Quebec’s Idiosyncrasies Increase Complexity of Canadian Payroll

The unique characteristic of Quebec payroll is one of the biggest challenges in delivering payroll in Canada, an executive with Canada’s national payroll association said.

Canada’s 13 jurisdictions comprise 10 provinces and three territories, each of which presents its own unique set of challenges for payroll professionals due to differing labor laws and withholding requirements. Among those 13 jurisdictions, the greatest difference in withholding and pay requirements comes from Quebec’s idiosyncrasies. “Quebec is Canada’s California,” said Steven Van Alstine, vice president of professional standards and education at the National Payroll Institute.

“Having Quebec payroll is like having two payrolls. You must do everything twice,” Van Alstine said. Most jurisdictions submit tax reports at the federal level through the Canada Revenue Agency. For employers with nexus in Quebec, tax reporting and withholdings must be submitted both at the federal level and through a separate tax system administered by Revenu Quebec.

Employment Status

The first step in adequately determining an employer’s withholding responsibility is determining whether an actual employee-employer relationship exists. “It’s your obligation to make that determination,” said Van Alstine, speaking to attendees at the 42nd Annual Payroll Congress in Nashville. “You might not have to put [a worker] on your payroll where the individual can invoice.”

A key concept in distinguishing between an employee and self-employed individual is determining whether there is a contract of service or a contract for service. Individuals contracted to perform a specific service are generally considered self-employed, as they can usually determine the means of performing said service. Individuals with a contract of service are generally considered employees. These individuals are employed for an indeterminate period in exchange for a salary.

It is also crucial to establish who exercises control, and who assumes the financial risk, says Van Alstine. “For the most part, you’re only doing payroll for employees that work for you,” he said. Making this determination can help organizations decide who to enroll in payroll.

Statutory Requirements

One an employee-employer relationship is established, employers must begin reporting and withholding, as required by the various jurisdictions. The CRA is responsible for collecting Canada pension plan withholdings, employment insurance deductions, and income tax deductions. Employers in Quebec must collect similar employment insurance deductions and income tax deductions as the rest of the country but will not apply withholdings for the Canada Pension Plan. “Employees in Quebec only contribute to the Quebec Pension Plan, not the Canada Pension Plan,” Van Alstine said. QPP withholdings must be submitted locally to Revenu Quebec.

Employers should take note of recent changes to the Canada Pension Plan and the difference in rates between the CPP and QPP. Rates for the CPP were steadily held at 4.95% but have incrementally increased since 2020. The current CPP rate is 5.95%, with an additional enhance rate introduced in 2024 for workers who earn higher wages.

As of Jan. 1, employers have a new reporting obligation for the enhanced CPP, which must be submitted using the mandatory Form T4, Statement of Remuneration Paid.

Quebec has also introduced an enhanced withholding rate for their QPP. Rates for CPP will generally differ from those used in the QPP, which tend to be “a little bit higher,” said Van Alstine. “It’s more expensive to have payroll in Quebec.” The current withholding rate for the QPP is 6.5%.

In addition to Quebec provincial income tax, QPP contributions, and federal withholdings, Quebec employers are also responsible for contributions to the Quebec Parental Insurance Plan, the Quebec Health Services Fund, the Workforce Skills Development and Recognition Fund, and a contribution related to labor standards called the CNT levy. “On the Quebec side, there’s a much bigger obligation, but a very similar remittance structure,” said Van Alstine.

Along with withholding differences, employers should carefully note differences in vacation pay, vacation time, termination, records retention, and provincial labor laws, all of which vary across jurisdictions. “Quebec is the only provincial jurisdiction that provides leave for weddings,” said Van Alstine. “It’s important to know some jurisdictions have holidays which others don’t recognize. There’s a huge amount of variability from province to province.”

“Make sure your [company] policies are very clear,” said Van Alstine. “I see organizations running into challenges where their policies are not clear.” Employers seeking guidance navigating the complexities of Canadian payroll can contact the National Payroll Institute’s Infoline to ensure adequate compliance with provincial and federal requirements. “Were staffed by compliance advisors who can actually provide you with real-time consultations,” he said.