The province or territory of employment must be determined for employee’s when you pay employment income such as salaries, wages, or commissions, so that the proper deductions are withheld.
An employee’s province of employment is:
A. the province where the employee reports to work at the employer’s permanent or temporary establishment; or
B. the province where the employer’s business is located and from where the employer pays the employee’s wages when the employee does not physically report to the employer’s establishment.
Example A
The province of employment is the province where the employee physically reports to work at the employer’s permanent or deemed establishment.
Callie lives in Alberta but physically reports to work at the employer’s establishment in British Columbia. Callie’s province of employment would be British Columbia, even if her reporting manager is in Alberta or any other jurisdiction.
Callie would have the province of employment code on the T4 set as BC. Her remuneration would be considered as part of the remuneration used to calculate the BC Employer Health Tax. Her provincial income tax would be British Columbia.
Example B
The province where the employer’s business is located and from where the employer pays the employee’s wages.
Mark lives in Manitoba and travels throughout Saskatchewan visiting customers for his employer. Unlike Callie, he does not report to work at any establishment of the employer. The organization’s payroll department is located at the head office in Ontario. Mark’s province of employment would be Ontario, even if his manager is in Saskatchewan or any other jurisdiction.
Mark would have the province of employment code on the T4 set as ON. His remuneration would be considered as part of the remuneration used to calculate the ON Employer Health Tax. His provincial income tax would be Ontario.
Things to note according to CRA
POE different from province of residence: If the employee's POE is not the same as their province or territory of residence, they may have not enough tax deducted or too much tax deducted.
POE in Quebec: If you have employees whose province of employment is Quebec, regardless of your employee's province or territory of residence, you have to deduct QPP contributions instead of CPP contributions as well as QPIP contributions.
New CRA administrative policy for 2024
On September 6, 2023, the CRA introduced a
new administrative policy on the province of employment for employees who are not required to physically report to work at an employer’s establishment. This change comes into effect January 1, 2024.
For income tax, CPP and EI withholding purposes, an establishment of the employer is any place or premises in Canada that is owned, leased or rented by this employer where employees report to work or from which employees are paid. For purposes of the province of employment, this does not need to be a permanent physical location.
Prior to this change, the province of employment for a fully remote employee was determined based on the province where the business is located and from where their salary is paid. The province of residence (where the employee resides) is not a factor in determining the province of employment.
The new administrative policy will enable employers to determine the province of employment based on indicators to consider for the employee to be reasonably considered "attached to an establishment of the employer".
Once you have determined that a full-time remote work agreement was made, you need to determine whether the employee is reasonably considered to be "attached to an establishment of the employer".
The CRA has an
interactive tool to help employers determine their employees' province of employment.