Today’s blog post will be generally short but sweet. Business is going well, you have a little extra cash flow in the bank and you’d like to reward your employees with a cash bonus.
Great! They’ll be so excited. But PLEASE, don’t get excited yourself and pull out your chequebook and start writing cheques. Cash bonuses (including gift certificates as they are considered the same as cash by CRA) are TAXABLE income to your employees. This means that the bonuses MUST go through your payroll provider – whether it be your bookkeeper or if you use an outside payroll service. The best way to handle bonuses is to let your bookkeeper/payroll provider know when you submit payroll the amount of the bonuses to each employee. The bookkeeper will add the bonuses to the employee’s paycheque, deduct the appropriate amounts and the paycheque will be higher that month because of the bonus.
Gift certificates are a little more tricky as you’d be handing over the gift certificate on top of their paycheque. However, it should be handled the same way. Let your bookkeeper know, in advance, that you want to give your employees gift certificates for bonuses. The bookkeeper will show them going onto the employee’s payroll as a bonus, it will get taxed like a cash bonus but the bookkeeper will also deduct the amount of the gift certificate from the paycheque as you’ll be handing them the gift certificate. It is also important to note when you purchase the gift certificates that they were purchased as employee bonuses so your bookkeeper knows how to allocate the purchase as it will offset against the amounts being recorded through payroll.
As with anything, when you aren’t 100% sure, please contact your bookkeeper or payroll provider to discuss how things should be done. Communication is always key and finding out the best way to go in advance makes so much more sense than trying to fix things later.
This is just an explanation for dealing with bonuses. Employers are also entitled to give their employees tax-free gifts for a few reasons throughout the year (gift meaning a physical item you hand them – not cash/cheque/gift certificate). If you would like more information on gifts, please feel free to contact us.