Payroll accounting can be a complex and challenging task, especially for those who are not familiar with the various terms and definitions used in the field. As a business owner or payroll administrator, it is important to understand the terminology used in payroll accounting to ensure compliance with tax laws and to avoid errors in processing employee payments. In this blog post, we will discuss some common payroll accounting terms and definitions.
- Gross Pay: Gross pay is the total amount of an employee’s earnings before any deductions are taken out. This includes salary, hourly wages, overtime pay, bonuses, and commissions.
- Net Pay: Net pay is the amount of money an employee receives after deductions have been taken out of their gross pay. Deductions include income tax, Canada Pension Plan (CPP) contributions, Employment Insurance (EI) premiums, and any other voluntary deductions.
- Canada Pension Plan (CPP): The CPP is a mandatory government-run program that provides a retirement pension to eligible Canadians. Both employees and employers are required to contribute to the CPP, with contributions based on the employee’s earnings.
- Employment Insurance (EI): Employment Insurance is a program that provides temporary financial assistance to eligible individuals who have lost their jobs through no fault of their own. Both employees and employers are required to contribute to EI, with contributions based on the employee’s earnings.
- Taxable Benefits: Taxable benefits are non-cash benefits provided by an employer to an employee, such as company cars, housing, or meals. These benefits are considered taxable income and must be included in the employee’s gross pay.
- Taxable Allowances: Taxable allowances are payments made to employees that are not part of their regular salary or wages. Examples include car allowances, cell phone allowances, and travel allowances. These payments are considered taxable income and must be included in the employee’s gross pay.
- Deductions at Source: Deductions at source are mandatory deductions that employers are required to make from an employee’s pay, including income tax, CPP contributions, and EI premiums.
- Statutory Holidays: Statutory holidays are public holidays recognized by the government that employers are required to provide their employees with a day off work or pay them a premium rate for working on the holiday.
- Payroll Register: A payroll register is a document that lists all employee payroll information, including their name, gross pay, net pay, deductions, and any other payroll-related information.
- Record of Employment (ROE): A Record of Employment is a document that employers are required to provide to employees who have stopped working or have experienced an interruption in their earnings. The ROE provides important information about the employee’s employment history and is used to determine their eligibility for EI benefits.
In conclusion, understanding the terminology used in payroll accounting is crucial for ensuring accurate payroll processing and compliance with tax laws. As a business owner or payroll administrator, it is important to stay up to date with any changes in payroll regulations and seek professional advice if needed to avoid costly mistakes.