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A Grade “A” Summer Student Process

by Kimberly Fiume | on May 01, 2011 | No Comments

The May/June period usually marks the arrival of summer students. Consequently, you should now be making preparations to smooth their arrival. The number of activities you can begin and in some cases complete prior to their arrival is surprising.

Where to begin
Start by assembling the commencement package you give to students when they are hired. Include not only required forms for Payroll and HR, but company-related information that may help to answer the many questions these “new to the workforce individuals” often have. Perhaps you can include back issues of the company newsletter, a copy of the company phone directory and web site addresses (we all know the younger crowd lives and breathes the Internet). Maybe you can even direct them to the company’s intranet site containing all these details. If possible, give them as many details as you can regarding standard hours of work, breaks, if and when overtime applies, etc. Providing these recruits with as much information as possible will make them feel much more comfortable and less like the new kid on the block — afraid to ask questions.

Forms and information
From a payroll perspective, include the following forms or obtain the following information to ensure a clean set-up for the payment/reporting process.

  • TD1 forms – federal and provincial (completed based on province of employment) and the Quebec equivalent (Source Deductions Return form TP-1015.3-V). These forms capture the basic data necessary to start the payment process for the individual — data such as name, address and Social Insurance Number (SIN). Find them at http://www.cra-arc.gc.ca/formspubs/frms/td1eng.html and http://www.revenuquebec.ca/en/sepf/formulaires/tp/tp-1015_3.aspx.
  • Remember to ask to see the individual’s SIN card (once hired) to verify the name and social insurance number they gave you. If the student doesn’t have a SIN card you must tell him/her how to get one. Tell them to visit a Service Canada Centre http://www.servicecanada.gc.ca/eng/home.shtml) within three days of the day they start work and ask them to provide you with proof of application as well as to show you their SIN card once they receive it.
  • A payroll action type form detailing wage or salary information, date of birth (necessary for determination of Canada/Quebec Pension Plan contributions) and start date. Depending on the structure of the organization this information may come separately from Human Resources. Regardless, some type of form should be used to capture the pertinent details.
  • Demographic information such as location, branch or department the student will be working in and the person’s immediate supervisor (maybe included on the action form).

Payroll set up
Setting the student up on payroll correctly is imperative — and no, you cannot pay them through accounts payable! The responsibility lies with the employer to establish whether or not an employee/employer relationship exits. Generally speaking, a relationship usually does exist for summer student and therefore the employee should be placed on payroll.

Putting the students on payroll is relatively easy, but what about the statutory withholdings? We will deal

with the statutory withholding requirements in their order of priority – Canada / Quebec Pension Plan contributions (C/QPP), Employment Insurance/Quebec Parental Insurance Plan premiums (EI/QPIP) and last, but not least, federal and provincial income taxes.

Handling Statutory Deductions Canada/Quebec Pension Plan (C/QPP) Contributions
For the most part, summer students are deemed in pensionable employment so long as they are 18 years

old. This means that unless the student is under 18 or falls into some other exempted category, you must withhold C/QPP contributions. Employers seeking to verify the exempted employment categories should reference the Canada Revenue Agency (CRA) publication, “T4001 Employers’ Guide to Payroll Deductions and Remittances”, chapter two and/or the Quebec Revenu Agency publication “TP-1015-.g-v Guide for Employers Source Deductions and Contributions, chapter 6. If the summer student turns 18 during their period of employment and is not in exempted employment, C/QPP contributions must begin the first of the month following their 18th birthday. In any situation where the student turns 18 while working, the pensionable earnings and annual basic exemption will need to be prorated based on the number of months in the year the student is in pensionable employment.

Employment Insurance (EI) Premiums
The second statutory deduction in order of priority is the premium for Employment Insurance (EI). There is no age restriction for EI and most employment in Canada is insurable. Chapter three of the CRA guide referenced above includes the exempted employment situations and/or exempted earning types for EI purposes. Individuals pay EI premiums for each hour they work in insurable employment. This means summer students will pay EI premiums on all their earnings for the period of employment up to the annual maximum. At the end of their term of employment, you must generate a Record of Employment (ROE) for students who were in insurable employment, regardless of their ability to collect EI benefits.

Quebec Parental Insurance Plan (QPIP) Premiums
In addition to EI premiums Quebec based employees are also subject to QPIP premiums. Generally,

QPIP legislation parallels the federal EI legislation with a few exceptions. The exceptions are unrelated to summer student withholdings, so we have not provided the details. Like EI, the QPIP has no age restrictions and most employment in Quebec is insurable. Chapter 7 of the previously referenced Quebec Guide includes the exempted employment situations and/or exempted earning types for QPIP purposes. Individuals pay QPIP premiums for each hour they work in insurable employment. This means summer students will pay QPIP premiums on all their earnings for the period of employment up to the annual maximum. There is no provincial Record of Employment form for QPIP purposes, the federal ROE form is used.

Income Tax
The final statutory deduction in order of priority is income tax. Employers must withhold income taxes (federal and provincial) based on the “province of employment”. It is recommended that summer students complete both federal and provincial TD1 forms upon engagement. Summer students working for Quebec employers will need to complete the equivalent provincial Quebec form (previously referenced) for tax withholdings. Often students have tuition credits they can claim in addition to the basic amount. Once the net claim amount is determined, you will either enter the amount into your payroll system (which will be factored into the calculation of federal and provincial taxes), look up and enter the net claim code from the applicable provincial payroll deductions tables (T4032/TP-1015.TI-v) to determine the federal and provincial tax withholdings, or use the Payroll Deductions On Line Calculator (http://www.cra-rc.gc.ca/esrvc-srvce/tx/bsnss/pdoc-eng.html) program supplied by CRA. Similar publications and electronic tax tools are available from the Quebec Revenu Agency (http://www.revenuquebec.ca/en/sepf/services/sgp_winras/).

A student’s claim amount may result in no income tax withholdings. However, this will depend on the student’s individual situation. Remember, unless you have completed TD1 forms on file, you must use a basic claim amount (code 1 in the payroll deduction tables) to determine withholdings. Some students working under “co-op programs” through their college or university will often earn more than the basic exemption and will be subject to source withholdings. Employers may find it necessary, or helpful, to explain to students that they are obligated to make the necessary withholdings or face the risk of penalties and interest.

Year-end Reporting
Although students usually leave prior to the end of the taxation year, the employer must still report the total earnings and deductions on the applicable year-end information slips. Proper T4 and RL-1 completion will ensure that you do not receive a Pensionable Insurable Earnings Review (PIER) report from the CRA, or QPP and QPIP deficiency report from the Quebec Revenu Agency. These reports itemize any C/QPP contributions and EI/QPIP premium deficiencies.

Students not contributing to the CPP plan for the entire period of employment because of age will require an “X” in box 28 (CPP exempt) on the T4 slip. Students who turn 18 part-way through their period of  employment will not have box 28 completed, rather the applicable pensionable earnings will always appear in box 26 of the T4 slip. In addition, the amount appearing in box 26 will be different from the total earnings reported in box 14 of the T4 slip. There is no similar exempt reporting on the RL-1 form; however, pensionable earnings for the QPP must be reported in box G even if the value is zero.

Prior to their departure and return to school, you should ask students to keep you informed of any address changes so that information returns can be sent to their correct addresses in January or February.

Employment Standards
An area often overlooked by employers is employment/labour standards. Even though these employees are students, (you may call them temporary, part-time or casual) federal or provincial employment/labour standards legislation still applies in most cases. It is true, that there are specific exemptions under the various jurisdictional Employment and Labour Standards Acts and in some cases the legislation may not apply. Most Acts don’t define employee types – rather the legislation is deemed to apply unless a specific exemption provides otherwise. As an example, a student in Ontario working towards their professional accounting designation is exempt under certain provisions of the Ontario Employment Standards Act, 2000, including the Hours of Work section.

Generally, adhering to the employment/labour standards provisions means that you must ensure the students receive at least the minimum wage along with vacation pay (usually at the end of the summer with their final pay). Some jurisdictions legislate a lower wage rate for students (e.g. British

Columbia, Nova Scotia and Ontario), or the rate may be based on experience. Depending on when the students are employed, there is good chance they will also be entitled to statutory or public holiday entitlements during their tenure. Other relevant employment standards issues that may be over-looked include the company policy which provides a greater right or benefit. In any instance where you provide greater rights or benefits to summer students under company policy, legislation requires that you must adhere to the greater right or benefit specified. It is also invalid for any employee to sign away their rights under the legislation. You should review relevant provincial or territorial Acts to ensure you are meeting the minimum requirements as established or whether any exemptions apply.

Visit the relevant provincial labour standards web sites, as there are good reference tools that help to explain what young workers may or may not be entitled to. You could even make the reference information part of your student’s enrollment or new hire package.

Have a great and carefree summer!

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