Calculating Payroll Deductions

Suppose your business has ten employees you pay by the week. One of your employees, Larry Jones, worked 40 hours for your business at a rate of pay of $10 per hour.

Calculating his gross pay and payroll deductions involves the following steps:

1. First, you calculate his gross pay for the week as $400. (40 hours x $10 per hour.)
2. Turning to your source deduction tables, you can determine the amount of his payroll deductions on his weekly earnings of $400. Let's assume his Canada Pension Plan (CPP) deduction is $10 and his Unemployment Insurance (UIC) deduction is $15.
3. Income tax is deducted on taxable income, not on gross income. Larry's taxable income is therefore $375 ($400 gross pay minus $10 CPP and minus $15 UIC).
4. The income tax deduction table tells you that on $375 of weekly taxable income, $100 must be deducted for income tax.
5. Larry's total deductions are therefore $125 ($10 CPP, $15 UIC, and $100 income tax).
6. Larry's net income (and the amount of the cheque that you will write him) is $275 (that is $400 gross pay minus a total of $125 payroll deductions).

You must enclose a payroll record with your employee's cheque. Payroll records, much like the sample payroll record that follows, are available at stationery stores. They give your employees a record of deductions made on their behalf.

Sample Payroll Record:

Employee: Larry Jones
Week of: October 4-11, 1995