(Article is based on information available at the time it was written: 2022-04-02)
March 2020 was a time that fundamentally changed the way many people operated on a day-to-day basis. Some of these changes became permanent and some are ever-increasing. Remote work is one of these changes. As more businesses are adopting work-from-home practices, their payroll process can become more complicated.
The number of individuals working for an organization from a different province or territory has increased in recent years. A business operating in Alberta may have employees working from home who reside out of the province. This scenario is becoming more common and the payroll process must ensure that any tax implications are accounted for.
Employers should deduct employees’ taxes depending on the situation they are in. If an employee resides in and works from home for an employer who has a permanent establishment in the same province/territory, that province/territory’s taxes should be used. What if the employee works from home in a province where the employer does not have a permanent establishment? If as an employer you operate and only have a permanent establishment in Ontario, but hire remote workers in British Columbia, you would use Ontario’s tax rates to process their payroll.
If it is unclear whether or not an employer has a permanent establishment in a certain province/territory then you are allowed to use tax rates of the province that processed payment to the employee. For example, if the payroll process happens in Manitoba, then you would use Manitoba’s rates. This situation becomes difficult to navigate, especially in recent times as more payroll companies offer payroll services digitally and/or across multiple provinces/territories. Many employers complete their payroll online and these services may not even be completed in the country!
It is also important to note that if as an employer you need to use a different province/territories rates, then you may also be obligated to follow any other reporting standards in that province. For example, if hiring in British Columbia you would also need to ensure WCB and Employer Health Tax are paid accordingly if it applies to your business.
Depending on which combination of provinces/territories the employee worked in/for, they will be responsible to remit any additional taxes owing when they file their personal income tax return (they could also end up with a refund as well). Depending on eligibility, employees are able to claim certain expenses for their “home office”.
The payroll process does not need to be complicated, payroll companies provide these payroll services to employers to ensure the obligations are being met accordingly.