Understanding your paycheck is more important than you might think! In previous generations, you would have received your pay cheque in the mail, and would have likely carefully reviewed the accompanying paystub that came with it. But thanks to the invention of direct deposit, many people never actually look at their physical paycheck. While direct deposit makes things easier, it is still important to understand the basics of how your paycheque works and how to review your electronic pay statement!
Regularly reviewing and understanding your paycheque helps you with three key concepts:
So let’s demystify your hard-earned paycheque. Feel free to pull up your own pay statement and follow along. You can access your electronic pay statement by logging into your health authority account online.
To master your paycheque you need to understand four key sections.
Let’s go through these one by one:
First up is your Earnings. This represents the total amount of money that you earned throughout a 2 week pay period BEFORE taxes or any other deductions are subtracted. This heading also indicates HOW you earned your money. Residents across Canada are salaried employees. Although we work variable hours we earn a fixed income every 2 weeks. Our pay stub shows we work 37.5 hours every week, which is an administrative detail that is not meant to reflect our true working hours. Our salary increases every time our resident year increases. However, there are a few ways to increase your income, namely through working call shifts and working statutory holidays. You will also note the subheading YTD Amount, which shows your earnings in each category for the year to date.
The next section is titled Taxes. These account for the largest chunk taken off of your gross pay. This is often one of the most confusing sections because there are many different government mandated payroll deductions to be accounted for, not all of which are traditional income taxes. Your paycheque will indicate how much money was deducted, for what purpose it was deducted, as well as how much has been deducted so far that year.
There are three big ticket items you will see here:
The first deduction is INCOME tax. This progressive tax that increases in steps as your income increases. Your employer is required to deduct income tax on your behalf based on your estimated earnings. Then, when tax season comes along, you, or your accountant, will calculate the tax you should have paid based on your actual income, after you subtract the relevant tax deductions and tax credits. If you know in advance that you will have enough tax deductions or credits to not have to pay any income tax in a particular year, you can apply to have the employer not deduct income tax off your biweekly pay. It requires a bit of paperwork and depends on your individual tax situation, so consider checking with an accountant or an advisor first.
The second deduction is the Canadian Pension Plan or CPP. All employees in Canada contribute a set amount into CPP, and that amount is also matched by our employer. Upon retirement, the CPP pays out a set income depending on a variety of factors. While CPP isn’t enough to cover most people’s retirement lifestyle, you do get some of the money ‘back’ later when you retire.
The third deduction is employment insurance, more commonly known as EI. This is mandated by the government. It is a nominal amount of money that you receive as income from the government should you become unemployed. You can access EI in the case of parental leave, if laid off, or any other reason for unemployment.
Next up is Deductions, which includes the headings Before Tax Deduction, After Tax Deduction, and Employer Paid Benefits.
Under the Before Tax Deduction heading you will see the fees that you pay towards the resident union you are part of. In BC these fees help the union carry out all the behind the scenes work they do for us.
Under the After the Tax Deductions heading you will find the amount of money you pay to access our benefits plan.
The last heading here are your Employer Paid Benefits. This shows how much of our benefits plan the Employer pays for. This column is tracks the total amount our Employer contributions to our benefits plan. This contribution is considered income and taxes as such.
Our benefits include Extended Health insurance, Dental insurance, Long Term Disability Insurance, Group Life Insurance, and Accidental Death or Disability insurance. Extended Health Insurance include health services that don't fall under the category of dental services, such as prescription medications, massages, and physiotherapy treatments. These will show up as XMed in the paycheque.
Finally, we have come to THE MOST IMPORTANT heading on your pay cheque: NET PAY DISTRIBUTION. This is the amount of money that actually goes into your bank account after all deductions have been accounted for. This is your hard earned money!
Just keep these sections in mind as you go through your next paycheque and the numbers should start to add up. Of course, if you have any concerns, contact your employee payroll department whose contact information is often listed at the top of your paycheque. They’d be happy to help you work through any specific questions you may have.