An employee earns overtime wages during a pay period. How are overtime earnings generally treated for payroll purposes?

Overtime wages are paid for hours worked beyond the standard work week as defined by employment standards legislation. For payroll purposes, these earnings are considered part of an employee's total remuneration. As such, they are subject to statutory deductions, including federal and provincial income tax, Canada Pension Plan (CPP) contributions, and Employment Insurance (EI) premiums. Overtime is treated as regular employment income, although the tax calculation method may differ (e.g., bonus method) depending on the payment frequency.

A. Overtime earnings are fully taxable and must be included in the employee's income for the year.

B. Overtime earnings are generally included in pensionable earnings for CPP/QPP purposes, up to the annual maximum.

D. Reimbursements are non-taxable payments for business expenses incurred by an employee, unlike overtime, which is payment for work.

1. Canada Revenue Agency. (2024). T4001 Employers' Guide - Payroll Deductions and Remittances. Chapter 5, Section: "Special payments," Chart 3 - Lump-sum payments.

2. National Payroll Institute. (2024). Payroll Fundamentals 1 Course Material. Chapter 2: Remuneration, Section: "Overtime Pay".

3. Canada Revenue Agency. (2024). T4130 Employers' Guide - Taxable Benefits and Allowances. Chapter 2, Section: "Salary, wages, and commissions".