Pay statements, also known as pay stubs, are essential documents for employees in Canada. They provide a detailed breakdown of an employee's pay, including their earnings, deductions, and net income. 

As the pay statement provides details for an employee on their earnings and deductions each pay period and is perhaps the document most frequently distributed to employees, it may be viewed as a vital means of communication from the employer to the employee, according to the National Payroll Institute.

The objective of payroll is to pay employees accurately, on time and in compliance with legislative requirements. These practices must continue evolving with new legislation, technology, company policies, collective agreements and trends. The payroll process will depend on the needs of the organization and its current challenges. Still, NPI proposes the following best practices for pay statements.

1. Communication Plan

To ensure a clear understanding of pay statement information, it is critical to develop a comprehensive communication plan to educate employees on the various components of the pay statement and how they impact their net pay. Sharing a template with the pay statement's elements and a sample lexicon could be helpful.

2. Pay Statement Sample Template

The National Payroll Institute has conducted benchmarking about the pay statement. Based on the feedback received from several large multi-jurisdictional employers and payroll service providers, they developed a pay statement template. It is important that the pay statement reflects year-to-date totals for earnings, hours and deductions.

Watch the following video for what the CRA recommends including in a pay statement.

3. Electronic Pay Statement

Electronic pay statements may result in cost savings for the organization and better access to information for employees, depending on the payroll service or software provider. When implementing this method, these elements should be considered:

  • Privacy and Access

  • Ability to Print

  • Choice of Opting In or Out

  • Record Retention

4. Vacation Accrual Reporting

As vacation represents a significant liability to an organization, it is important to track and report it based on legislative requirements or “greater right or benefits entitlements” if that is the organization’s policy. Although it is not legislated in all jurisdictions that vacation be reflected on the pay statement, it is crucial to record, monitor and communicate vacation entitlement effectively.

5. Privacy Considerations

By its very nature, payroll has always operated under the assumption of confidentiality and nondisclosure of employees’ personal and related information. There are important considerations that organizations need to make related to the information contained on the pay statement and whether the information should be included. For example:

  • Social Insurance Number

  • Bank Account Information

  • Distribution (when physically distributed)

6. Sample Lexicon

The lexicon used on the pay statement is vital, especially as it relates to statutory deductions. Sharing a sample lexicon with the employees can help them understand the elements of their pay statements and avoid misunderstandings. Some examples to include are:

  • CPP - Canada Pension Plan

  • QPP - Quebec Pension Plan

  • EI - Employment Insurance

  • QPIP - Quebec Parental Insurance Plan

  • Fed Tax - Federal Income Tax

  • Prov Tax - Quebec Provincial Income Tax

  • NT Tax - Northwest Territory Payroll Tax

  • NU Tax - Nunavut Payroll Tax

7. Annual Statement of Compensation and Benefits

The pay statement does not include all items related to an employee’s total compensation, so it is recommended to share an Annual Statement of Compensation and Benefits that will communicate additional details relevant to the total overall compensation.

In conclusion, pay statements are an essential document for employees in Canada. Employers must ensure that pay statements are accurate and comply with all applicable laws and regulations. By keeping these crucial aspects in mind, both employers and employees can ensure that payroll processes run smoothly and efficiently.

For more detailed information about how to prepare them, download NPI's Pay Statement Payroll Best Practices Guidelines.

What support do you use to help employees understand their pay statements? Let us know in the comments section below. 

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