Corporate Accounting: Knowing how the deductions on earnings work
We as employees generally do not pay attention to our pay stub. We are not aware or don’t make an effort to know what are the deductions being made on our own salary by the employer. It was a startling realisation for me when I was told in my entrepreneurship class that there are at least two to three types of deduction made on the salary before it reaches our hands. I’m going to talk about what these deductions are and how we can calculate our salary and check if what we are being paid is the right amount.
The CRA – Canada Revenue Agency offers an online calculator for any one who wants to calculate his/her salary deductions and also to see how mush the company is paying for there employment. It was an interesting thing to know that these calculations were based on the provinces in Canada and the pay period frequency.
The three step calculation method lets the user input the gross salary, vacation pay, bonuses and gives a list of benefits to choose. Then the calculator makes sure the CPP (Canada pension plan) and the EI rates are as per the contract of the user’s salary and gives a detailed report of salary deduction along with Net amount and an Employer Remittance Summary, which shows how much an employer is contributing to the salary deductions.
It is empowering to know how your salary is calculated and knowing the rates for CPP and EI helps when there is a need. I calculated the payroll cycle for five different individuals and it was an educated experience to calculate the salaries using the online calculator on CRA’s website. I calculated the income tax the individual has to pay, the CPP and EI, their net salaries and the CPP and EI of the employer. The interesting thing I learnt was that the employer also pays CPP and EI for the employee and in a way are spending capital to hire work force. It made sense that why companies look for individuals with multiple talents and all the inner workings of cash flow in a company, big or small.
References
Payroll Deduction Online Calculator, CRA. Retrieved from http://www.cra-arc.gc.ca/esrvc-srvce/tx/bsnss/pdoc-eng.html