I have commissioned employees and want to setup their pay.
Handling payroll for commissioned employees often requires more work than for salaried or hourly employees. However, once you get the commissioned employees properly set up, it should not be difficult.
If you make commission payments, you probably want to set up a separate earning category for it. The advantage to doing this is that you can separate the commissions from regular payments, which means commission payments can be posted to a separate account in your GL, and the employee can differentiate different payments on his or her pay stub.
Steps:
- From the Main Menu select Setup > Payroll Categories. You will get a list of all the earning, deduction, benefit, and payroll tax categories that have been set up for the company (as well as predefined accrual and employer contribution categories).
- Click on ADD. You will see a pop-up menu allowing you to select earning, benefit, deduction, or payroll tax.
- Select EARNING. The Earning Edit Window will appear.
- Enter a unique payroll item number (tip: payroll numbers are set up in groups with Earnings being 100’s, benefits being 200’s, etc.), a description (tip: make sure you give it a description that not only makes sense but quickly allows you to choose the right one from the list), an abbreviation (tip: same as description rules COMM), and select Regular from the drop down list of types.
- Subject To: Check all the taxes and deductions that should apply to this category
- Form Assignments : If a person is truly commissioned (eg. he gets no base earnings, he should be flagged as being commissioned in the TAX tab of the EMPLOYEE EDIT and his annual income and expenses should be entered there) then T4 should be set to BOX 42, T4A should be set to NOT REPORTED and Releve 1(applicable for Quebec)should be set to BOX M employment commissions.
If the person is NOT truly commissioned (eg. he gets a base salary plus commissions), the T4 box should be assigned to BOX 14 Employment Income, T4A should be NOT REPORTED and Releve 1 (applicable for Quebec ) should be assigned to Employment Income before Deductions. - Contributes to : Check mark this box only if the commissioned amount is part of the Vacation Pay
- Click on SAVE to save the new category. Paymate will ask you if you wish to assign this category to all employees. If you say yes, it does it and if you say No you will have to assign this category to the specific employee yourself.
- From the Main menu select SETUP/EMPLOYEES. Select an employee to see the EMPLOYEE EDIT Window.
- Click on the PAYCARD page. You will see the new category listed on this page, and you can click the checkbox to assign it to the employee. The new category will now appear when you process a timesheet for the employee.
- Repeat this for each employee who will be receiving the payment.
There are four methods you can use for paying commissioned employees:
- Handle them exactly the same way as regular employees.
- Handle them like regular employees, but override the tax deduction.
- Pay your commissions at predetermined time (Monthly, Bi-Weekly, Quarterly)
- Flag them as commissioned (on the employee record).
Pay as Regular Employees:
If the employees are paid a base salary plus commission you will need to check that:
- The commission is paid regularly, at the same time as any base salary.
- The employee has not filled out a TD1X form.
If the above conditions apply, then all you need to do is set up a separate earning category for Commissions and assign it to the commissioned employees. Listed below are some recommendations for paying Commissioned Employees thru Paymate.
Pay as Regular Employee, Override Tax:
This is not recommended. It is only mentioned because some employers have been doing it this way for years and will wish to continue doing so. For example, some employers will take a flat rate of 30% or 40% of the commission in taxes.
When you process the payroll, you will have to select each individual sales person and enter the commission on the Timesheet Edit window. You will enter the commission and then tab down to "Income Tax" and type in the amount of tax you want to deduct.
Pay out the commission at a predetermined time:
This is probably to best way to pay an employee who receives both salary and commission.
Go to Setup/Preferences and remove the checkmark from the box that says Calculate deductions based on totals of the pay period. Removing this check mark will make Paymate treat each timesheet as totally separate for Taxes, CPP, and EI deductions. Doing commissions this way will also save the employee tax as each timesheet is treated as a totally separate entity.
Run your payroll as normal and then at the end of the month (period, etc whenever you decide to pay your commissions) choose the same pay period that you have just processed the payroll for. Make sure that you have posted your payroll. When you go into process payroll do not batch your timesheets, select the employee(s) that are receiving the commissions and edit their time sheets. Zero our all earnings except commission and enter the commission amount in the box. Taxes, CPP & EI will be calculated on this amount only.
Flag Employees as Commissioned:
This is an excellent way to ensure taxes are accurately deducted for commissioned employees, but it requires that the employee has filled in a TD1X form. What this means is that the employee has no other source of income other than commissions. If the employee is paid a base salary and commission then you cannot flag the employee as commissioned as this will result in incorrect Taxes CPP, and EI deductions being taken.
If your employees have not filled in this form You should acquire some copies from the local tax office and distribute them to the salespeople. You can activate the special tax calculation for commissioned employees as follows:
- Set up an earning category for Commission and assign it to each commissioned employee.
- On the Tax page of the Employee Setup window, click on Commissioned under Tax Calculation.
- Enter the estimated annual remuneration and estimated annual expenses
TIPS
- Separate Payroll Group for Commissioned people
- Do not create a different payroll group to pay commissioned employees separately. By doing this it creates extreme confusion when an R.O.E. has to be created. The R.O.E. cannot apply two different payroll groups to one employee.
- Source Deductions
- At the end of the month, all source deductions will be correct. However, you will notice that CPP and UI deductions may have been lower on the first pay and higher on the last pay. Depending on the level of each employee's base salary, UI may even be lower on the last pay. This is what comes with processing the payroll in this manner. However, the deductions are correct.
- The advantage of having the employees complete a TD1X form and flagging them as Commissioned is that the tax deductions will be proportionate on each pay. If the employees are flagged as using the Normal tax calculation methods you will generally find that tax is disproportionately low on the first pay of the month, and higher on the last pay. However, the deductions will still be correct at the end of the month.
