BC Payroll Health Tax: What Employers Need to Know

Posted by Preet Pall on Jul 26, 2018 10:51:22 AM

In January 2019, the BC government will introduce a new Health Tax to replace the BC MSP premiums. The goal is to save individuals $900 and families $1,800 a year.

But how will it affect you as an employer? You might be worried about how to manage this extra cost.

So in this blog, we’ll share some key information about the new BC Payroll Health Tax, and how your business can save money in other areas.

bc-payroll-health-tax

How Will the New BC Employer Health Tax Work?

According to the 2018 BC Budget, the new Health Tax will be calculated based on employment income and taxable benefits.

These include:

  • Salary and wages
  • Bonuses and commissions
  • Vacation payments
  • Amounts paid by an employer as a top up of salary for maternity and parental leave including the Supplemental Unemployment Benefit (SUB) program
  • Stock option benefits
  • Employer paid contributions to an employee RRSP
  • Taxable allowances and benefits
  • Employer paid Group Life Insurance premiums, including Accidental Death and Dismemberment (AD&D), Dependent Life, and Critical Illness.

How Much Will the Health Tax Cost?

  • Those with payroll above $500,000 and less than 1.5 million will pay between 0.98% and 1.76% of their annual BC payroll exceeding $500,000
  • Those with payroll above 1.5 million will pay the tax at a rate of 1.95%
  • Employers with BC payroll costs below $500,000 won’t have to pay the new employer Health Tax.
bc-payroll-health-tax-charts

How Can Your Business Adjust to The New BC Payroll Tax?

The new payroll tax is applied to all forms of taxable compensation. To prepare for this extra cost, employers should review compensation that is paid above your team’s regular salaries. This will help you find ways to reduce the impact.

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This could include moving away from bonuses, which are fully taxable, to tax-free forms of compensation, such as:

  • Contributions to a retirement plan other than a group RRSP which could include a Deferred Profit Sharing Plan (DPSP) or a Defined Contribution Pension Plan
  • Increased health and dental benefits
  • Retirement Compensation Arrangements (a type of specialized executive compensation)
  • Health Care Spending Accounts (HSAs)

It can also include examining the employee-employer cost sharing arrangement currently in place for taxable benefits such as:

  • life insurance
  • accidental death & dismemberment benefits, and
  • critical illness coverage. 

If you’re currently paying for all, or a portion of these taxable benefits, you may want to ask your employees to pay for them via payroll deduction, rather than having the premium amounts added to the employee’s income on their T-4 each year.  

Although none of these changes can offset the full impact of the new tax, each small change can help reduce the overall impact on your business.

Conclusion

The new BC Payroll Health Tax will be a challenge for many businesses to adjust to, especially in light of the fact that MSP premiums won’t disappear until 2020.

In order to reduce some of the impact, you can prepare now by making changes to your team’s overall compensation structure. Being proactive means you’ll be ready for the tax implementation in January 2019, and you’ll be able to navigate the change more smoothly.

Next Step:

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Topics: Financial Planning

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