulting in an increase to income tax withholding.
Example 1:
Andrew Murphy reached the maximum annual CPP contribution and EI premium for the
year on the previous pay. For the current pay net income will be determined as follows;
Andrew Murphy earns an annual salary of $78,000.00.
Annual Salary
78,000.00
26
Andrew's pay period salary = $3,000.00
There are no taxable benefit values or authorized deductions for this pay. Because Andrew
will not have a CPP contribution withheld this pay a deduction for the enhanced C/QPP
deduction does not apply.
Because the maximums for the current year have already been paid no deductions will
withheld for CPP contributions or EI premiums.
Andrew has submitted federal and provincial TD1 forms to the employer and is considered
a Claim Code 1.

Chapter 2

Taxable Payments
+
+
+
CRAi RQii
GTE $3,000.00
+
+
+
GTE $3,000.00
+
GTE $3,000.00
+
+
+
− Deduction for enhanced C/QPP contribution
−
− C/QPP contributions
− EI premiums 0.00
−
−
−
i
ii

Chapter 2
Content Review
• The withholding of statutory deductions is required by legislation.
• Canada/Québec Pension Plan contributions are calculated on pensionable earnings,
which include earnings, taxable allowances and cash and non-cash taxable benefits.
• The Canada/Québec Pension Plan pay period exemption can only be applied once per
pay period.
• Employment Insurance premiums are calculated on insurable earnings, which include
earnings, taxable allowances and cash taxable benefits.
• The Employment Insurance premium rate is lower for Québec employees, as they
also pay QPIP premiums.
• Québec Parental Insurance Plan (QPIP) premiums are calculated on a Québec
employee’s insurable earnings.
• Federal and provincial income taxes are based on an employee’s net taxable income,
which is the total of an employee’s earnings, taxable allowances and taxable benefits,
less any deductions allowed by the Canada Revenue Agency (CRA) or Revenu
Québec (RQ).
• The claim codes from the employee’s federal and provincial Personal Tax Credits
Return – TD1 or the deduction code from the Québec employee’s Source Deductions
Return – TP-1015.3-V are required to determine the correct amount of income tax to
withhold when using the payroll deduction tables.
• The Governments of the Northwest Territories (NT) and Nunavut (NU) impose a tax
on employees’ remuneration. The tax is deducted at source from the employee’s
remuneration at the time the employee is paid.
• No payroll tax is payable by an employee who does not earn more than $5,000.00 in
the Northwest Territories or Nunavut during the year.

Chapter 2
Review Questions
16. Enter the statutory deductions required for each employee based on their province of
employment.
LOUISE CLIFFORD JASON

JURISDICTION NEW
QUÉBEC NUNAVUT
BRUNSWICK
1st deduction
2nd deduction
3rd deduction
4th deduction
17. Bonita Franco works for Independent Trucking in Alberta. Pay is based on $23.50 per
hour and 75 hours in this bi-weekly pay period.
Bonita’s Claim Codes on the federal and Alberta TD1 are 3.
Calculate Bonita's net pay.

Chapter 2

Taxable Payments
+ Earnings
+
+
+
CRAi RQii
GTE
+
+
+
GTE
+
GTE
+
+
+
−
−
− EI premiums
− QPIP premiums
− Income tax [federal + provincial (except Quebec)]
− Quebec income tax
Legal Deductions
−
−
−
= Total Deductions
i
ii

Chapter 2
18. Gilles Lemoine, a Québec employee, earns an annual salary of $54,000.00, paid on a
semi-monthly basis. Gilles has a TD1 claim Code 2 and a TP-1015.3-V deduction
Code B.
Following the steps in the payroll calculation template, calculate Gilles’ net pay.

Chapter 2

Taxable Payments
+ Earnings
+
+
+
CRAi RQii
GTE
+
+
+
GTE
+
GTE
+
+
+
−
−
− EI premiums
− QPIP premiums
− Income tax [federal + provincial (except Quebec)]
− Quebec income tax
Legal Deductions
−
−
−
= Total Deductions
i
ii

Chapter 2
Chapter Review Questions and Answers

1. What are the four categories of employment income?
Employment income can be categorized into earnings, allowances, benefits and

taxable expense reimbursements.
2. List five methods an employer can use to pay earnings.
Earnings can be paid as:

• a salary
• a rate for each hour worked
• a rate per piece of goods produced or picked
• a disability payment for time off work due to illness
• a payment for vacation time
• premium pay for overtime hours worked
• premium pay for hours worked on shift
3. What are allowances? Provide an example of an allowance.
Allowances are additional dollar amounts paid to employees for the use, or
anticipated use, of their personal property for business purposes. The most common
types of allowances cover the costs incurred by the employee for cars, meals,
uniforms, safety shoes or other particular types of clothing for business reasons.
4. What are benefits? Provide an example of a benefit.
Benefits are dollar values attributed to something the employer has either provided
to an employee or paid for on an employee’s behalf. A benefit could be a company-
leased automobile given to the employee for both business and personal use or
group term life insurance premiums.
5. What are expense reimbursements?
Expense reimbursements are dollar amounts paid to employees to cover expenses

that they incurred while performing their job.

Chapter 2
6. Which jurisdiction(s) have employment standards legislation that requires that

employees must receive their pay at least semi-monthly?
British Columbia, Manitoba, Newfoundland and Labrador, Nova Scotia,

Saskatchewan and Yukon.
7. List two of the most common types of pay period frequencies.
The most common pay period frequencies are:
• Weekly 52 pay periods a year (53 every seven years)

• Bi-weekly 26 pay periods a year (27 every eleven years)
• Semi-monthly 24 pay periods a year
• Monthly 12 pay periods a year
8. Choose the correct description for each of the earning types provided by entering the
letter in the middle column.
EARNING TYPE ANSWER DESCRIPTION

Wages d a. A rate of pay earned per unit of production
Overtime pay c b. A fixed amount of earnings paid to an
employee per pay period
Self-insured disability e c. Earnings paid for hours worked over the
legislated standards
Salary b d. Earnings based on the amount of time
worked, usually at an hourly or daily rate
Piecework a e. Earnings paid to an employee who is absent
from work due to illness or injury

Chapter 2
9. Using the information provided, calculate the pay period salary, hourly rate and daily
rate for the following employees, showing all calculations.
JAMEEL RUDY SHANTI CLAIRE

Annual salary $41,375.00 $32,000.00 $75,625.00 $50,071.25
Pay period Semi-monthly Weekly Monthly Bi-weekly
frequency (24) (52) (12) (26)
Salary calculation $41,375.00 $32,000.00 $75,625.00 $50,071.25
24 52 12 26
Pay period salary $1,723.96 $ 615.38 $6,302.08 $1,925.82
Hours per pay period 86.67 40.00 162.50 75.00
Hourly rate $1,723.96 $615.38 $6,302.08 $1,925.82
calculation 86.67 40.00 162.50 75.00
Hourly rate $ 19.89 $ 15.38 $ 38.78 $ 25.68
Days per year 260 260 260 260
Daily rate $41,375.00 $32,000.00 $75,625.00 $50,071.25
calculation 260 260 260 260
Daily rate $ 159.13 $ 123.08 $ 290.87 $ 192.58

Chapter 2
10. Using the information provided, calculate the pay period earnings for the following
employees, showing all calculations.
JODY ROGER JULIE MARY

Rate $3.65 $14.90 $316.00 $17.00
Per Piece Hour Day Hour
Pay period regular 270 pieces 75 hours 12 days 37.5 hours
time worked/pieces
produced
Pay period regular $3.65 x 270 $14.90 x 75 $316.00 x 12 $17.00 x 37.5
earnings calculation
Pay period regular $985.50 $1,117.50 $3,792.00 $637.50
earnings
Overtime rate N/A 1.5 times N/A N/A
regular rate
Overtime hours N/A 13 hours N/A N/A
worked in period
Overtime earnings N/A ($14.90 x 1.5) N/A N/A
calculation x 13
Pay period overtime N/A $ 290.55 N/A N/A
earnings
Shift premium N/A N/A N/A 7.00% of
regular
hourly rate
Shift hours worked N/A N/A N/A 37.5 hours
Pay period shift N/A N/A N/A ($17.00 x
premium calculation .07) x 37.5
Pay period shift N/A N/A N/A $44.63
premium earnings
Total pay period $985.50 $1,408.05 $3,792.00 $682.13
earnings
11. True or false. An employer-administered disability plan is commonly called a third-

party plan.
False. An employer-administered disability plan is commonly called a self-insured

plan.
12. What are the main types of disability coverage?
The main types of disability coverage are sick pay, short-term disability and long-
term disability plans.

Chapter 2
13. True or false. Paid sick leave is legislated in Québec, Saskatchewan and Nova Scotia.
False. Paid sick leave is only legislated federally and in the provinces of British
Columbia, Prince Edward Island and Quebec.
14. What are the payroll professional’s responsibilities when the organization offers a
disability plan?
For all disability plans, whether self-insured or covered by a third party, the payroll
professional is responsible for accurately tracking plan participants and their pre-
leave earnings to establish the amount of any possible disability benefits.
15. Using the information given, calculate the vacation pay for the following employees,
showing all calculations.
HELENA TROY ALAIN SALLY

Jurisdiction Alberta Ontario Nova Scotia Saskatchewan
Vacation time 3 weeks 2 weeks 1 week 4 weeks
Vacationable $42,375.00 $56,000.00 $30,249.00 $68,731.00
earnings
Calculations $42,375.00 x .06 $56,000.00 x $30,249.00 x $68,731.00 x
.04 .02 4/52
Vacation pay $2,542.50 $2,240.00 $ 604.98 $5,287.00
16. Enter the statutory deductions required for each employee based on their province of
employment.
LOUISE CLIFFORD JASON

Jurisdiction Québec New Brunswick Nunavut
1st deduction Québec Pension Canada Pension Canada Pension
Plan (QPP) Plan (CPP) Plan (CPP)
2nd deduction Employment Employment Employment
Insurance (EI) Insurance (EI) Insurance (EI)
3rd deduction Québec Parental Federal and Federal and
Insurance Plan Provincial income Territorial income
(QPIP) taxes taxes
4th deduction Federal and ----- Nunavut payroll
Provincial income taxes
taxes

Chapter 2
17. Bonita Franco works for Independent Trucking in Alberta. Pay is based on $23.50 per
hour and 75 hours in this bi-weekly pay period.
Bonita’s Claim Codes on the federal and Alberta TD1 are 3.
Calculate Bonita's net pay
Weekly earnings = Hourly rate x hours worked
= $23.50 x 75
= $ 1,762.50

Chapter 2

Taxable Payments
+
+
+
CRAi RQii
GTE $1,762.50
+
+
+
GTE $1,762.50
+
GTE $1,762.50
+
+
+
− Deduction for enhanced C/QPP contribution 16.28
−
− EI premiums $1,762.50  1.63% 28.73
Legal Deductions
−
−
−
i
ii

Chapter 2
18. Gilles Lemoine, a Québec employee, earns an annual salary of $54,000.00, paid on a
semi-monthly basis. Gilles has a TD1 claim Code 2 and a TP-1015.3-V deduction
Code B.
Following the steps in the payroll calculation template, calculate Gilles’ net pay.
Annual Salary
54,000.00
24
Gilles' pay period salary = $2,250.00

Chapter 2

Taxable Payments
+
+
+
CRAi RQii
GTE $2,250.00
+
+
+
GTE $2,250.00 $2,250.00
+
= Insurable Earnings (IE) $2,250.00 $2,250.00
GTE $2,250.00 $2,250.00
+
+
+
Deduction for enhanced C/QPP
− 21.04 21.04
contribution
−
= Net Taxable Income (NTI) $2,228.96 $2,228.96
− EI premiums $2,250.00  1.27% 28.58
− QPIP premiums $2,250.00  0.494% 11.12
− Income tax [federal + provincial (except
Quebec)]
288.45
− Quebec income tax 371.04
Legal Deductions
−
−
−
i
ii

PF1 Chapter 2 - Employment Income - Regular Earnings

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PF1 Chapter 2 - Employment Income - Regular Earnings

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Chapter

Employment Income – Regular

Upon completion of this chapter, you should be able to:

1. Describe the following four components of employment income

© National Payroll Institute – Payroll Fundamentals 1

Introduction ........................................................................................................................ 2-3

© National Payroll Institute – Payroll Fundamentals 1 2-2

We discuss regular earnings in this chapter; non-regular earnings, as well as non-statutory

© National Payroll Institute – Payroll Fundamentals 1 2-3

Regular and Non-Regular Payments of Employment Income

• regular payments have an established frequency, such as weekly-paid salary or wages

© National Payroll Institute – Payroll Fundamentals 1 2-4

In this chapter, we will focus on calculating:

© National Payroll Institute – Payroll Fundamentals 1 2-5

© National Payroll Institute – Payroll Fundamentals 1 2-6

2. List five methods an employer can use to pay earnings.

3. What are allowances? Provide an example of an allowance.

4. What are benefits? Provide an example of a benefit.

5. What are expense reimbursements?

© National Payroll Institute – Payroll Fundamentals 1 2-7

Pay Period Frequencies

The most common pay period frequencies are:

Part-time employees Paid every Thursday (weekly)

© National Payroll Institute – Payroll Fundamentals 1 2-8

© National Payroll Institute – Payroll Fundamentals 1 2-9

7. List two of the most common types of pay period frequencies.

© National Payroll Institute – Payroll Fundamentals 1 2-10

Types of Regular Earnings

Employers determine whether to pay an employee by salary, hourly wage or by piecework.

Salary per pay period = Annual salary

© National Payroll Institute – Payroll Fundamentals 1 2-11

Hourly rate = Salary per pay period

Hourly rate = Annual salary

Daily rate = Salary per pay period

Daily rate = Annual salary

Weekly salary = Annual salary

Weekly salary = $36,400.00 = $ 700.00

Hourly Rate Calculations

Hourly rate = Salary per pay period

Hourly rate = Annual salary

Hourly rate = $36,400.00 = $ 20.00

© National Payroll Institute – Payroll Fundamentals 1 2-12

Daily Rate Calculations

Daily rate = Salary per pay period

Daily rate = Annual salary

Daily rate = $36,400.00 = $ 140.00

Regular earnings = Hourly rate x pay period regular hours worked

Regular earnings = Hourly rate x pay period regular hours worked

Regular earnings = Hourly rate x pay period regular hours worked

© National Payroll Institute – Payroll Fundamentals 1 2-13

Regular earnings = Daily rate x pay period days worked

Regular earnings = Daily rate x pay period days worked

Regular earnings = Rate x number of pieces

Regular earnings = Rate x number of pieces

© National Payroll Institute – Payroll Fundamentals 1 2-14

Wage-Loss Replacement Plans

1. Short-Term Disability Plans

© National Payroll Institute – Payroll Fundamentals 1 2-15

2. Long-Term Disability Plans

© National Payroll Institute – Payroll Fundamentals 1 2-16

The formula used to calculate an employee’s vacation pay is:

Vacation pay = Vacationable earnings x vacation percentage (fraction) entitlement

Vacation pay = Vacationable earnings x vacation percentage entitlement

Vacation pay = Vacationable earnings x vacation percentage entitlement