Learn about the two terms payroll and pay stub

Learn about the two terms payroll and pay stub

In Canadian labor laws and employment practices, payroll and pay stub are fundamental terms that every newcomer to Canada should understand. These terms relate to how employees are compensated and how payment details are documented.

1. Payroll

Definition:

Payroll refers to the system or process by which an employer calculates and distributes wages, salaries, and deductions to employees.

Key Aspects:

  • Payment of Wages:
    • Employees are paid regularly, typically on a weekly, bi-weekly, semi-monthly, or monthly basis.
    • Wages can be distributed via direct deposit into a bank account or as a physical cheque.
  • Deductions:
    • Employers are required to withhold certain amounts from employees’ wages for government programs and taxes, including:
      • Income Tax: Federal and provincial/territorial taxes based on earnings.
      • Canada Pension Plan (CPP) Contributions: For retirement benefits (Quebec has its own plan, the QPP).
      • Employment Insurance (EI) Premiums: Provides temporary financial support during unemployment or specific leaves (e.g., maternity leave).
  • Employer Responsibilities:
    • Accurately calculate gross pay, deductions, and net pay.
    • Remit deductions to the Canada Revenue Agency (CRA) on behalf of employees.
    • Provide employees with a Record of Employment (ROE) upon job termination or when employment is interrupted.
  • Payroll Taxes:
    • Employers also contribute to CPP/QPP and EI on behalf of employees, in addition to withholding amounts from wages.

Why It’s Important:

Understanding payroll ensures employees know how much they are paid, what deductions are made, and why. It also helps in budgeting and understanding contributions to social programs.

2. Pay Stub

Definition:

A pay stub (sometimes called a pay slip) is a document provided to employees with each paycheck. It details the breakdown of their earnings and deductions.

Key Components:

  1. Employee Information:
    • Name
    • Employee ID (if applicable)
    • Pay period (start and end dates)
  2. Earnings:
    • Gross Pay: Total earnings before deductions (includes base salary, overtime, bonuses, and commissions).
    • Hourly Rate and Hours Worked: For hourly employees, the number of hours worked and the hourly rate.
    • Overtime Pay: Additional pay for hours worked beyond standard work hours.
    • Vacation Pay: Any vacation pay accrued or paid out.
  3. Deductions:
    • Income Tax: Federal and provincial/territorial income tax withheld.
    • CPP/QPP Contributions: Employee’s portion of pension plan contributions.
    • EI Premiums: Employee’s contribution to Employment Insurance.
    • Other Deductions: May include union dues, workplace pension contributions, or company benefits premiums.
  4. Net Pay:
    • The amount the employee receives after all deductions are applied (the "take-home" pay).
  5. Year-to-Date (YTD) Totals:
    • Cumulative earnings, deductions, and contributions since the beginning of the calendar year.

Why It’s Important:

Pay stubs are essential for:

  • Verifying earnings and deductions.
  • Ensuring compliance with employment and tax laws.
  • Maintaining personal financial records.
  • Applying for loans, mortgages, or benefits, as they often require proof of income.

What Should Newcomers Know?

  1. Understand Your Pay Stub:
    • Review your pay stub regularly to ensure accuracy in your earnings and deductions.
    • Any discrepancies should be reported to your employer immediately.
  2. Keep Records:
    • Store your pay stubs and payroll information securely. They may be needed for tax filing, loan applications, or employment verification.
  3. Know Your Rights:
    • Employers are required to provide clear and detailed pay stubs under most provincial employment standards.
    • You have the right to understand how your wages and deductions are calculated.
  4. Be Aware of Common Payroll Terms:
    • Gross Pay: Total earnings before deductions.
    • Net Pay: Earnings after deductions.
    • Deductions: Mandatory (taxes, CPP, EI) and optional (benefits, pensions).
  5. Access to Payroll Records:
    • Employers must keep payroll records for each employee (typically for several years, as required by law).
    • Employees have the right to request their payroll records.

Relevant Labor Laws:

  • Federal Jurisdiction: If you work for a federally regulated employer (e.g., banks, airlines), payroll practices are governed by the Canada Labour Code.
  • Provincial Jurisdiction: Each province or territory has its own employment standards that outline payroll and pay stub requirements (e.g., Ontario’s Employment Standards Act, British Columbia’s Employment Standards Act, etc.).

By understanding payroll and pay stubs, newcomers can ensure they are compensated correctly, remain informed about deductions, and gain insights into their financial contributions to Canadian social programs.