What are the Components of Payroll?
Payroll management covers multiple aspects of wage transactions to cover all government requirements and employee needs adequately. Four main components make up payroll in a company; these include:
- Gross income
- Employee benefits
- Employee insurance
- Payroll taxes
Gross income, or gross pay, is the total amount of money an employee has earned in a pay period before deductions or taxes are taken out.
Calculating gross income will depend on whether the employee is paid hourly or is a salaried worker. To find the gross income of hourly employees, all that is required is to multiply their hourly pay rate by the total number of regular hours worked. If the employee workers overtime, then the overtime hours worked must be multiplied by the overtime rate of pay. Then the two figures are added together to find the total gross wages per employee.
For salaried employees, the gross pay is a set amount every payroll period. Any bonuses given within a pay period must be added to hourly and salaried employees' total gross income.
Employee benefits are part of an employee's compensation package, which must be deducted from the payroll and differ from business to business. Depending on your business, you may or may not have employee benefits attached to the payroll. This decision is something you must take into consideration when hiring employees.
Offering benefits to your workers is one way of showing them you are invested in them, and not just their work. Offering a quality employee benefits package is one way of attracting and retaining employees for your business.
Canadian employers are required by law to withhold contributions to the Canadian Pension Plan (CPP) and Employment Insurance (EI) premiums for all employees aged 18 to 70. For employers located in Quebec, they must contribute to the Quebec Pension Plan (QPP), instead of the CPP.
Employee insurance is paid by both the employer and employee, as it funds the maternity and paternity leave, as well as sickness and compassionate care. Again, Quebec has its own program.
Taxes are a mandatory form of deduction that must be taken out of a person's gross income. Payroll tax is a separate form of taxation and differs from federal income tax. Each province has applicable payroll deductions, as shown on the CRA's payroll deductions table.
The Canada Revenue Agency (CRA) mandates that all businesses must set up an account with them through the Business Registration Online (BRO) service to receive a Business Number. As an employer, you must set up this account before the first remittance due date, allowing you to pay the Canadian government's payroll taxes.
A payroll calculator helps you calculate the gross pay, deductions, net pay, and taxes for each employee. These free online calculators will need you to enter applicable data each time you need to calculate wages and deductions. Payroll software allows for automatic calculations, saving all information for further processing.