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Payroll Fundamentals 1|162 Questions
With Correct Verified Answers
RQ and CRA define a car allowance as reasonable if: - Correct answer - The
allowance is based solely on business kilometres driven in a calendar year
- the amount provided is based on the following government-prescribed reasonable guidelines
- $0.58 per km for the first 5,000 business km's in the year ($0,62 in the Yukon, NWT & Nunavut)
- $0.51 thereafter ($0.56 for YK, NWT, NT)
- the employer does not reimburse the employee for expenses related to the same use of the vehicle
Personal Driving includes: - Correct answer - vacation travel
- driving to conduct personal business
- travel between home and work, even if the employer insists the employee drive the vehicle home
Business driving includes: - Correct answer - driving to existing and prospective
clients, points of call, and other office locations of the employer
- when an employee travels directly from home to a point of call, which is not the employer's place of business where the employee regularly reports for work
- when the employees travels home directly from a point of call
Availability (automobiles) - Correct answer The number of thirty-day periods that
the automobile is available to the employee for the current taxation year. The employee has access to or control over the vehicle.
Automobile - Correct answer A motor vehicle that is designed or adapted to
primarily carry individuals on highways and streets, and has seating capacity of not more than the driver and eight passengers
If a gift or award is given to an employee in cash - Correct answer The amount is
considered pensionable, insurable and taxable to the employee, subject to all statutory deductions
Overtime meal allowance is considered non-taxable if (RQ): - Correct answer -
overtime is done at the employer's request and is expected to last for at least two consecutive hours
- overtime is done rarely or on an occasional basis
- the meal expenses are reimbursed upon presentation of receipts
- the meal expenses reimbursed or the value of the meal provided is reasonable
The four categories of employment income - Correct answer - Earnings
- Allowances
- Benefits
- Taxable expense reimbursement
Earnings - Correct answer Dollar amounts the employer pays an employee for the
work they perform
Types of earnings - Correct answer - a salary
- a rate for each hour worked
- a rate per piece of goods produced or picked
- a disability payment for time off work due to illness
- a payment for vacation time
- a premium payment for overtime hours worked
- a premium payment for hours worked on shift
Allowances - Correct answer Additional dollar amounts paid to employees for the
use, or anticipated use, of their personal property for business purposes
Benefits - Correct answer Dollar values attributed to something the employer has
either provided to an employee or paid for on an employee's behalf
Expense Reimbursements - Correct answer Dollar amounts paid to employees to
cover expenses that they incur while performing their job.
Regular payments - Correct answer Have an established frequency, such as
weekly-paid salary or wages
Non-regular payments - Correct answer payments that do not occur each pay
period, for example, a bonus or a retroactive adjustment
Salary - Correct answer A fixed amount of money paid to an employee for each
pay period.
Salary per pay period - Correct answer Annual salary / number of pay periods per
year
Wages - Correct answer Earnings which are based on the amount of time worked,
usually at a rate per hour or per day
Regular earnings - Correct answer Hourly rate x pay period regular hours worked
Piecework - Correct answer A rate of pay earned per unit of production,
regardless of the length of time taken
Self-Insured Disability - Correct answer Employers often offer disability coverage
that provides their employees with income in the event of absence due to illness or injury
Sick Pay - Correct answer An amount paid to an employee who is absent from
work due to illness or injury. Paid sick leave is only legislated in two provinces, PEI and Quebec. With the other provinces paid sick leave is up to the employer.
Formal Plans - Correct answer A plan structured to balance both the needs of the
employee and the employer. Formal plans will outline provisions for the amount of sick leave, and whether the leave can be carried over to a following year.
Informal plans - Correct answer Informal, unwritten plans exist in organizations
that have no formal policy for sick leave.
Wage-loss replacement plans (WLRP) - Correct answer An agreement between
an employer and employees, or between an employer and a group or association of employees, under which the employees are compensated with payment on a periodic basis or the loss of employment income as a result of sickness, disability, maternity, or injury.
Short-term disability plans - Correct answer Plans that provide pay to an
employee when he or she is unable to work because of a non-work-related illness or injury
Long-term disability plans - Correct answer Plans that provide disability income to
employees who have exhausted their short-term disability coverage and are still unable to return to full-time employment
Vacation Pay - Correct answer The amount paid to an employee while off work on
vacation leave
Overtime - Correct answer Time worked beyond the normal work day or work
week
Shift Premiums - Correct answer Additional amounts paid over and above an
employee's normal salary or hourly rate for working on an evening or midnight shift
Overtime meal allowance is considered non-taxable if (CRA): - Correct answer -
the cost of the meal is reasonable (up to $17)
- the employee must work two or more hours of overtime before or after their scheduled hours of work
- the overtime is infrequent and occasional in nature and occurs usually less than three times a week
Meal allowance - Correct answer An amount paid or reimbursed to an employee
that is intended to cover the cost of a missed meal due to working overtime or meal expenses incurred while on employer business
Tax on unreasonable car allowances - Correct answer Included in an employee's
income and subject to statutory deductions
Tax on reasonable car allowances - Correct answer Reasonable car allowances
are non-taxable and excluded from income
Car allowances can be provided as: - Correct answer - Flat amount
- Fixed amount per business kilometer driven
- Credit card or reimbursement for gas purchases
Car Allowance - Correct answer An amount paid or reimbursed to an employee
who uses their personal automobile for business
Cash taxable benefits - Correct answer Subject to all statutory withholdings
Non-Cash taxable benefits - Correct answer Subject to all statutory withholdings,
except for EI and QPIP premiums
If the employer reimburses employees for money they paid for the benefit - Correct
answer The reimbursement is included in the employee's income as a cash taxable
benefit
If the employer pays a taxable benefit to a third party - Correct answer The value
is included in the employee's income as a non-cash taxable benefit
Taxable Benefits - Correct answer When an employer provides employees with
items that are to the employee's benefits, the CRA and RQ may determine that the benefit is taxable to the employee
Taxable Benefit: Short-term and Long-term disability plans - Correct
answer There is no taxable benefit
Taxable Benefit: Fees paid to employee for employee assistance plan - Correct
answer Considered a cash taxable benefit
Taxable Benefit: Fees paid directly to the provider for an employee assistance plan -
Correct answer not considered a taxable benefit
Employee assistance plans - Correct answer Make confidential counselling
services available to employees for physical or mental health counselling or family counselling
Taxable Benefit: Provincial health insurance plans - Correct answer Not
considered a taxable benefit Taxable Benefit: Private health insurance plans (all provinces except Quebec) -
Correct answer Not considered a taxable benefit
Taxable Benefit: Private health insurance plans (Quebec) - Correct
answer Considered a non-cash taxable benefit
Taxable Benefit: Premiums paid for non-group plans (disability) - Correct
answer Considered a non-cash taxable benefit
Taxable Benefit: Accidental death & dismemberment (AD&D) plans - Correct
answer Premiums are considered a non-cash taxable benefit
Taxable Benefit: Group Term Life Insurance Plans - Correct answer All premiums
paid by the employer are taxable Registered Retirement Savings Plan (RRSP) contributions are non-taxable if: -
Correct answer - The employee cannot withdraw the amounts from the group
RRSP until they retire or cease to be employed
- are only allowed to withdraw funds under the Home Buyers' Plan Lifelong Learning Plan
Personal living expenses - Correct answer If an employer reimburses an
employee for personal living expenses the expense reimbursement is taxable
When a clothing allowance is taxable - Correct answer When the employee has
the freedom to choose what they will wear and is not a distinctive uniform or required for safety reasons
Calculation of the taxable benefit on a regular loan - Correct answer tax on the
interest the employee would have paid at the government-prescribed interest rate
Taxable benefit: Regular loan - Correct answer if it is received interest-free or
below the government's interest rate it is considered a taxable benefit When an employer provides a loan to an employee they must be classified as: -
Correct answer a regular loan or a home purchase loan
There is no taxable benefit for tuition if: - Correct answer - An employer pays for
an employee's course that is specifically related to the employee's position or career advancement and the employer is the primary beneficiary rather than the employee
- When an employer pays for a course that can benefit the employer, even though it is not directly related to the employee's current position
When tuition paid is considered a taxable benefit - Correct answer When the
employer pays for a course that is primarily for the employee's benefit.
There is no taxable benefit to parking if: - Correct answer - When free or
subsidized parking is provided to a physically disabled employee
- when there is a distinct or regular require for an employee to have a parking space
- when an employer pays for parking costs incurred by an employee who is travelling
- when a business operates from a shopping center or industrial park where parking is available to employees and non-employees
- when an employer provides scramble parking (when there are fewer spaces than there are employees and the spaces are first-come first-serve)
Taxable Benefit: Parking - Correct answer When the employer pays for the
employee's parking it is considered a non-cash taxable benefit
Personal use of a cell phone is not considered a taxable benefit if: - Correct
answer - the plan's cost is reasonable
- the plan is a basic plan with a fixed cost
- the employee's personal use of the service does not result in charges that are more than the basic plan cost
Taxable Benefits: Employer paid cell phones for company use - Correct
answer not considered a taxable benefit
Taxable Benefits: Allowance given to cover the cost of a cell phone/internet service -
Correct answer Considered a cash taxable benefit
Gifts and awards that are near-cash (gift cards, stocks, gold nuggets, etc) - Correct
answer Taxable employment income subject to CPP, income taxes and NT/NU
payroll taxes, regardless of the value or the reason the employee receives it
Long-service awards - Correct answer Can use an additional $500 exemption as
long as they have been employed for 5 years and it has been 5 years since their last award
Non-cash gift and awards exemption - Correct answer $500 per year that can be
applied against the total value of all the non-cash gifts and awards given to an employee annually, any amount over is included in the employee's income as a non- cash taxable benefit
Non-regular payments - Correct answer Payments made that have no established
frequency
Non-regular payment examples - Correct answer - Retroactive adjustments
- Bonus payments
- Vacation payments with no time taken off
Retroactive earnings - Correct answer A delayed payment of earnings owed to an
employee
Retroactive adjustment - Correct answer When the increase in wages in
processed after the increase has been awarded
Retroactive increase - Correct answer When an increase in wages is awarded
and the effective date is backdated
Reinstatement payment - Correct answer When an employee whose employment
is terminated, is later reinstated, with back pay, as a result of a court decision or union intervention
Bonus or incentive payment - Correct answer a non-regular payment made to an
employee above and beyond their regular wages
situations where an employee may be paid vacation without taking time off - Correct
answer - payout of excess accrued vacation
- a payout of accrued vacation on termination of employment
- a payout of accrued vacation as a result of an Employment Standards approval
Calculation methods of statutory deductions can vary whether the payment is: -
Correct answer - considered pensionable and/or insurable earnings
- regular or non-regular earnings
- combined with the regular earnings or paid on a separate cheque
Order of calculating statutory deductions for regular payments: - Correct answer -
CPP
- EI
- QPIP
- Fed & Prov Tax
- NWT/NT Payroll Tax To calculate CPP deductions on a separate cheque (other than the regular wages) -
Correct answer The manual method must be used. The pay-period exemption
cannot be used again To calculate EI deductions on a separate cheque (other than the regular wages) -
Correct answer The same method is used as there is no exemption (other than
the yearly maximum) To calculate QPIP deductions on a separate cheque (other than the regular wages) -
Correct answer The same method is used as there is no exemption (other than
the yearly maximum)
Retroactive tax method - Correct answer The prescribed method for calculating
income tax withholdings on retroactive adjustments or increases
Retroactive tax method is calculated by: - Correct answer Estimated annual net
taxable income = pay period net taxable income x pay period frequency
Director's Fees - Correct answer Paid to an individuals who serve as members of
a board of directors
Director's fees are considered: - Correct answer - pensionable for CPP
- not insurable for EI (unless a director for a crown corp)
- insurable for QPIP
- taxable income
- taxable for the NWT/NT payroll tax
Death Benefits - Correct answer a discretionary payment made by an employer
on the death of an employee, in recognition of the employee's service
Statutory deductions on death benefits - Correct answer The death benefit does
not have CPP, EI, QPIP or the NT/NWT payroll taxes. They are subject to federal and provincial income taxes using the lump-sum method
Lump-Sum Tax Method - Correct answer The tax method used when the
employee-employer relationship does not exist.
Commissions - Correct answer The dollar amounts an employee earns fr selling
the organization's goods or services.
Three common methods of calculating commission earnings are: - Correct
answer - Straight percentage of sales
- a fixed amount per sales
- multiple rates per target level
Two common payment methods for commission payments: - Correct answer -
Draw/advance against commission - the commission payment is made over two or more payments, with interim payment(s) called a draw or advance on commission
- Straight commission - the payment is made only after the sale is complete or the revenue from the sale is received. This payment can be on either a regular or an irregular basis
Draw/advance against commission - Correct answer Employees are paid an
advance against their commissions owing; this payment is also known as a draw, which would typically happen when employees are paid on a monthly basis
Commissions are typically paid four ways: - Correct answer - commission paid
with regular salary
- commission only, paid regularly
- commission only, paid regularly with a draw or advance
- commission only, paid irregularly Calculation of C/QPP contributions on commissions paid regularly with salary or
commission only is done: - Correct answer The same method as for other
employment income earned on a regular basis
C/QPP calculations for advance/commission payments - Correct
answer Deductions are withheld on both
C/QPP calculations on irregular payments - Correct answer The yearly basic
exemption is divided based on the number of days in the calendar year since the last
payment. Days between payments / number of days in the year x Yearly basic exemption
EI/QPIP calculations on commission payments - Correct answer Calculated sing
the straight percentage of insurable earnings The method for calculating income taxes on commissions varies according to: -
Correct answer - The regularity with which the payments are made
- whether the payments are paid separately, or in combination with a salary or draw/advance
- Whether or not the employee is claiming the expenses they incurred to earn the commission income If employees incur personal expenses during the year that are not reimbursed by their
employer - Correct answer can claim these expenses to reduce their taxable
income when they file their personal income tax returns. They must complete a TD1X - Statement of Commission Income and Expenses for Payroll Tax Deductions The purpose of the TD1X (Statement of Commission Income and Expenses for Payroll
Tax Deductions) - Correct answer To allow commission employees to claim non-
reimbursed expenses at source instead of waiting until they file their annual personal tax return
Employees who choose not to complete and submit a TD1X will - Correct
answer have their income taxes calculated according to the regular payroll deduction
method of the bonus tax method Formula used on the TP-1015.R.13.1-V on calculating the percentage of commissions
to be included in calculating the Quebec provincial tax - Correct answer Net
commission for the year/gross commission income x 100
Northwest Territories/Nunavut Payroll Tax on commission payments - Correct
answer If the employee's remuneration is subject to Northwest Territories and/or
Nunavut payroll tax the commission payments are subject as well
An interruption of earnings occurs when an employee: - Correct answer - Has had
(within the last 52 weeks or since the last ROE), or is anticipated to have, seven consecutive calendar days without both work and insurable earning from the employer or,
- has a salary that falls below 60% of regular weekly earnings because of illness, injury, quarantine, pregnancy, the need to care for a newborn of a child placed for the purpose of adoption, or the need to provide care or support of a family member who is gravely ill with a significant risk of death
The 7 day rule (ROE) does not apply when - Correct answer An employee is paid
mainly by commission
Block 6 when issuing a ROE for commission employees - Correct answer Always
reported as weekly regardless of the actual pay period type used
Method for calculating total insurable hours for commission employes - Correct
answer If there is no agreement the employee's hours are determined by dividing the
total insurable earnings in the last 52 weeks by the provincial minimum wage then divided by 52 (or the period of employment if shorter) to determine the average weekly insurable hours. The weekly insurable hours cannot exceed 7 hours a day of 35 hours a week
Block 15b insurable earnings (ROE) for commission employees - Correct
answer The employee's average weekly earnings are determined as follow:
- take the employee's total insurable earnings paid within the last 52 weeks or since the date of employment
- divide the insurable earnings by the number of insurable weeks (max 52)
- round the above amount to the nearest penny
- multiply this number by 27
- add any insurable amounts the employee received because of the termination that are reported in Block 17 Block 15C Insruable Earning by Pay Period (ROE) for commission employees -
Correct answer The same number that was used in box 15B is used in all the pay
period except for pp1 (final pay period) which will include any insurable amounts the employee received because of the termination to the average weekly earnings amount
The Record of Employment (ROE) - Correct answer The form completed by
employers when an employee has had an interruption of insurable earnings Electronic ROEs can be submitted to Service Canada using one of three methods: -
Correct answer - Through the ROE Web using compatible payroll software to
upload ROEs from the organization's payroll system
- through ROE Web manually entering data online using Service Canada's website
- through Secure Automated Transfer(SAT), which may be performed by a payroll service provider on a client's behalf using bulk transfer technology
The paper ROE is a three part form, they are distributed as follows: - Correct
answer - Copy 1 is given to the employee
- Copy 2 is sent to Service Canada
- Copy 3 is kept by the employer for their records for at least 6 years
For electronic filling of ROEs the ROE must be submitted by: - Correct answer -
Up to five calendar days after the end of the pay period when the interruption of earnings begins
- up to 15 calendar days after the first day of the interruption of earnings Special circumstances when an ROE is issued if there is no interruption of earnings -
Correct answer - When Service Canaad requests one
- When the pay period frequency changes
- When an employee stays with the employer but is transferred to another CRA payroll account number
- When there is change of ownership
- For part-time, on-call or casual workers if they request one, is no longer an active employee, it was requested by SC or the employee did not work for 30 days
- Mass lay-offs
- for Wage-loss insurance (WLI) plan payments
- During self-funded leave
Block 1 of the ROE - Correct answer Serial number. Each electronic ROE is
automatically assigned with a serial number once it is submitted
Block 2 of the ROE - Correct answer Serial number of the ROE that is being
amended or replaced
Block 3 of the ROE - Correct answer The employer's payroll reference number
(optional)
Block of the ROE - Correct answer Employer's name and address
Block 5 of the ROE - Correct answer CRA Business Number (Payroll Account
Number)
Block 6 of the ROE - Correct answer Pay period type. Choose a pay period type
from the drop-down menu
Block 7 of the ROE - Correct answer Postal Code of the organization's address
Block 8 of the ROE - Correct answer The employee's Social Insurance Number
(SIN)
Block 9 of the ROE - Correct answer The employee's name and address
Block 10 of the ROE - Correct answer The employee's first day of work for which
they received insurable earnings, unless you have previously issued an ROE fir that employee then it is the rehire date
Block 11 of the ROE - Correct answer The last day for which paid or received
insurable earnings (not necessarily the last day worked)
Block 12 of the ROE - Correct answer The end date of the final pay period that
includes the date entered in Block 11
Block 13 of the ROE - Correct answer Occupation of employee (optional)
Block 14 of the ROE - Correct answer Expected date of recall for the employee to
return to work (optional)
Block 15A of the ROE - Correct answer Total insurable hours
Block 15B of the ROE - Correct answer Total insurable earnings
Block 15C of the ROE - Correct answer Detailed insurable earnings by pay period
Block 16 of the ROE - Correct answer Reason for issuing the ROE
Code A of the ROE - Correct answer Shortage of work
Code B of the ROE - Correct answer Strike of lock-out
Code C of the ROE - Correct answer Return to school (this code is being phased
out)
Code D of the ROE - Correct answer Illness of injury
Code E of the ROE - Correct answer Quit, used when the employee initiates the
termination of employment. If using the ROE Web choose the appropriate reason from the drop-down (Quit, follow spouse, retirement, school, take another job, health reasons)
Code F on the ROE - Correct answer Maternity, used when a birth mother is
leaving the workplace to take maternity leave (not for adoptive parents)
Code G of the ROE - Correct answer Retirement - Used when an employee is
leaving the workplace because of mandatory retirement or through a Work Force Reduction approved by SC (if the employee is voluntarily retiring code E is used)
Code H of the ROE - Correct answer Work Sharing - when the employee is
participating in the SC Work-Sharing Program
Code J of the ROE - Correct answer Apprentice training - used when the
employee is temporarily leaving the workforce to participate in a government-approved apprenticeship program
Code M of the ROE - Correct answer Dismissal - used when the employer
initiates the termination of employment for any reason other than a mandatory retirement of layoff
Code N of the ROE - Correct answer Leave of absence - Used when an
employee is leaving the workforce temporarily to take a leave of absence (other than for illness, injury, maternity, paternity, adoption of compassionate care leave)
Code P of the ROE - Correct answer Parental - used when the employee is
leaving the workforce temporarily to take parental, paternity, or adoption leave
Code Z of the ROE - Correct answer Compassionate care - used when the
employee is leaving the workforce temporarily to claim compassionate care benefits
Code K of the ROE - Correct answer Other - used only in exceptional
circumstances, such as change in payroll/ownership name, change in pay period type, death of an employee, SC has requested an ROE An employee-employer relationship is deemed to exist when any one of the following
statements is true: - Correct answer - the employee retains the right to be recalled
to work
- there is an expectation of work to be performed by the employee
- the employee continues to accrue benefits in the employer's registered pension plan
- the employee continues to participate in all the benefit plans that were available when they were employed When employers initiate the termination of an individual's employment they: -
Correct answer are required to provide the employee with written notice that their
employment is being terminated, or pay the employee wages in lieu of working the notice period
Wages in lieu of notice are considered (except for Quebec) - Correct
answer Income from employmentQu
Wages in lieu of notice are considered (Quebec) - Correct answer a retiring
allowance
Types of earnings included in the calculation of vacation pay for Alberta: - Correct
answer - regular wages or salary
- work-related bonuses
- previously paid vacation pay
Types of earnings included in the calculation of vacation pay for Ontario: - Correct
answer - regular wages or salary
- overtime pay
- work-related bonuses
- wages in lieu of notice of termination
- statutory holiday pay
- board and lodging cash taxable benefit
Types of earnings included in the calculation of vacation pay for Quebec: - Correct
answer - regular wages or salary
- overtime pay
- work-related bonuses
- wages in lieu of notice
- statutory holiday pay
- sick pay
- previously paid vacation pay
- vacation owing at termination
Severance pay - Correct answer not considered income from employment but
instead considered a retiring allowance Under the Canada Labour Code, Part III, an employee who have 12 months of continuous service, and are not being terminated for just cause, are entitled to the
greater of: - Correct answer - 2 days' wages at the regular rate, excluding
overtime, for each completed year of employment
- 5 days'wages at the regular rate, excluding overtime Under Ontario legislation, an employee qualifies for severance pay if their employment
is severed and they: - Correct answer Worked for the employer for five or more
years and the employer has a payroll in Ontario of at least 2.5 million or the employer
severed the employment of 50 or more employees in a six-month period because all or part of the business permanently closed
In Ontario severance pay is calculated as: - Correct answer - One week's regular
wages for each full year of service plus
- for part years of service, one week's regular wages times the number of full months of service divided by 12
Maximum severance payment in Ontario - Correct answer 26 weeks of regular
wages
Persons entitled to severance pay include: - Correct answer - regular full-time and
part-time employees
- employees terminated due to strike or lock-out, except where the strike or lock-out caused the economic hardship which led to the mass termination
- employee terminated due to another employee exercising seniority rights
- employee who, on termination, retire and accept the reduced pension
Employees are not entitled to severance pay when they: - Correct answer - refuse
a reasonable offer of alternate employment
- refuse to exercise seniority rights
- retire in receipt of an actuarially unreduced pension from a defined benefit plan
- are engaged in any aspect of the construction industry
- are terminated for just cause
- refuse a call-in to work
- are engaged in the on-site maintenance of buildings, structures, road sewers, pipelines, mains, tunnels or similar work
- have a contract of employment that is impossible to perform or has been frustrated by an unforeseen event or circumstance
The following payments are required on termination of employment - Correct
answer - wages in lieu of notice
- vacation pay
- severance pay
Salary continuance - Correct answer When employers choose to keep paying an
employee when they have been terminated their regular salary for a specified period of time and continue to maintain these individuals on the organization's benefit plans even though the employee is not longer required to report to work
Salary continuance is considered: - Correct answer Regular employment income
and is subject to all statutory deductions, if applicable