Pass the National Payroll Institute Payroll Fundamentals PF1 Questions and answers with Dumpstech

Overtime premiums and piece-rate pay are forms of earnings because they are amounts paid for work performed. CRA’s payroll guidance confirms overtime pay is remuneration from which you must deduct statutory deductions (CPP, EI, and income tax), reflecting that overtime is treated as employment earnings.

Similarly, piecework (piece-rate pay) is a method of paying wages based on units produced rather than time. It is still compensation for labour and therefore part of gross earnings used to calculate payroll deductions and net pay. This is fundamentally different from:

Expense reimbursements, which repay employee-incurred business costs (not pay for work).

Allowances, which are predetermined amounts to help cover anticipated expenses without receipts.

Benefits, which are the value of goods/services provided by the employer or paid on the employee’s behalf.

So a premium paid for overtime hours or a piece-rate per unit produced is classified as earnings (option A).

CRA requires separating a retiring allowance into an eligible and non-eligible portion. The eligible portion is the maximum that can be transferred to an RRSP/RPP under the special rules (without using regular RRSP room). The formula is: $2,000 for each year (or part-year) of service before 1996, plus an additional $1,500 for each year (or part-year) before 1989 in which the employee had no employer pension/DPSP benefit vested at the time of payment (or previously paid).

Rosa worked from 1983 to 1995 (inclusive) for pre-1996 service: 13 years × $2,000 = $26,000.

For the extra pre-1989 amount: she joined the pension plan in 1986 and was fully vested when paid the retiring allowance in 2015, so 1986–1988 do not qualify for the extra $1,500. However, 1983–1985 were years before 1989 when she had no vested employer pension benefit, so 3 years × $1,500 = $4,500.

Eligible portion = $26,000 + $4,500 = $30,500.

Non-eligible portion = $62,500 − $30,500 = $32,000.

The CRA defines a death benefit as the gross amount of any payment made on or after the death of an employee to recognize the employee’s service in an office or employment. It can be paid to a surviving spouse/common-law partner, heir, or the estate.

This is different from amounts the employee already earned before death (for example, regular wages up to the date of death, or vacation pay that was accrued/earned). CRA guidance treats wages and employment income earned up to and including the date of death as amounts to be reported on a T4 slip, not as a death benefit.

It’s also different from a life insurance payout from an insurer (which is not an employer-paid “death benefit” for payroll reporting purposes). The payroll impact is that a qualifying death benefit is generally reported as a special payment (often on a T4A), following CRA rules for deductions and reporting of death benefits.

Salary continuance means the employee continues to receive regular pay (and often benefits) for a period after their job ends. In this arrangement, the payments are treated like regular employment income for payroll purposes, so the usual payroll deductions apply. A Government of Canada guidance page explains that when severance is paid as salary continuance, the employee pays income tax like regular employment income and that the usual deductions apply, including CPP (or QPP), EI premiums, and RPP contributions (where applicable).

This aligns with standard payroll obligations in CRA’s payroll remittance framework: employers deduct and remit CPP contributions, EI premiums, and income tax on employment income unless a specific exemption applies.

Therefore, the correct option is B (All deductions)—and in Quebec, that “all deductions” concept includes Quebec-specific programs (for example QPP/QPIP where applicable) based on the employee’s province of employment and insurability rules.

Step 1 — Block 6

Bi-weekly

Step 2 — Block 8

435837159

Step 3 — Block 10

September 19, 2007 → 19092007

Step 4 — Block 11

October 28, 2019 → 28102019

Step 5 — Block 12

October 28, 2019 → 28102019

Step 6 — Block 15A (Total insurable hours)

80.00 × 27 = 2160

Block 15A = 2160

Step 7 — Block 15B (Total insurable earnings)

$1,884.62 × 27 = $50,884.74

Block 15B = 50,884.74

Step 8 — Block 17A (Vacation pay)

$52,050.00 × 6% = $3,123.00

Block 17A = 3,123.00

Step 9 — Block 17C (Pay in lieu of notice)

Weekly earnings = $1,884.62 ÷ 2 = $942.31

Pay in lieu = $942.31 × 8 = $7,538.48

Block 17C (Pay in lieu of notice) = 7,538.48

Step 10 — Block 17C (Severance)

Severance = $942.31 × 10 = $9,423.10

Block 17C (Severance) = 9,423.10

An expense reimbursement is paid to repay an employee for actual business expenses the employee incurred while performing their job (for example, meals while travelling on business, supplies purchased for work, etc.). CRA’s taxable benefits guidance distinguishes reimbursements from allowances: an allowance is usually a predetermined amount paid without the employee having to support the expense with receipts, while a reimbursement is tied to actual costs.

That distinction matters because reimbursements are generally not compensation for work performed (so they are not “earnings”), and they are not “benefits” in the sense of a good or service provided by the employer (though CRA notes that benefits can include reimbursements of personal expenses—so payroll must still ensure the reimbursement is for business use and properly supported).

Option A correctly describes reimbursements. Option B is typically an allowance (for example, a vehicle allowance for using personal property). Option C describes earnings (wages/salary). Option D describes benefits (value of something provided or paid for on the employee’s behalf).

In Saskatchewan (outside Quebec), EI premiums are deducted at the 2026 employee EI premium rate of $1.63 per $100 of insurable earnings (1.63%).

CRA guidance confirms that wages in lieu of termination notice are subject to EI premiums, and to determine statutory deductions you include the wages in lieu with the regular income (if any) for the pay period.

Step 1: Determine total insurable earnings in the final pay (assuming both amounts are insurable and the annual maximum won’t be exceeded):

$12,523.00 + $1,080.00 = $13,603.00.

Step 2: Calculate EI premium:

$13,603.00 × 1.63% = $13,603.00 × 0.0163 = $221.7289, which rounds to $221.73.

So, the EI premium to deduct from Feraz’s pay for this combined payment is $221.73.

In a Defined Contribution (DC) pension plan, contributions are calculated as a set percentage of the employee’s pensionable earnings, and the total remittance is usually the sum of the employee deduction plus the employer’s matching contribution, based on the plan text. Here, the plan states the employee contributes 3% of pensionable earnings, and the employer matches the employee contribution.

Step 1: Calculate the employee’s pension contribution:

3% × $3,400.00 = 0.03 × 3,400.00 = $102.00.

Step 2: Calculate the employer match:

Because the employer matches the employee contribution, the employer contributes $102.00 as well.

Step 3: Total remittance to the plan:

$102.00 (employee) + $102.00 (employer) = $204.00 each month.

From a payroll processing perspective, the employee amount is withheld from gross pay as a payroll deduction according to plan rules, while the employer match is recorded as an employer expense. Payroll remits both amounts to the plan administrator following the plan’s remittance schedule, and should reconcile pensionable earnings and contributions to ensure accuracy and compliance with plan terms.

Because the plan is for the president only, it is a non-group insurance plan (a plan offered to an individual employee). The CRA states that when an employer pays premiums or makes contributions to a non-group insurance plan, the amounts paid are a taxable benefit. The CRA explicitly includes sickness or accident, disability, and income maintenance plans in this non-group category.

This benefit is generally treated as a non-cash taxable benefit because the employer is paying the premium directly to the insurer (the employee receives the coverage, not cash). CRA guidance distinguishes cash benefits (paid as money, reimbursements, or allowances) from benefits provided in a manner other than cash.

Payroll must therefore include the value of the employer-paid premium in the employee’s taxable income and report it on the appropriate slip (commonly T4 code 40 for current employees, as noted in CRA instructions for insurance premiums).

On the ROE, separation payments are reported in Block 17. Service Canada explains that Block 17C – Other monies is used to record “any other payments or benefits…paid…because of the separation,” whether or not they are insurable.

The ROE Guide specifically lists “Severance pay” as a type of separation money to enter in Block 17C (“Enter ‘Severance pay’ and the amount”).

Crucially, Block 15B and Block 15C are for insurable earnings totals/by pay period. The ROE Guide notes that some amounts reported in Block 17 (like vacation pay) are insurable and must be added into Blocks 15B/15C; however, retirement leave credits/retiring allowances (a form of severance-type payment) are not insurable and are not added to Blocks 15B/15C even though they are recorded in Block 17C.

So, severance is reported in Block 17C only.