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Understanding Your Pay Stub

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    Posted: Dec/17/2009 at 2:54pm
Some Tips to Understand Your Pay Stub in Canada
Knowing how to properly read your pay stub or statement of earnings can help ensure you are being paid correctly -- and it might also keep you from receiving a nasty shock the first time you see your take-home pay.

Companies usually pay on a biweekly or monthly basis. (Paying by the week has become increasingly rare.) If you started your job in the middle of a company pay period it's likely your first cheque may only be a partial payment.

Before You Get Paid
First, you can help ensure you are paid promptly by giving your employer all the necessary documentation needed to process your wages. To work in Canada you need a Social Insurance Number (SIN). While you must give an employer your SIN once you are hired, you should not write the number down on your resumé or cover letter or give it out freely at interviews. An employer may also need to see your Permanent Resident Card or a work permit to verify you are legally entitled to work in Canada.

If your company deposits paycheques directly into bank accounts you will need an account. You usually have to provide a void cheque so the employer has the necessary account number.

Your Statement of Earnings
Most employers pay by cheque or direct deposit, but even if you are paid cash you are entitled to a statement of earnings. This statement should confirm that you have earned the agreed upon wage and that the wage is at least the minimum legal hourly rate or piece rate. In Ontario, the minimum hourly wage is typically $8.75 ($7.60 for liquor servers and $8.20 for those under 18).

The statement should also show any commissions or bonuses earned. If you earn a cash percentage in lieu of vacation time that should also be included.

Key information on your statement of earnings includes:

  • Your name
  • The pay period
  • Date of cheque (or direct deposit)
  • Number of hours worked
  • Wage rate
  • Supplementary payments (shift bonus, uniform allowance, etc.)
  • Deductions
  • Net pay (gross pay minus the deductions)

Take a Closer Look: Deductions
Most deductions, including taxes, Employment Insurance (EI) premiums and Canada Pension Plan (CPP) premiums, are required by law and are collected by your employer on your behalf.

Other deductions can vary by employer with the amounts deducted depending on your company's benefits package or union agreement. Employers aren't permitted to deduct more than the law or the collective agreement allows and they must ensure that any funds deducted are forwarded to the proper authority.

Here are the most common deductions:

Income Tax
This is the largest deduction you will see on your pay stub. It covers both the federal and provincial taxes that you must pay; the amount deducted depends on such factors as your annual income, basic personal exemption, frequency of pay and whether you pay union dues.

Canada Pension Plan
If you are between 18 and 70, CPP is deducted from your pay as a form of forced retirement savings. There is a maximum amount you can contribute to CPP each year. Depending on your income level you may reach the maximum and will notice an increase in your take-home pay towards the end of the year.

Employment Insurance
These premiums are collected in a fund that provides income to workers who have been laid off or can't work due to illness, maternity leave or the critical illness of a family member. As with CPP, there is a maximum amount you can contribute to EI each year.

Union Dues
If you are in a union, the union local may have an agreement with your employer to deduct your dues on the union's behalf. In most unionized workplaces you cannot opt out of the union or of paying the dues.

Other Deductions
If your company offers a benefits package you may see deductions for health care, long-term disability and dental insurance as well as added pension deductions. In some companies employers will cover all of the benefits costs, but in others, employees must pay for some of the costs.

You may have signed up to purchase Canada Savings Bonds, buy company stock or donate to a charity. You can see these deductions on your pay stub as well.

In some cases, especially in the hospitality industry, employers can deduct money for room and board.

Finally, employers are required by law to honour court ordered wage garnishments that result from nonpayment of loans, rent or child or spousal support. This means that your employer must pay a percentage of your wages into the court's trust account.

Note: Although you may see an amount on your statement of earnings for the Ontario Health Tax, this is not deducted from your pay. Canada Revenue Agency collects this amount when you pay your income taxes.

Sample Pay Stub
This sample pay stub (PDF) offers an example of how and why employers make deductions to your salary.

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Edited by skhatoon - Dec/17/2009 at 2:55pm
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