Payroll Glossary
Plain-language definitions of 16 key Canadian payroll terms, including CPP, EI, source deductions, T4 slips, and ROEs.
Bonus Method
The CRA's method for calculating income tax withholding on lump-sum payments like bonuses. The bonus is effectively annualized and taxed at the marginal rate for that income level. Results in higher withholding on the bonus paycheque, but the employee reconciles on their personal tax return.
CPP (Canada Pension Plan)
A federal retirement savings program funded by contributions from employees and employers. Both sides contribute equally, up to the annual maximum. Deducted from every employee paycheque. Employees who are 70 or older, or are receiving CPP retirement benefits and have opted out, may be exempt.
Director's Liability
The legal exposure of a corporation's directors for unpaid payroll remittances. If a corporation fails to remit source deductions, the CRA can hold directors personally responsible for the outstanding amounts, one of the few corporate debts that can pierce the corporate veil.
EI (Employment Insurance)
A federal program that provides temporary income support to workers who lose their jobs or cannot work due to illness, pregnancy, or caregiving. Employees contribute through payroll deductions; employers contribute 1.4 times the employee's premium. Most employees are eligible for EI benefits after accumulating enough insurable hours.
Gross Pay
The total amount an employee earns before any deductions. Includes base salary or hourly wages, plus overtime, commissions, bonuses, and taxable benefits.
Gross-Up
Increasing a payment (typically a bonus) so that after all deductions, the employee receives a specific net amount. Used when you want the employee to take home a defined dollar figure.
Net Pay
What the employee actually receives after all deductions (income tax, CPP, EI, and any voluntary deductions like benefits). Gross pay minus total deductions.
Off-Cycle Payroll
A payroll run processed outside the regular pay schedule, used for corrections, bonuses, termination pay, or other one-off payments.
Payroll Account (RP Account)
A sub-account of your CRA Business Number specifically for payroll. Used to remit source deductions. Your payroll account number ends in "RP" (e.g., 123456789 RP 0001).
Record of Employment (ROE)
A document issued to an employee when their employment ends or there is an interruption in earnings (layoff, leave, etc.). Used by the employee to apply for EI benefits. Must be issued within 5 calendar days of the last day worked.
Remittance
The payment of withheld source deductions to the CRA. Due by the 15th of the month following the pay period for most small employers. Late remittances are subject to penalties and interest.
Source Deductions
The amounts withheld from an employee's paycheque and remitted to the CRA: income tax, employee CPP contributions, and employee EI premiums. Plus the employer's matching CPP and EI contributions.
T4 Slip
The annual tax slip issued to employees summarizing their employment income and source deductions for the calendar year. Must be provided to employees and filed with the CRA by the last day of February.
T4A Slip
Similar to a T4 but for non-employment income, used for payments to contractors, pension income, RESP payments, and other amounts. Required for contractors paid more than $500 in a calendar year.
TD1 Form
A form completed by employees declaring their personal tax credits for federal and provincial income tax withholding purposes. The Federal TD1 and the provincial TD1 are both required. Determines how much income tax is withheld from each paycheque.
Taxable Benefit
A non-cash benefit provided by an employer that the CRA treats as employment income. Examples: use of a company vehicle, employer-paid group life insurance premiums over $500/year, gifts over $500/year. Must be included on the T4 and is subject to source deductions.