Non-Statutory

Deductions
Chapter 5

1
Non-Statutory Deductions

Learning Objectives:

 Define, prioritize and describe the payroll compliance requirements for

the five categories of deductions:
 statutory
 legal
 union
 company-compulsory
 voluntary
 Calculate net pay
Non-Statutory Deductions

Types of Deductions
• statutory deductions
• legal deductions
• union deductions
• company compulsory deductions
• voluntary deductions
Non-Statutory Deductions

Statutory Deductions
• Canada/Québec Pension Plan (C/QPP) contributions
• Employment Insurance (EI) premiums
• Québec Parental Insurance Plan (QPIP) premiums
• Income taxes (federal and provincial)
• Payroll taxes (Northwest Territories and Nunavut)
Non-Statutory Deductions

Legal Deductions
• employers in receipt of a legal order for an employee are
required to withhold a specified amount or percentage of an
employee’s wages and remit that amount to the responsible
court or government agency.
Non-Statutory Deductions

Garnishments
• the term is used broadly to include any amount of money owed
to a third party creditor
• the third party can be a federal or provincial government agency
• employers are required under legislation in each jurisdiction to
enforce garnishments they receive on their employees’ wages
Non-Statutory Deductions

Payroll practitioners should be familiar with the different types of

garnishments issued by the federal and provincial governments
Non-Statutory Deductions
TYPE OF ISSUED FOR THE COLLECTION
GOVERNMENT BODY
GARNISHMENT OF:
The Canada Revenue Agency (CRA) and Requirement to Pay unpaid statutory deductions,
Revenu Québec (RQ) including income tax
The Canada Revenue Agency Third Party Demand overpaid Employment Insurance
benefits

Ministry or Department of Justice Family Support and child support and maintenance
Attorney or Solicitor General Maintenance Order payments
Ministry of Community or Social Services
(through provincial family courts)
Ministry or Department of Justice Garnishment Order debt owed to a third party
Attorney or Solicitor General creditor
Ministry of Community or Social Services
(through provincial/ divisional and/or small
claims courts)
Non-Statutory Deductions

Requirement to Pay
• by authority of the Income Tax Act, the Canada Revenue Agency
(CRA) may garnish the wages of an employee who has failed to
pay their income taxes or any amounts that are payable under
the Employment Insurance Act or the Canada Pension Plan Act
Non-Statutory Deductions

A Requirement to Pay notice remains in force until the employee’s

liability is paid in full or until the CRA/RQ releases the employer
from its collection obligations.
Non-Statutory Deductions

Third Party Demand

• the Canada Employment Insurance Commission (CEIC) is a
branch of Service Canada that may request that the Canada
Revenue Agency garnish the wages of an employee under a
Third Party Demand.
Non-Statutory Deductions

The Canada Revenue Agency will generally garnish up to 30

percent of an employee's net wages; the garnishment percentage
should be clearly stated in the Third Party Demand document.
Non-Statutory Deductions

Family Support and/or Maintenance Orders

• the provinces and territories share responsibility with the federal
government for matters relating to child support.
Non-Statutory Deductions

Third Party Garnishment

• occurs when an employee’s creditor wins a judgment in small
claims or provincial/divisional court to garnish the employee’s
wages to satisfy their debt to the creditor
• third party garnishment orders are provincially regulated
• assigns legal responsibilities to an employer or income source
and binds them by law to withhold a specified amount or
percentage from the employee’s wages and remit that amount to
the court
Non-Statutory Deductions

A set of established procedures for

dealing with legal orders will assist
a company in ensuring that all
aspects of their administration are
dealt in a consistent, compliant
manner
Non-Statutory Deductions

• Maintain a log to record each garnishment received

• An employer is obligated under law to garnish the employee's
wages, usually on the pay immediately following receipt of the
order
• Inform the employee confidentially (and without pressure) of the
garnishment order
• Determine if the order is continuing or not, and determine if
there are any other garnishments for the same period
Non-Statutory Deductions

• Calculate the garnishment amount

• Produce payments: one payable to the court for the garnishment
amount, and one payable to the employee
• If the garnishment is on a continuing basis and the employee
begins receiving a pension, do not garnish the pension
• Do not discuss any details about the garnishment with anyone
except the employee and the related jurisdictional court
Non-Statutory Deductions

Union Deductions
• when a collective agreement or union contract is in place,
employees covered by the agreement or contract are required to
pay dues to maintain membership in the union
Non-Statutory Deductions

• Union dues are tax deductible at source in all jurisdictions except

Québec
• When calculating net federal taxable income, the employee’s
federal gross pensionable/taxable income is reduced by the
amount of union dues in all jurisdictions except Québec
• For Québec employees with union dues deductions, the net
federal taxable income amount will differ from the net provincial
taxable income amount
Non-Statutory Deductions

Company Compulsory Deductions

• deductions which are mandatory through company policy and
are a condition of employment
• the company must have the employee’s written permission
before taking the deduction from employment income
Non-Statutory Deductions

Company compulsory deductions may include:

• provincial health care plan premiums
• registered pension plan (RPP) contributions
• group Registered Retirement Savings Plan (RRSP) contributions
• group benefit plan premiums
Non-Statutory Deductions

Registered Pension Plans

• many employers offer their employees an opportunity to
participate in a registered company pension plan
• these plans are designed to provide income during retirement
and tax savings during the years the employee is contributing to
the plan
Non-Statutory Deductions

• Employee contributions to a registered pension plan (RPP) are

considered tax deductible
• Employee RPP contributions are subtracted from the gross
pensionable taxable income to arrive at net taxable income
Non-Statutory Deductions
EMPLOYEE EMPLOYER
TYPE BENEFIT
CONTRIBUTION CONTRIBUTION
Defined Contribution (or Money Purchase) Pension Specified Specified Unknown
Plan
Defined Benefit Pension Plan Specified Unknown Specified
Group Registered Retirement Savings Plan (RRSP) Permitted * Permitted (treated Unknown
as either a cash or a
non-cash taxable
benefit, depending on
the conditions of the
plan)

Pooled Registered Pension Plan (PRPP) Permitted Permitted Unknown

Voluntary Retirement Savings Plan (VRSP) Specified Permitted Unknown

Non-Statutory Deductions

Defined Contribution Pension Plan or Money Purchase Plan

• this type of plan defines the contributions made to the plan by
the employee, the employer, or both
Non-Statutory Deductions

Common types of contributions made to a defined contribution

plan are:
• flat dollar contribution
• percentage of pensionable earnings contribution
Contributions are deposited in each member’s pension account and
accumulate over time
Non-Statutory Deductions

Example:

Helga Jacobson is a member of a defined contribution pension plan. The plan defines the
contribution as 5% of the employee’s pensionable earnings, with the employer matching the
employee’s contribution.

Helga’s pensionable earnings are $3,600.00 per month. The RPP contribution is calculated as:

RPP contribution = $3,600.00 x 0.05

= $180.00

Both Helga and her employer will contribute $180.00 to the RPP.
Helga’s contribution reduces taxable income.
Non-Statutory Deductions

Defined Benefit Pension Plans

• the amount of pension the employee will receive on retirement is
defined, but the cost to maintain the plan is uncertain
• actuaries study the plan demographics, forecast the future needs
of the plan and develop actuarial valuations to determine the
amount the company must contribute to the plan in order to
ensure there are sufficient funds to make the defined pension
payments to the employees on retirement
Non-Statutory Deductions

• Many defined benefit plans are fully funded by the employer and
therefore non-contributory for the employee
• The employer’s contributions would not show on an individual
pay statement
• Some defined benefit plans allow for employee contributions;
these would appear as a deduction on the employee’s pay
statement
• Employee’s contributions will reduce their taxable income
Non-Statutory Deductions

A group Registered Retirement Savings Plan (RRSP) is a retirement

savings plan that an employer may establish with a financial
agency to facilitate employee participation; the employee has the
opportunity to contribute to the plan through payroll deductions.
Non-Statutory Deductions

A RRSP is a retirement plan, but is not a pension plan. It is a

contract between an individual and an insurer or trustee. It
provides a tax shelter while money is left in the plan. The
characteristics of an RRSP plan are:
• contributions are made out of earned income only
• deductions for contributions are allowed up to specified limits
• investment income is sheltered
• payments out of the plan are fully taxable
Non-Statutory Deductions

RRSP contribution limits are based on the lesser of:

• 18% of the employee’s previous year’s earned income
• the maximum annual RRSP limit less any pension adjustment (PA) and any
past service pension adjustment (PSPA) for the current year and/or prior
years, plus any reported pension adjustment reversal (PAR) reported during
the year attributed to prior years, plus any unused contribution room
carried forward from previous years
Non-Statutory Deductions

Contribution Limit =
Maximum Annual RRSP Limit – PAs – PSPAs + PARs +
unused contribution room carried forward
Non-Statutory Deductions

A pooled registered pension plan (PRPP) is a defined contribution-

style plan that is set up and administered by a Canadian institution
that has been licensed to act as an administrator.
With a PRPP:
• employee contributions are tax deductible
• employer contributions are not required
• employer contributions are not subject to payroll taxes
• there is no pension adjustment reporting
Non-Statutory Deductions

Under Quebec Voluntary Retirement Savings Plan (VRSP)

legislation, employers in Quebec have a mandatory requirement to
offer a VRSP to their employees if:
• they have at least the required number of employees aged 18 or
over who have at least one year of uninterrupted service, as
defined in the Act Respecting Labour Standards and
• they do not offer a registered retirement savings plan (RRSP) or
tax-free savings account (TFSA) for which source deductions
could be made, or a registered pension plan
Non-Statutory Deductions

Group Benefit Plans

• as part of the total compensation package, employers often offer
their employees insurance coverage through a group insurance
plan policy
Non-Statutory Deductions

The employer will contract with an insurer to provide employees

with coverage for various benefits that may include:
• group life insurance
• health and dental
• vision care
• short/long term disability
• accidental death and dismemberment
• employee assistance programs
Non-Statutory Deductions

• Employer-paid premiums for group term life insurance (including

spousal and dependent coverage) and accidental death and
dismemberment insurance, are a non-cash taxable benefit to the
employee, both federally and in Québec
• The value of the benefit must include the Manitoba 7% retail
sales tax, the Ontario 8% retail sales tax and the Québec 9% tax
on insurance premiums
Non-Statutory Deductions

In Québec only, employer-paid premiums for medical, dental and

vision coverage are non-cash taxable benefits. The value of the
benefit must include the 9% tax on insurance premiums.
Non-Statutory Deductions

Voluntary Deductions
• the last withholding in order of priority is voluntary deductions
• employers may offer a variety of programs or benefits that allow
voluntary participation by the employee
• employees must provide written permission for the voluntary
deduction to be withheld from their pay
Non-Statutory Deductions

Charitable Donations
• some employers will hold campaigns for registered charities such
as United Way, the Canadian Cancer Society, or Heart and Stroke
Foundation and allow their employees to donate through regular
payroll deductions
Non-Statutory Deductions

Voluntary Insurance Coverage

• through the provisions of a group insurance plan, employers may
offer employees the opportunity to increase their insurance
coverage by enrolling in an optional life or optional accidental
death and dismemberment plan
Non-Statutory Deductions

The employee can choose the amount of coverage that suits their
personal situation and will pay a rate per $1,000.00 of coverage
per month; there may be a maximum amount of optional coverage
permitted under the plan document.
Non-Statutory Deductions

Carolyn Mills, an Alberta employee, has decided to enroll for

optional life insurance coverage of $250,000.00. Her coverage rate
is $0.36/$1,000.00 per month.

$250,000.00 x $0.36
Premium = $90.00
$1,000.00

Carolyn is paid bi-weekly, so the pay period deduction will be:

$90.00 x 12
= $41.54
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Non-Statutory Deductions

Social Club
• some companies have a social
club established; employees
contribute to the social club fund
on a pay period basis with the
monies collected being used for
parties, entertainment or gifts.
Non-Statutory Deductions

 What types of company-compulsory deductions are required in

your organization?
 Does your organization offer voluntary programs or benefits that
the employees can choose to participate in?
 What, if any, administrative issues do you have with non-
statutory deductions?
 If your current organization does not have voluntary programs
or benefits, which would you recommend be offered to
employees?