Hiring in Canada can give your company several important benefits, including accessing a major global market, recruiting from a highly skilled workforce, and more. British Columbia is home to Vancouver, one of Canada’s largest cities and a significant economic center in the country.
One of the major challenges foreign employers will face in Canada is understanding the country’s federal and provincial labor laws. Among these is the Employer Health Tax Act – a mandatory British Columbia payroll deduction that’s meant to help residents save on healthcare premiums.
Employers will need to be aware of the tax requirements for each employee, including how to pay, which companies may be obligated to pay payroll tax, and what constitutes payroll in general.
Worried? Keep reading. We’ll tell you everything you need to know about BC’s Employer Health Tax.
What Is the Employer Health Tax?
The Employer Health Tax is a form of payroll deduction that must be withheld from each employee based in British Columbia. The BC EHT is calculated as a percentage of the company’s gross annual payroll. The Ministry of Finance governs, implements policies, and collects the tax in British Columbia.
EHT rules apply to:
- Individuals or sole proprietorships
- Partnerships
- Corporations
- Trusts
- Government organizations
Employers with BC remuneration exceeding a certain amount are responsible for registering for the EHT tax. As of January 2019, employers with a permanent establishment who meet this criteria must file the return. A permanent establishment is a fixed place of business within the province.
If you are an eligible employer with a British Columbia payroll system in place, you are required to pay these taxes, though certain exceptions can apply. Additionally, the rate at which companies are taxed can vary on a progressive scale.
BC is one of the five provinces in Canada that has EHT. The Ontario government implemented the EHT in 1990, which added another financial obligation for companies with Ontario payroll. The others are Manitoba, Quebec, and Newfoundland.
In contrast to other provincial taxes, the amount owed is not based on current earnings as they are paid. Instead, the required contribution is based on payroll remuneration in BC from the prior year or an estimate of the current year’s remuneration.
How Is Remuneration Defined?
Remuneration is considered employment income and taxable benefits under the Income Tax Act.
Remuneration can include:
- Salary and wages
- Advances in salary and wages
- Bonuses, commissions, and other additional payments
- Gratuities or tips paid through an employer
- Taxable allowances and benefits
- Stock option benefits
- Employer-sponsored life insurance premiums
- Top-up benefits
- Directors’ fees
- Honorariums
- Employer-paid contributions to employee trusts
It’s also important to know that certain exclusions apply. For example, pension, annuity, and superannuation payments from an employer to a retired former employee are not considered payroll. Other exclusions include private health services plans, supplementary unemployment benefit plan contributions, deferred profit-sharing plan contributions, and more.
Why Is the BC EHT Necessary?
The EHT tax was introduced to help reduce revenues lost when Medical Service Plan premiums were reduced and eliminated. The Medical Services Plan (MSP) is a publicly-funded health insurance plan that covers most necessary medical procedures, such as physician and surgeon services in the hospital.
Before eliminating these premiums, most individuals in the province had to provide monthly contributions. With the BC EHT, much of the burden now falls on businesses instead of workers and families.
Who Is Responsible for Paying the EHT Tax?
Employers with British Columbia payroll are required to pay these taxes in certain cases. Companies that have payroll exceeding CA $500,000 per fiscal year must register and pay for the tax. Employers will be responsible for making quarterly installment payments.
In the case of a joint venture, each venturer is individually considered an employer and is required to pay the tax if they meet the criteria. Employers with a payroll below CA $500,000 in BC are exempt.
The rules are slightly different in a cost-sharing arrangement, which is when two or more participants share common operating costs like capital or lease costs. This is not considered an employer for the BC EHT. Instead, the participants are considered individual employers, and all BC remuneration must be allocated to the participants of the agreement.
It’s also important to know that British Columbia payroll remuneration is not allocated to the partners of a partnership. In this case, the partnership calculates and pays the EHT as an employer.
Organizations that fail to register and pay the necessary tax can face severe penalties for violating local labor laws. Penalties can include fees for filing the paperwork late, interest charges, and potential legal trouble. Employers can file for a waiver of interest to avoid penalties in certain cases, such as:
- Natural disasters
- Civil disturbances (such as a postal strike)
- Serious illness or accident
- A delay in the government’s process that didn’t provide enough time to file the return
- An error in information from the government
- Delay in the government’s ability to make the necessary information available to them
Engaging an Employer of Record like Borderless when hiring in British Columbia can help you understand all requirements and remain compliant with provincial labor regulations.
Charities and Nonprofits
In contrast to for-profit companies, charities, non-profit employers, and associated employers have different rules and regulations when it comes to the BC EHT. An organization is considered a charity if it has registered with the Canada Revenue Agency (CRA) or has received a tax exemption under the following sections of the Income Tax Act:
- An agricultural organization, board of trade, or a chamber of commerce: Section 149(1)(e)
- A registered Canadian Amateur Athletic Association: Section 149(1)(g)
- A corporation constituted exclusively to provide low-cost housing for seniors: Section 149(1)(i)
- A non-profit corporation for scientific research or development: Section 149(1)(j)
- A labor organization or society or a benevolent or fraternal society: Section 149(1)(k)
- A club, society, or association that isn’t a charity and is operated only for social welfare, civic improvement, pleasure, or recreation: Section 149(1)(l)
Additionally, charities and nonprofits have different exemption requirements. Charitable or nonprofit employers are not required to pay the BC EHT if their British Columbia payroll remuneration is below CA $1,500,000 per calendar year.
These employers may also need to meet the requirements of a qualifying location if they have multiple locations and want eligibility for more than one exemption amount. This is only necessary if the employer has multiple locations. In this case:
- The land or premises must be part of a permanent establishment in BC
- The employer has the exclusive right to occupy the land
- The land or premises are used and occupied only by the charitable employer
You will also need to determine BC remuneration for each qualifying location.
What Are the Rates for the BC EHT?
Employers whose total BC remuneration is CA $500,000 but less than CA $1,500,000 receive a reduction in the EHT amount. Companies that meet this criteria can calculate their amount of tax owed with the formula:
- 2.925% x (Total BC remuneration - $500,000)
Employers with BC remuneration that exceeds CA $1,500,000 are required to pay tax at 1.95% of the total amount.
Employers with a permanent establishment for only part of the year must prorate the $500,000 or $1,500,000 exemption amount. Employers can calculate the amount with the formula:
- $500,000 x the number of days with a permanent establishment in BC / 365
- $1,500,000 x the number of days with a permanent establishment in BC / 365 (notch rate)
Charities and nonprofit organizations are also subject to different BC EHT rates. Employers with between CA $1,500,000 and CA $4,500,000 in BC payroll will pay 2.925% of their total BC remuneration. Employers that have provided more than CA $4,500,000 of BC remuneration are required to pay 1.95% of the total amount.
Tools such as British Columbia’s Employer Health Tax Calculator can help you accurately determine the amount owed.
Note that regular employers will need to pay income taxes depending on their annual payroll within the province.
Other Necessary Payroll Taxes in British Columbia
In addition to the Employer Health Tax in British Columbia, employers will be responsible for handling other payroll deductions and social security contributions. In British Columbia, companies will be responsible for handling federal tax requirements for each employee. These withholdings include:
- 2.28% towards Employment Insurance
- 5.95% towards the Canada Pension Plan
Employee payments must be made bi-monthly, usually on the 15th and at the end of the month.
Employers in British Columbia will also need to withhold income tax for all employees. BC's personal income tax rates are indexed each year to the Consumer Price Index. BC’s tax brackets in Canadian dollars in 2023 are:
- 5.06%: incomes between $0 and $45,654
- 7.7%: incomes between $45,654 to $91,310
- 10.5%: incomes between $91,310 to $104,835
- 12.3%: incomes between $104,835 to $127,299
- 14.7%: incomes between $127,299 to $172,602
- 16.8%: incomes between $172,602 to $240,716
- 20.5%: incomes over $240,716
Companies that operate in British Columbia may also need to be aware of other important taxes. Still, corporations, trustees, and business partners may be exempt from certain taxes, such as the speculation and vacancy tax.
What Is the Impact of EHT on BC Payroll?
BC’s employer health tax has several implications for companies that are required to pay it.
Eliminating MSP premiums was meant to provide cost savings for employers who pay premiums for their employees or former employees. However, prior to 2020, eligible employers may have been required to pay both the premium and the BC EHT.
Additionally, the introduction of the tax created a new budget and legal obligation for companies that were not contributing to MSP premiums. The tax can place more of a burden on smaller businesses that exceed the minimum threshold, which can limit a company’s ability to remain competitive.
Employer healthcare taxes can benefit companies in certain ways. For example, the healthcare tax is designed to ensure that employees have access to medical care as needed. This can contribute to a healthier workforce, improved productivity, and increased employee engagement. It can also make it easier for companies to navigate necessary healthcare contributions by creating a single and defined requirement after a certain amount. When companies pay the necessary amount, the organization will also remain compliant with provincial taxation laws.
Employees in British Columbia can also be impacted by the introduction of the EHT tax. Studies have estimated that many payroll expenses are passed on to workers, and the new policy will potentially cost the average employee around CA $3,000 a year. This means workers will likely receive lower annual wages, reduced work hours, and fewer employment opportunities. This can also reduce the chances of an employee receiving a raise, as employers may not want to exceed the minimum threshold.
However, the British Columbia employer health tax helps reduce the burden placed on individuals or families in key ways. For example, social security contributions per paycheck will be lowered, as employers assume more of the tax burden to fund the provincial healthcare system.
It’s important for employers to understand these local labor regulations and their impacts when hiring employees.
How to Register for EHT Payments
Employers that are required to make the payments for BC’s Employer Health Tax must register in order to provide payment for each employee or former employee. Luckily, the process is rather easy, so it shouldn’t take you too long to figure out.
To pay the tax, employers will need to register an Employer Health Tax account on the eTaxBC website. Companies also have the option of paying through their bank or financial institution.
To register, you’ll need to provide:
- The federal business number
- Mailing address and business location address
- Date the permanent establishment started
- Incorporation number and date
Charities will also need to provide the registered charity number.
Alternatively, companies can allow a third party, such as an accountant or bookkeeper, to make the payments for you. To remain compliant, the employer will need to enroll for a Third-Party/Bookkeeper account on the eTaxBC website. Then, you can request access to the client’s account. Third parties that represent multiple employers can provide a bulk payment to cover all clients at once.
Afterward, you’ll need to hit the submit or share button to complete the process and hit the back to top to navigate the web page.
Employers
Before filing the report, employers will need to provide a T4 summary or summaries from all payroll accounts covered by the same business number. It’s also necessary to include the total non-BC remuneration from all payroll accounts.
Next, companies must declare the period covered, the due date of the return, and whether or not the employer amalgamated during the taxation year.
Then, employers must provide the total remuneration reported on Line 14 of the T4 slip for that year. The remuneration paid to employees outside BC is then subtracted from the total remuneration reported.
After completion, you will receive a summary. To submit the tax return, you must certify it by including:
- Your first and last name
- Your position title
- Checking the certification box
After you submit, you will receive a confirmation number as proof of the submission.
Charities and Nonprofits
The process is similar for charities or nonprofits that are eligible for the BC EHT. However, charitable employers will also have to provide information on all qualifying locations with valid addresses, including the city and postal code.
Payment Options
In some cases, companies can pay the entire balance before the filing due date with a lump sum payment.
Employers owing more than CA $2,925 in employer health tax for the previous calendar year must make quarterly installment payments. The necessary amount per installment is equal to the lesser of 25% of the previous year’s tax or 25% of the current year’s estimated tax.
The due dates for installment payments are:
- June 15
- September 15
- December 15
All other tax returns must be filed by March 31 of the following calendar year. If March 31 falls on a weekend or statutory holiday, the deadline will be moved to the next business day. Once the filed return has been removed, employers will receive a Notice of Assessment.
How Can an Employer of Record Help?
An employer of record service can help you understand all the legal requirements needed to hire an employee in Canada, along with the required costs of employment. An EOR can also help guide you through the complicated local necessities to navigate payroll deductions in British Columbia.
An employer of record will handle everything needed to keep you compliant when hiring workers. This includes handling the various stages of the onboarding process for new hires, enrolling employees in benefits programs, ensuring that all termination requirements are properly met, and more.
An employer of record manages all the required payroll deductions, such as income tax withholding. With an employer of record, you can avoid potential noncompliance penalties and effectively calculate BC’s employer health tax.
Why Borderless?
Borderless is an EOR that offers extensive expertise surrounding all federal and provincial employment laws. We act as a legal entity in Canada, allowing you to compliantly hire employees. With our knowledge about taxation requirements in British Columbia, you can spend more time and focus on finding the right employees for the job.
We handle everything from ensuring you pay the proper BC EHT amounts to drafting valid employment contracts for all workers. Speak with us today to see how we can help you hire from over 170 countries worldwide.
Disclaimer: Borderless does not provide legal services or legal advice to anyone. This includes customers, contractors, employees, partners, and the general public. We are not lawyers or paralegals. Please read our full disclaimer here.
