Chapter 5: Net Pay
5.3 Calculating Net Pay for Various Scenarios
5.3.1 How to Calculate Net Pay for Various Scenarios
Two examples of net pay calculations are provided below. Calculations involving current year rates are not complete, but formulas are provided. Replace placeholders with current year rates (see Chapter 4 for CRA and Revenue Quebec links).
5.3.1.1 Scenario 1: Salary Plus Commission
Amrita is a sales professional in Ontario earning an annual salary of $40 000 plus commission. She is paid weekly. This pay period, she earned $245 in commissions. Amrita’s employer provides a car allowance of $200 per month (not based on the CRA’s reasonable rate) and pays a monthly life insurance premium of $300 on her behalf. Amrita is not unionized. She contributes $5 000 per year to a Registered Pension Plan (RPP) through her employer and pays $12.20 per week for health and dental benefits.
Calculate Amrita’s net pay for this pay period.
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Steps for Calculating Net Pay |
Determinations and Calculations |
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Verify and gather payroll-related information |
Claim Code 1 (default) |
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Determine pay information |
Annual salary $40 000 ÷ 52 weeks = $769.23 per week. Commission this period = $245.00. |
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Taxable benefits |
Employer-paid life insurance = $300 × 12 ÷ 52 = $69.23/week. |
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Taxable allowances |
Car allowance (not reasonable rate) = $200 × 12 ÷ 52 = $46.15/week. |
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Determine taxable and non-taxable allowances |
Taxable: Car allowance (not based on CRA’s reasonable rates) = $200/month ($200 × 12 months)/52 weeks = $46.15 per week Non-taxable: None |
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Non-taxable allowances |
None. |
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Other deductions |
RPP = $5 000 ÷ 52 = $96.15/week; Health & Dental = $12.20/week. |
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Gross Earnings |
Salary + Commission = 769.23 + 245 = $1,014.23. |
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Pensionable Earnings |
Gross + Taxable Benefits + Allowances = 1,014.23 + 69.23 + 46.15 = $1,129.61. |
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CPP Contribution |
CPP Rate × (1,129.61 – $3,500 ÷ 52) = [insert current-year result]. |
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Insurable Earnings |
Gross + Cash Taxable Benefits (allowance) = 1,014.23 + 46.15 = $1,060.38. |
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EI Premium |
EI Rate × 1,060.38 = [insert current-year result]. |
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Gross Taxable Earnings |
Same as Pensionable Earnings = $1,129.61. |
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Net Taxable Earnings |
1,129.61 – 96.15 (RPP) = $1,033.46. |
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Income Tax |
Use PDOC to calculate federal and provincial tax. |
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Total Source Deductions |
CPP + EI + federal tax + provincial tax. |
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Other Deductions |
RPP 96.15 + Health/Dental 12.20 = $108.35. |
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Net Pay |
(Gross Earnings + Taxable Benefits + Allowances) – (Total Deductions) = [insert amount]. |
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Non-taxable items |
None in this example |
Clarification on Non-Taxable Benefits and Allowances
Non-taxable benefits are items or services paid for or provided by the employer that give a personal advantage to the employee but are not paid in cash and do not create a taxable benefit under the Income Tax Act. Examples include employer-paid professional membership fees directly related to the employee’s work or reimbursement for approved job-related training.
Non-taxable allowances, by contrast, are cash payments given to employees to cover specific work-related expenses, such as a reasonable per-kilometre vehicle allowance or a daily meal allowance that meets CRA guidelines.
In short, a non-taxable benefit is provided in kind, while a non-taxable allowance is cash paid. Both are excluded from gross and taxable earnings but may appear on the employee’s pay statement for recordkeeping.
5.3.1.2 Scenario 2: Hourly Wage
Danilo is a unionized construction worker in Alberta earning $25 per hour, paid biweekly. In this pay period he worked 80 regular hours and 10 overtime hours (at 1.5 × rate). He also receives a payout for 80 hours of vacation pay (at his regular rate). His employer provides a non-taxable meal allowance of $15 per day for 10 days. He pays $75 per month for health and dental coverage and $260 per year in union dues.
Calculate Danilo’s net pay for this pay period.
Gross Earnings Minus Deductions = (Gross Earnings + Taxable Benefits and Allowances) – Total Deductions
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Steps to Calculate Net Pay |
Determinations/Calculations |
|---|---|
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Verify and gather payroll-related information |
Claim Code 1 (default) |
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Pay information |
$25 × 80 = 2,000; OT = 10 × 25 × 1.5 = 375; Vacation = 80 × 25 = 2,000; Total Gross Earnings = $4,375. |
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Taxable benefits |
None |
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Non-taxable allowances |
$15 × 10 = $150 meal allowance |
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Other deductions |
Health & Dental = (75 × 12 ÷ 26) = 34.62; Union Dues = 260 ÷ 26 = 10.00. |
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Pensionable Earnings |
$4,375 (only cash earnings) |
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CPP Contribution |
CPP Rate × (4,375 – $3,500 ÷ 26) = [insert result]. |
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Insurable Earnings |
$4,375 (no cash benefits). |
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EI Premium |
EI Rate × 4,375 = [insert result] |
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Gross Taxable Earnings |
$4,375 |
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Net Taxable Earnings |
4,375 – 10 (Union Dues) = $4,365. |
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Income Tax |
Use PDOC to calculate federal and provincial tax. |
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Total Source Deductions |
CPP + EI + federal tax + provincial tax. |
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Other Deductions |
10 + 34.62 = $44.62 |
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Net Pay |
(Gross Earnings – Deductions) + Non-taxable allowance = [insert result + $150 allowance]. |
