Federal Payroll Deductions (continued)
Nature of The Employment Relationship
It is essential that you determine whether you are an employer because if you are not an employer payroll deductions will not apply to you. An employer/employee relationship usually exists if you have the right to control and direct the person who performs services for you. It is the right to exercise control that is relevant, not whether you actually exercise your right. In general, those who pay wages or salaries to others for the performance of services are considered to be employers by CRA.
The first step is to determine whether the relationship you have with those who work for you is a contract of employment as opposed to an independent service contract. See the CRA guide Employee or Self-employed for more information. Determination of an employment relationship is essentially a question of fact. The Supreme Court of Canada in 671122 Ontario v. Sagaz, 2001 SCC 59 stated at 47:
The central question is whether the person who has been engaged to perform the services is performing them as a person in business on his own account. In making this determination, the level of control the employer has over the worker’s activities will always be a factor. However, other factors to consider include whether the worker provides his or her own equipment, whether the worker hires his or her own helpers, the degree of financial risk taken by the worker, the degree of responsibility for investment and management held by the worker, and the worker’s opportunity for profit in the performance of his or her tasks.
No single factor is determinative. If you have any doubts about whether an employer/employee relationship exists, you can request a ruling from CRA. More information on requesting a ruling can be found on the CRA site at the following link: Request for a ruling as to the status of a worker.
Opening a Payroll Account
If you already have a BN, you only need to add a payroll account to your existing BN. If you do not have a BN, you will need to register for a BN and a payroll account. You can register by phone, mail, in person, or through the integrated Business Registration On-line service found on the CRA website. This convenient service lets you register a business for a Business Number and register for all the CRA programs including payroll deductions, GST/HST, and (if you are practising through a law corporation) corporate income tax accounts.
You should register for your payroll account before the first remittance due date. In most cases the first remittance due date will be the 15th day of the month following the month you paid your employees. If your first employee starts work on March 16, and you pay wages on the 15th and 30th of each month, the first payroll will be on March 30th. In this example, you should register for a payroll program account before April 15th and your first remittance is due on April 15.
Even if you have not opened your account before the due date, you are still responsible to calculate the deductions and remit. There is a penalty for failure to deduct and remit amounts on time.