About Applicable Periods of Time

An Applicable Period of Time selection tells the system what CPP exemption to apply and indicates the time period over which the earnings should be taxed.

An Applicable Period of Time must always be selected on an extra run.

When you create an extra run, regardless of your payroll frequency, Powerpay automatically defaults the system to apply federal and provincial tax personal tax credits based on a weekly pay frequency and apply no CPP/QPP exemption.

Do not code the pay as part of or all of one week. For example, in the following scenarios:

  • An employee (new or other) on a biweekly payroll only works one week of the pay period
  • A biweekly employee who quits at the end of the first week

Review the following statement copied from the CRA website:

Note: A pay period means the period for which you pay earnings or other remuneration to an employee. Once you have established your type of pay period, the annual exemption must remain the same even when an unpaid leave of absence occurs or when earnings are paid for part of a pay period.

As per the above, the exemption must be applied for the entire pay period. That would also mean if a biweekly employee was working 3 weeks, the correct Applicable Period of Time would be 4 weeks as the exemption is always applied for the pay periods worked not the weeks worked.

If the employee will not be earning any other income during the period that they are taking vacation and for which they are claiming the exemption you can use the appropriate Applicable Period of Time. For this example, key 6 weeks.

CPP Contributions

Deduct CPP contributions from vacation pay in the same way as you would from regular pay. See CPP/QPP Considerations for more information. Make sure that you do not deduct more than the maximum for the year.

Income tax

When you calculate the amount of income tax to deduct, use the tax table that applies to the period of vacation. For example, for one week of paid vacation, use the weekly tax deduction table.

Lump sum payments of vacation pay are taxed by the bonus method as they are in addition to the annual earnings on which the income tax is being calculated and deducted.

If you are keying vacation pay on a separate cheque, the payments should always be coded No Time Taken Bonus Tax Method to reflect this.

The Second Payment page defaults to the code for that pay period.

Just as in an extra run, an Applicable Period of Time code should always be keyed on the Second Payment page. In many cases, the earnings keyed on the Second Payment page appear to have much higher deductions than normal if no code is keyed because the Second Payment page is read after the regular page and the system looks at the totals for both payments when calculating the CPP and tax on the second page.

If paying an employee an amount for future pay periods in which the employee will not receive pay, key the Applicable Period of Time code for the normal pay period.

If paying an employee an additional amount for the current pay period, key No Time Taken Extra Payment as the employee is not entitled to two exemptions.

Note: Vacation pay on the final pay is often keyed on a separate cheque upon termination or after termination. If this is paid on a separate cheque at the time of termination or paid at a later date the correct Applicable Period of Time code would normally be No Time Taken, Bonus Tax Taken.

In cases where you or your employee feel that the tax is too high, please be aware:

  • This is the correct taxation amount.
  • The employer is required to deduct tax at source using the tables established by CRA.
  • The tax and CPP exemption are only applied once.

If you actually calculated the amount of tax deducted when you are using a No Time Taken Extra Payment code for the second cheque, and the regular code for the regular cheque versus calculating all the amounts on one cheque, you will discover that the tax for the two separate cheques, when totaled, will be very close to the amount if the earnings were all on the one cheque.

No Time Taken, Bonus Tax Method is similar to the employer level bonus tax calculation but on an employee-by-employee basis. It ignores the CPP/QPP exempt amount and applies the bonus tax calculation. A typical situation where this code would be applied is when the employee is terminating and is receiving no current pay other than accumulated vacation pay as a lump sum payment or receives a lump sum retro payment.

Legislation advises that this Bonus Tax Calculation Method should really be used in these situations and therefore this may be a more preferred option than using No Time Taken, Extra Payment.