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Supported pay types and deductions explained

Here are descriptions of the supported pay types and deductions in QuickBooks Online Payroll as well as how each impacts federal taxes and forms.

Pay types

A common question new employers have when hiring employees is about compensation. Should the employee be salaried, hourly, or commission? What other pay should be included in the employee's overall compensation?

Salary

A salaried employee is hired based on a prearranged compensation for work performed, usually as an annual amount. Salaried employees are occasionally exempt from overtime pay and minimum wage requirements (depending on your province's labour laws) and often have managerial or professional responsibilities.

Hourly

An hourly employee is paid for each hour worked and is generally a non-managerial, service, retail, or part-time employee. Most hourly employees are considered non-exempt from federal labour laws, which means they receive overtime pay whenever they work more than 40 hours a week.

Commission

Commission is a form of compensation that's typically based on an employee's sales performance or completion of a task. Commission can be paid in addition to a salary or instead of a salary. Hourly employees who also receive a commission must be paid at least the minimum wage for hourly workers.

You can add multiple types of commission pay and give each one a unique name. The custom pay types will then be available when you set up your other employees.

Overtime

Typically, overtime is paid for any hour an employee works beyond an 8-hour workday or a 40-hour workweek. Employers must pay hourly employees at least 1.5 times their regular pay rate for every overtime hour worked. These numbers might vary depending on different provincial labour laws or if an employee's regular workday with a company is over 8 hours.

For example, let’s say an employee works 48 hours during a workweek. When you run payroll, just enter 40 hours in the regular hourly pay box and 8 hours in the overtime box. We do the math to make sure the overtime is calculated correctly on the employee’s paycheque.

For more information about overtime laws, check the Hours of Work (Government of Canada Labour Program).

Double Overtime

Double overtime is two times an employee's highest, hourly pay rate. Employees must be paid double overtime for:

  • Any hour worked beyond a 12-hour workday
  • All of the hours worked that go beyond 8 hours on the seventh consecutive day of work in a work week

Controlled Tips

Controlled tips are tips and gratuities that at some point have come under control or management of the employer before being paid out to the employees. Examples include:

  • Automatic service charges/fees, like those for large parties, that are processed as part of the total bill.
  • Tip pooling in which the employer is directly involved in distributing the funds among a group of employees.
  • Tips applied to credit or debit cards that are returned electronically to employees.

Stat Holiday Pay

Statutory Holiday pay is paid time off for religious, government, or statutory holidays when a business may be closed and the employee is allowed to take the time off from work.

Bonuses

A bonus is a compensation over and above the amount of pay specified as a base salary or hourly rate.

You might want to give bonuses to thank employees or a team for reaching a significant goal, or to improve employee morale, motivation, and productivity. Bonuses can be distributed randomly as the company can afford to pay a bonus, or as specified by an employment contract.

Allowances

An allowance is a taxable payment to an employee that's separate from regular wages.

It's typically paid with each payroll to cover job-related costs, such as uniforms or auto usage, but it's taxable because it's not dependent upon actual receipts. Allowance amounts are not included in the pay base for calculation of percentage-driven deductions such as RRSP amounts.

Reimbursements

Reimbursements are nontaxable payments to an employee used to repay business-related expenses that the employee has paid out-of-pocket.

Don't include expenses that have tax implications, such as moving expenses. Typically this includes expenses incurred for limited or regular business travel.

Because these payments aren't taxable, they don't appear on payroll tax or other tax reports. They're also not included in the wage base used to calculate percentage-driven deductions.

You can add multiple reimbursement pay types and keep the default name we provide or give them each a unique name. In addition to being available for this employee, the custom pay types will also be available when you add or edit your other employees.

Taxable Benefits (in cash)

Taxable benefits (in cash) are those benefits whose amounts are included on a paycheque. These are different from taxable benefits (non-cash), which are not included on a paycheque.

Note: All of these benefits can be offered as in cash or non-cash, so be sure to use this pay type for in cash and the deductions/contributions type Non-cash taxable benefits for non-cash.

Some Examples of Taxable and Non-Taxable Benefits:

  • Company Vehicle - If an employee uses a company vehicle for non-work related purposes it is considered a taxable benefit. You must keep records of mileage driven for personal and business purposes and calculate the benefit accordingly. The Canada Revenue Agency (CRA) has an Automobile Benefits Online Calculator for this purpose.
  • Room and Board - Free or subsidized room/board provided to an employee is a taxable benefit unless the employee is temporarily engaged in work activities at a remote job site.
  • Mobile Phone - Internet access or mobile phone usage for personal reasons is not considered a taxable benefit if it does not exceed what is included in a basic, fixed-cost plan. Otherwise, the value of personal use must be calculated accordingly and reported as a taxable benefit.
  • Child Care Expenses are a taxable benefit unless child care is provided to all employees at the place of business for little or no cost.
  • Gifts - Cash gifts or gift certificates are considered taxable benefits. Non-cash gifts and awards have special rules; see the Canada Revenue Agency's rules for gifts and awards and policy for non-cash gifts and awards.
  • Transit Passes - Transit passes are a taxable benefit unless the employee works in a transit-related business (such as a bus, train, or ferry service business).
  • Parking - If ample free parking is not available and the employer provides parking, this is a taxable benefit (based on fair market value) unless the employee is disabled or regularly needs to use a vehicle for business purposes.
  • Medical Expenses - If the employer provides a designated sum for medical expenses annually it is a taxable benefit. However, company-paid private medical, dental, or vision care plans are not taxable benefits.
  • Meals - Subsidized meals in an onsite cafeteria (where the employee pays a reasonable cost) are not considered a taxable benefit. Meals or an allowance for meals provided for working overtime are not taxable benefits unless it is a regular occurrence (see the CRA's Examples – Overtime meals or allowances).
  • Clubs and Recreational Facilities - If the employer pays or subsidizes the cost of membership or attendance at a recreational facility such as a gym, pool, golf course, etc. it is considered a taxable benefit. But if the employer provides a free or subsidized onsite facility available to all employees, it is not a taxable benefit. For more information, consult the CRA Interpretation Bulletins IT-470, Employees' Fringe Benefits and IT-148, Recreational Properties and Club Dues.

Other Earnings

Other earnings are taxable payments to an employee that are separate from regular wages, such as retroactive pay increases and severance pay. The amounts are included in the wage base and used to calculate percentage-driven deductions.

For some general guidelines and advice on pay and other compensation, check out the Government of Canada Labour Program website for more information.

When setting up deductions, company contributions, and pay types for your employees in QuickBooks Online Payroll (QBOP), there may be special rules regarding the way those payroll items should be taxed. QuickBooks Online Payroll offers the most common types to automatically calculate your taxes, and include them on your forms, when applicable.

This table serves as a quick reference guide for users of QuickBooks Online Payroll. It shows what's taxed and what's not when you pay your employees in Canada.

For reference:

  • Taxable: Wages or contribution items are fully taxed.
  • Pre-tax: Deduction items are exempt from tax and reduce taxable wages (decreasing tax withheld).

Which pay types earn vacation?

AB BC MB NB
Minimum Time 2 Wks 2 Wks 2 Wks 2 Wks
Accrue: Hours/Year 80 80 80 80
Accrue: Per Hour Worked 0.04 0.04 0.04 0.04
Pay Each PP: Minimum % 4.00% 4.00% 4.00% 4.00%
SUBJECT TO VACATION $$ $$ $$ $$
Salary Y Y Y Y
Hourly Y Y Y Y
Commission Only Y Y Y Y
Bonus Only N N N N
Overtime N Y N Y
Double Overtime N Y N Y
Sick Pay N Y Y N
Stat Holiday pay N Y Y N
Bonus Y Y Y Y
Commission Y Y Y Y
Allowance N N N N
Reimbursement N N N N
Other Earnings N N N N
Vacation Pay Accrual Paid Out Y Y N N
Vacation Paid Every Period N N N N
NL NT NS
Minimum Time 2 Wks 2 Wks 2 Wks
Accrue: Hours/Year 80 80 80
Accrue: Per Hour Worked 0.04 0.04 0.04
Pay Each PP: Minimum % 4.00% 4.00% 4.00%
SUBJECT TO VACATION $$ $$ $$
Salary Y Y Y
Hourly Y Y Y
Commission Only Y Y Y
Bonus Only (discretionary) N N N
Overtime Y Y Y
Double Overtime Y Y Y
Sick Pay N N Y
Stat Holiday pay Y Y Y
Bonus (Work Related) Y Y Y
Commission Y Y Y
Allowance N N N
Reimbursement N N N
Other Earnings N N N
Vacation Pay Accrual Paid Out Y Y N
Vacation Paid Every Period N N N
NU ON PE
Minimum Time 2 Wks 2 Wks 2 Wks
Accrue: Hours/Year 80 80 80
Accrue: Per Hour Worked 0.04 0.04 0.04
Pay Each PP: Minimum % 4.00% 4.00% 4.00%
SUBJECT TO VACATION $$ $$ $$
Salary Y Y Y
Hourly Y Y Y
Commission Only Y Y Y
Bonus Only N N N
Overtime Y Y Y
Double Overtime Y Y Y
Sick Pay Y Y Y
Stat Holiday pay Y Y Y
Bonus Y Y Y
Commission Y Y Y
Allowance N N N
Reimbursement N N N
Other Earnings N N N
Vacation Pay Accrual Paid Out Y N N
Vacation Paid Every Period N N N
QC SK YT
Minimum Time 2 Wks 3 Wks 2 Wks
Accrue: Hours/Year 80 120 80
Accrue: Per Hour Worked 0.04 0.06 0.04
Pay Each PP: Minimum % 4.00% 5.77% 4.00%
SUBJECT TO VACATION $$ $$ $$
Salary Y Y Y
Hourly Y Y Y
Commission Only Y Y Y
Bonus Only N N N
Overtime Y Y Y
Double Overtime Y Y Y
Sick Pay Y N Y
Stat Holiday pay Y Y Y
Bonus Y Y Y
Commission Y Y Y
Allowance N N N
Reimbursement N N N
Other Earnings N N N
Vacation Pay Accrual Paid Out Y Y N
Vacation Paid Every Period N N N

Tax breakdown of Pay Types, Deductions, and Company-paid Contributions

Pay Types

Annual Tax Forms

Federal Income QC Income EI/QPIP CPP/QPP Report in T4 Box: Report in RL-1 Box:
Salary Taxable Taxable Taxable Taxable 14,24,26,56 A,G,I
Regular/Hourly and Overtime Pay Taxable Taxable Taxable Taxable 14,24,26,56 A,G,I
Controlled Tips Taxable Taxable Taxable Taxable 14,24,26,56 A,G,I,S
Sick Pay Taxable Taxable Taxable Taxable 14,24,26,56 A,G,I
Vacation Taxable Taxable Taxable Taxable 14,24,26,56 A,G,I
Stat Holiday Pay Taxable Taxable Taxable Taxable 14,24,26,56 A,G,I
Bonus Taxable Taxable Taxable Taxable 14,24,26,56 A,G,I
Commission Taxable Taxable Taxable Taxable 14,24,26,56,42 A,G,I,M
Allowance Taxable Taxable Taxable Taxable 14,24,26,56 A,G,I
Other Earnings Taxable Taxable Taxable Taxable 14,24,26,56 A,G,I
Reimbursements Non-taxed Non-taxed Non-taxed Non-taxed n/a n/a
Taxable Benefits (in cash) Taxable Taxable Taxable Taxable 14,24,26,56,40 A,G,I,L

Payroll Deductions

Annual Tax Forms

Federal Income QC Income EI/QPIP CPP/QPP Report in T4 Box: Report in RL-1 Box:
AD & D - - - - - -
Board/lodging - - - - - -
Cash Advance Repayment - - - - - -
Charitable Donation - - - - 46 N
Child care expenses - - - - - -
Company vehicle - - - - - -
Counselling services - - - - - -
Critical illness - - - - - -
Disability benefits - - - - - -
Gifts and awards - - - - - -
Life insurance - - - - - -
Loan interest - - - - - -
Loan Repayment - - - - - -
Meals - - - - - -
Medical expenses - - - - - -
Mobile phone/internet - - - - - -
Moving expenses - - - - - -
Other After Tax Deductions - - - - - -
Parking - - - - - -
Private Health Care - - - - 85 235
Professional fees - - - - - -
Recreational facilities - - - - - -
Registered Pension Plan Pre-tax Pre-tax - - 20 D
Registered Retirement Savings Plan Pre-tax Pre-tax - - - -
RRSP administrative fees - - - - - -
Social events - - - - - -
Tickets - - - - - -
Transportation expense - - - - - -
Travelling expenses - - - - - -
Tuition fees - - - - - -
Uniforms - - - - - -
Union Dues Pre-tax - - - 44 F
Utilities benefit - - - - - -

Payroll Contributions

Annual Tax Forms

Federal Income QC Income EI/QPIP CPP/QPP Report in T4 Box: Report in RL-1 Box:
AD & D Y Y - Y 14,26,40 A,G,L
Board/lodging Y Y - Y 14,26,30 A,G,V
Child care expenses Y Y - Y 14,26,40 A,G,L
Company vehicle Y Y - Y 14,26,34 A,G,W
Counselling services Y Y - Y 14,26,40 A,G,L
Critical illness Y Y - Y 14,26,40 A,G,L
Disability benefits Y Y - Y 14,26,40 A,G,L
Gifts and awards Y Y - Y 14,26,40 A,G,L
Life insurance Y Y - Y 14,26,40 A,G,L
Loan interest Y Y - Y 14,26,36 A,G,L
Meals Y Y - Y 14,26,40 A,G,L
Medical expenses Y Y - Y 14,26,40 A,G,L
Mobile phone/internet Y Y - Y 14,26,40 A,G,L
Moving expenses Y Y - Y 14,26,40 A,G,L
Parking Y Y - Y 14,26,40 A,G,L
Private Health Care - - - - - A,J
Professional fees Y Y - Y 14,26,40 A,G,L
Recreational facilities Y Y - Y 14,26,40 A,G,L
Registered Pension Plan - - - - - -
Registered Retirement Savings Plan - - Y Y 14,24,26,40,56 A,G,I,L
RRSP administrative fees Y Y - Y 14,26,40 A,G,L
Social events Y Y - Y 14,26,40 A,G,L
Tickets Y Y - Y 14,26,40 A,G,L
Transportation expense Y Y - Y 14,26,40 A,G,L
Travelling expenses Y Y - Y 14,26,40 A,G,L
Tuition fees Y Y - Y 14,26,40 A,G,L
Uniforms Y Y - Y 14,26,40 A,G,L
Utilities benefit Y Y - Y 14,26,40 A,G,L

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