You'll find that the CRA frowns upon the practice of giving an advance to an employee without applying the appropriate taxes. In fact, in their Employers’ Guide- Payroll Deductions and Remittances they refer to advances in Chapter 6 and state:
If you pay part of your employee’s salary before the usual payday, you have to deduct Canada Pension Plan (CPP), employment insurance (EI), and income tax from the total advance.
In addition, each province has its own "employment standards" which may affect your ability to provide advances to an employee.
Nonetheless, you can track advances in our service - though you should consult the CRA, a tax professional or accountant to see how this may impact your business.
Scenario 1: I want to provide an advance to an employee after tax how:
To add an advance to an employee's pay run, you can add this earning type during your regular pay run. Here's how:
A. Click on Run Payroll.
B. Choose the payment date and pay cycle types. Payment dates will be the same work dates as the regular pay run.
C. Select Special Payroll Type.
D. Click on Submit.
E. If you need to add additional earnings to specific a employee, click on the “+” to add additional earnings.
F. Choose Earnings Advances as earnings code. Then entering the rate, hour, and total earnings amount.
G. Click on Add and Submit to apply this to your pay run.
H. Select the checkbox to choose specific employees whose work hours you want to approve.
I. Click on Approve.
J. Repeat the steps above for any additional employees if needed. Then click on Next to continue payrun.
On the calculate step select to use Custom Calculations to turn off any other benefits and deductions you may have set up for these employees.
Your employee's paystub will reflect the "earnings advances" and they will receive the advance pay after taxes.
Important
K. On the calculate step select “No, use custom calculations” to turn off any other benefits and deductions you may have set up for these employees.
Your employee's paystub will reflect the "earnings advances" and they will receive the advance pay after taxes.
When you are ready to reclaim the advance here's how:
A. Click on Run Payroll.
B. Choose the payment date, payroll type, and pay cycle types.
C. Click on Submit.
D. Click the check box of a specific employee to approve their hours.
E. Click on Approve to finish approving their hours.
When you are ready to reclaim the advance here's how:
F. Click "+" next to the employee you wish to reclaim the advance from.
G. In the pop up, select "Earnings Advances" as the Earnings Code and type in the amount you are reclaiming as a negative number.
H. Click on Add and Submit.
I. Select the checkbox to choose specific employees whose work hours you want to approve.
J. Click on Approve.
K. Click on Next to continue payrun.
Employees' wages will be adjusted downwards, and the "Earnings Advance" line item will deduct the amount being reclaimed. Since taxes have already been paid on this amount, there won't be an additional tax deduction. On their paystub, employees will notice a negative figure under the "Earnings Advances" section, and the Year-to-Date (YTD) total will be zero if all advances have been recovered.
Scenario 2: I already paid an employee an advance and forgot to deduct taxes
This is not a supported method of doing payroll according to CRA and CRA may issue penalties, so we recommend you talk to a tax adviser on the implications of providing an advance without first deducting taxes.
While we want you to be fully compliant with CRA rules, we know that it doesn't always happen that way. In that case we at least want your records to be correct, so here is how you do it:
A. Click on Run Payroll.
B. Choose the payment date and pay cycle types. Payment dates will be the same work dates as the regular pay run.
C. Select Special Payroll Type.
D. Click on Submit.
E. If you need to add additional earnings to specific a employee, click on the “+” to add additional earnings.
F. Choose Advance - No Tax as earnings code. Then entering the rate, hour, and total earnings amount.
G. Click on Add and Submit to apply this to your pay run.
H. Select the checkbox to choose specific employees whose work hours you want to approve.
I. Click on Approve.
J. Repeat the steps above for any additional employees if needed. Then click on Next to continue payrun.
K. On the calculate step select “No, use custom calculations” to turn off any other benefits and deductions you may have set up for these employees.
Your employee's paystub will reflect the "earnings advances" and they will receive the advance pay after taxes.
When you are ready to reclaim the advance here's how:
A. Click on Run Payroll.
B. Choose the payment date and pay cycle types.
C. Click on Submit.
D. Click the check box of specific employee to approve their hours.
E. Click on Approve to finish approving their hours.
When you are ready to reclaim the advance here's how:
F. Click "+" next to the employee you wish to reclaim the advance from.
G. In the pop up, select "Advance - No Tax" as the Earnings Code and type in the amount you are reclaiming as a negative number.
H. Click on Add and Submit.
I. Select the checkbox to choose specific employees whose work hours you want to approve.
J. Click on Approve.
K. Click on Next to continue payrun.
If you have already paid this employee, set them to cheque on the PAYMENTS step to avoid having us pay them again if you are using our ePay services.