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Newly hired employee hasn’t provided social insurance number

QUESTION: The company I work for recently hired several new employees. All but one of them has provided me with their social insurance number (SIN). He has told me he will give it to me, but he keeps forgetting. What should I do?

ANSWER: Inform the employee that he is required by law to provide the SIN to the employer.

In order to be employed in Canada, an individual must have a valid SIN. Employees can provide the SIN by showing the employer their SIN card, their SIN confirmation letter from Service Canada, or another document that shows it.

If an employee does not have a SIN, the employer must instruct the employee to go to a Service Canada office to apply for one. Employers must request an employee’s SIN within three days of the employee beginning work.

Employers who are unable to obtain an employee’s SIN should contact Service Canada within six days of the individual beginning work.

If an employee does not provide a SIN, the employer must be able to show that it made a reasonable effort to obtain the number (for example, keep copies of written requests for the SIN).

Employers who do not make a reasonable effort to get a SIN may be fined $100 for each time they fail to obtain it.

Employees who fail to provide their SIN may also be penalized $100 for each time they fail to provide it. Even if employees refuse to provide their SIN, employers must still make the required source deductions from their earnings.

Our company’s directors are Canadian residents. How do I source deductions on their fees?

QUESTION: The payroll department has recently taken over responsibility for paying fees to our company’s directors. Do I take statutory deductions from these payments? All of the directors are Canadian residents.

ANSWER: The way in which source deductions on director’s fees are handled for directors who are Canadian residents depends on whether the employer pays the individual only director’s fees or both director’s fees and salary or wages. Both options are detailed below.

Employer pays only director’s fees:

If you pay only director’s fees and no other salary or wages to the director for work performed in Canada, you have to deduct Canada Pension Plan (CPP) contributions (and pay the employer’s share).

In order to calculate the CPP contribution, payroll must prorate the annual basic exemption over the number of times you pay fees during the calendar year.

The fees are not subject to employment insurance (EI) premiums.

When it comes to income tax, director’s fees are not taxable at source when paid to a director who is not an employee of the company if the total estimated fees for the year do not exceed the claim amount on the TD1 form or, if no TD1 has been filed, the basic personal amount.

If the total estimated fees for the year exceed the claim amount on the TD1 form or the basic personal amount, where applicable, then you must go ahead and deduct income tax.

To calculate the amount to deduct, divide the current fee by the number of months since the last fee was paid or since the first of the year, whichever is later.

Determine the income tax deduction using the Canada Revenue Agency’s (CRA) monthly Payroll Deductions Tables (T4032), and multiply by the same number of months.

Since director’s fees are not insurable for EI, you must add to the income tax deduction the EI credit amount that is found in section A of the tables.

For Quebec employers, director’s fees are subject to Quebec Pension Plan (QPP) contributions, prorated as explained earlier for the CPP.

If the director reports to one of your work locations in Quebec or, if not required to report to any of your business establishments, is paid from one of your business places in the province, the fees are also subject to Quebec Parental Insurance Plan (QPIP) premiums and the employer contribution to the Health Services Fund (HSF).

Director’s fees are not subject to the province’s labour standards levy.

For Quebec provincial income tax, when paying fees to a director who is not an employee of the company, no income tax deductions are required, provided that the estimated fees for the year do not exceed the net amounts indicated on lines 10 and 19 of a Source Deductions Return (TP-1015.3-V).

If the estimated fees exceed these values, determine the income tax deductions in the same manner as for federal
income tax, using the 12-pay-periods-per-month table in Revenu Québec’s Source Deduction Table for Quebec Income Tax (TP-1015.T1-V).

In terms of Quebec provincial income tax, there will be no employee insurance credit involved.

Employer pays both director’s fees and salary or wages:

Director’s fees paid to a director who also receives a regular salary or wages may be subject to CPP contributions depending on the director’s employment conditions as a director and as an employee. If unsure, contact the CRA for more information.

The director’s fees are not subject to EI premiums, although the salary portion may be, depending on the director’s employment status.

For federal income tax, add the amount of the fees to the regular pay period earnings and deduct income tax at the regular rates.

In Quebec, if you pay director’s fees to a Canadian resident in addition to regular salary or wages, the fees are pensionable. To calculate the QPP contribution, add the amount of the fees to the regular pay-period earnings and calculate the contribution in the usual way.

The fees are also subject to QPIP premiums and the employer contribution to the HSF, provided that the director reports to one of your work locations in Quebec or, if not required to report to any of your business establishments, is paid from one of your business places in the province. The fees are not subject to the province’s labour standards levy.

For Quebec income tax purposes, add the amount of the fees to the regular pay-period earnings and deduct income tax at the regular rates.

Different rules apply for directors who are not Canadian residents.