The different government forms you need to file can leave your head spinning! This article breaks down the difference between an ROE and a T4.
Record of Employment (ROE)
You file this form when you leave a job for good, or for a period of time. This form is very important because it is the document that determines whether or not you are eligible for Employment Insurance (EI) benefits.
The ROE documents the amount of hours you worked in the last 52 weeks prior to applying for EI. You must have worked at least 420 hours to be eligible for EI regular benefits.
Your employer is responsible to issue your ROE within 5 days of your last day.
T4
You file this form every year that you work, even if you worked only a couple of days during the year.
Any employers that you had throughout the year should provide your T4 by February of the following year. For example, you should be receiving your 2019 T4 by February 2020.
Your annual T4 provides information that determines if you paid enough EI, CPP, and taxes according to how much money you made that year.
This form is used to file your taxes every year, but don’t worry, if you don’t have it, your pay stubs can be used to calculate your annual income.
Do I include tips when calculating CPP and EI deductions?
There are 2 types of tips.
Controlled
Direct
Controlled tips
Controlled tips are mandatory to the client. For example, spa parties may include a mandatory 18% gratuity that is included in the bill. If you include or “control” the tip amount in the final bill, then these tips must be included in the insurable earnings (wages + VAC pay + tips + commission). Anything considered “insurable earnings” must be accounted for when calculating the EI and CPP deductions.
Direct tips
Direct tips are out of your control. A client may or may not tip you or your service providers. Only the client is in control of the amount of tip they choose to leave. You as the employer are simply passing the tip from the hands of the client to the hands of your service provider. Direct tips are NOT considered insurable hours and are therefore not included when calculating EI and CPP deductions.
The declaration of tips is the responsibility of the tip reciever when filing their personal taxes.
Did you think Employment Insurance and Chair Renters would never come up in the same sentence?
CTV NEWS Saskatoon did a report on how salon owners that rent our chairs are impacted by Employment Insurance fees imposed by the Canada Revenue Agency (CRA).
The report focuses on Stacey Zielinski , owner of The Beach Beauty Bar in Martensville, Saskatchewan. Like many others, Stacey was under the impression that chair renters are independent contractors and therefore are not governed under employment laws and regulations.
Luckily for Zielinski, her tab was not too high, as only 1/5 hairstylists was a chair renter. This got us thinking though, how does this impact the industry?
What does this mean for salon owners who only rent out chairs?
Renting out chairs to hairstylists has always been an attractive option for salon owners. Renting out chairs produces consistent income, removes employee-related issues, and was formerly believed to eliminate the cost of wages and MERCS.
It is widely believed that the salon owner does not pay money to the renter; but they do however collect money from the renter. Typically, the hairstylist pays a monthly fee to offer services to their growing clientele from an already established salon. In exchange for this fee, the salon owner allows use of the chair and fixtures during operating hours.
Contrary to popular belief, salon owners are liable to pay
Employment Insurance fees to the CRA for chair renters. Normally, independent
contractors from other industries are not eligible for EI, however, there is an
exception for barbers and hairstylists.
Normally, EI is paid to employees based on the hours worked per pay period. Because chair renters dictate their own hours, the CRA calculates EI fees on the number of days the chair renter offered services in the establishment.
Why is there an exception for barbers and hairstylists?
As it was explained by a CRA representative, this exception was put into place to secure the income of a hairstylist in the event that the salon owner is no longer able to provide the chair renter with a space to work from. Examples are salon owners who are evicted from their rented space or go out of business.
What is the difference between independent contractors in the beauty industry versus other industries?
Nothing really. We searched for answers but could not find a clear explanation for this exception.
The exception to the exception.
While a salon owner must pay the employer portion of EI fees for independent contractors, this fee is eliminated IF the chair renter is incorporated.
What is the difference between a sole proprietorship, a partnership, and a corporation?
All of the above are forms of entrepreneurship. They differ in a few ways including the annual costs and taxes payable to the CRA. The main difference is that in a sole proprietorship or partnership, the business is an extension of you (and your partners if applicable) whereas a corporation is viewed as an entity external to you. It even has its own SIN, however, it’s called a BN (Business Number).
There are many benefits to registering your business as a corporation. Learn more.
Where does this legislation come from?
It is believed that this legislation was created to protect the
income of women and single mothers based on the occupation’s demographic at the
time the legislation was created.
Two conditions apply to this employment insurance regulation:
The barber or hairstylist offers services out of the establishment.
The barber or hairstylist is not the owner of the establishment.
What if the salon owner also owns the building?
Unfortunately, it doesn’t matter. Salon owners who own the building must also pay EI fees.
What if the hairstylist does not pay EI?
Unfortunately, it doesn’t matter. The onus is on the salon owner to pay the employer portion of a chair renter’s EI whether or not they pay their own premiums.
Does this legislation affect room rentals for esthetics services?
No, this legislation only applies to Hairstylists and Barbers at the time this article was published.
