Transcript

Host: Welcome to the segment called Paying and hiring new employees, part of the Payroll Information for a New Small Business video.

I'm Kathleen Sinclair, your host for this segment.

With me is Nicole Belanger.

Welcome Nicole.

Subject matter expert: Thank you, Kathleen.

Host: I think we're ready to hire our first employees. What will we need from them?

Subject matter expert: The two most important things to get from every employee are their social insurance number, also called the SIN, and a completed federal and provincial or territorial Form TD1, which is called the Personal Tax Credits Return, or simply the TD1.

Host: What happens if an employer doesn't manage to get these items?

Subject matter expert: The employer is expected to make a reasonable effort to get both the SIN and the TD1 from their employees.

Host: For now let's deal with the SIN and the TD1 issues separately. Starting with the SIN, can you give an example of what would qualify as a reasonable effort?

Subject matter expert: Certainly. If you contact an employee by mail to ask for their SIN, be sure to record the date of your request and keep a copy of any correspondence that relates to it.

This is considered making a reasonable effort.

Host: Okay. What happens if you don't make the effort?

Subject matter expert: You could be subject to a penalty of $100 for each case where you don't make a reasonable effort to get your employee's SIN.

Host: Is there anything else an employer should know about when asking for the SIN?

Subject matter expert: Yes, there are a couple of things to look out for if the person you hire is not a Canadian citizen or permanent resident of Canada. If that's the case, make sure that if the person's SIN begins with a 9, that the SIN has an expiry date and has not expired, and that the person has a valid work permit issued by Citizenship and Immigration Canada.

Host: Okay. Now let's look at Form TD1. You mentioned that this form should be completed by the employee.

Nicole, what more can you tell me about this form?

Subject matter expert: The employer uses Form TD1 to calculate how much income tax to deduct from their employee's pay.

Individuals who have a new employer or payer have to fill out and sign the federal TD1. If they are claiming more than the basic personal amount, they must also fill out the provincial or territorial TD1. Keep in mind that the personal tax credits can only be claimed once. So, for example, when an employee has more than one employer they have to fill out Form TD1 for each employer. However, they would only claim the personal tax credit amounts once.

Individuals don't have to fill out a new TD1 every year unless there is a change in their entitlements to federal, provincial, or territorial personal tax credit amounts. If there is a change, they have to complete a new form no later than seven days after the change.

Host: What do you mean by a change in their entitlements?

Subject matter expert: This means if their situation changes. For example, if they have a new child, their number of eligible dependants will have changed. That employee would then want to fill out a new form to deduct less tax.

Host: Okay. What would an employer do if an employee asks to have extra tax deducted? Can an employer deduct extra tax?

Subject matter expert: Yes, you can deduct extra tax if an employee asks you to do so. The employee needs to complete and sign federal Form TD1 that will show how much more tax they want withheld.

The employee has to indicate the amount in the section called "Additional tax to be deducted" on page 2 of Form TD1. You then add that amount to the income tax you normally withhold from that employee's pay.

The additional tax will continue to be deducted until the employee asks for a change by filing a new Form TD1.

Host: So what do I do with the TD1 forms?

Subject matter expert: Well, as an employer, you keep the federal and provincial or territorial TD1 in your employee's file.

You have to deduct tax according to the claim code that corresponds to the total claim amount on the form.

To determine the deductions using the payroll deductions online calculator, enter the total figures from the TD1, along with some other information.

We'll talk more about the payroll calculator in the segment of this video called Using the payroll deductions online calculator.

Host: What happens if a new employee doesn't complete and sign the form and it's time to calculate the amount of tax to withhold?

Subject matter expert: If the employee does not complete and sign Form TD1, you are still responsible for deducting taxes, but you allow the basic personal amount only.

Host: Where can I get more information on filling out the TD1?

Subject matter expert: For more information go to the CRA's webpage called Filing Form TD1, Personal Tax Credits Return.

The link is included in the Related links for this segment.

Host: What are some other things the employer has to consider when putting someone on the payroll?

Subject matter expert: The employer has to consider the amount of salary, wages, or other amounts like vacation pay the employer will pay; and what benefits or allowances, if any, they will give to the employee.

For more information, see the Employee benefits segment of this video.

Host: Thank you Nicole.

This concludes the segment called Paying and hiring new employees, part of the CRA's Payroll Information for a New Small Business video.

Thank you for watching.