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Automobile Allowance Configuration

You may want to have an automobile allowance benefit to compensate employees that must travel as a regular part of their job. A flat-rate automobile allowance is once option for paying an allowance like this and usually has a tax implication for the employee receiving it.

The flat-rate allowance in this guide is
  • taxable as income for the employee because they are flat-rate,

  • included as income on the employees T-Slips,

  • automatically added to the first payroll of the month.

Add New Earning Code

  1. Open Canadian Payroll > Employer Payroll Tables > Earnings Codes.

  2. Open the Insert – Earnings Codes form to add a new Earning Code by pressing Insert.

Basic Setup

The first thing to setup for any Earning Code is to create a unique Code identifier and enter the Full Name.

  1. Enter the Code and Full Name for the Earning Code.

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Figure 1. Example Code and Full Name for an Earning Code.
Notes:
Code

Code must be a 3-digit number between 001—499.

Full Name

The Full Name of the Benefit Code may be displayed on employee statements or other reports.

After settings up the Code and Full Name of the Earning Code we need to setup the Earning Data.

Earning Data Setup

From the Earning Data tab we will setup the benefit as a taxable benefit (we do this because the benefit is a flat-rate allowance). At this time we will also zero out the benefit rate to prevent the benefit being generated in error, as well as setup how frequently the benefit will be added to the payroll of employees.

  1. Open the Earning Data tab of the Earning Code settings.

  2. Enter the Short Name to use for the Earning Code.

  3. Enter 0.00 for % of Basic.
    (This prevents earnings payed in error if the Earning Code is added to an employee without assigning a fixed-rate amount to it.)

  4. From the Gen. Frequency drop-down select First Payment Of Month.
    (This will ensure that the allowance is only paid once a month)

Caution:
First Payment Of Month is calculated using the payment date (not the pay-period ending date), and behaves differently than First Pay-Period Of The Month (which is calculated using the pay period ending date).
  1. Enable Generate automatic earning - Salaried employee.

  2. Enable Generate automatic earning - Hourly employee.

Earning Date setup for the flat-rate automobile allowance Earning Code.

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Notes:
  • Short Name can be up to 6 characters long.

  • Generate automatic earning… will add the flat-rate allowance during payroll processing to employees with this Earning Code automatically.
    (The option can be enabled individually for salaried or hourly employees as required.)

T-Slip Setup

Automobile flat-rate allowance earnings should be included with the employee’s income on their T-Slips. From the T-Slips tab you can select which box on the T-Slip to include the earnings with.

  1. Open the T-Slips tab from the Earning Code settings.

  2. From the T4 Box drop-down select code 14 – Income.
    (This will add the earnings for this earnings code to the income amount reported on the T4 form.)

  3. From the RL1 Box drop-down select code A - Employment income before srce ded.
    (This will add the earnings for this earnings code to the income amount reported on the Revenue Quebec RL-1 form.)

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Figure 2. Example T-Slip setup for the flat-rate automobile allowance.

Save Earning Code

  1. Save the Earning Code by pressing OK now.

Add Automobile Allowance to Employee

The Earning Code for the flat-rate automobile allowance can be added to an employee from the Employee Profile. The Employee will receive an extra earning for the allowance with the first payment of the month.

  1. Open Canadian Payroll > Employee Profile > Employee Profile.

  2. From the Employee drop-down select the employee to give a monthly automobile allowance.
    (This will open the employee data in the Employee Profile.)

  3. Open Earnings > Earning Codes from the Employee Profile menu on the left.

  4. Open the Insert – Earning Code form to add the allowance Earning Code by pressing Insert.

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Figure 3. Steps to insert new Earning Code to the Employee Profile of an employee.
  1. Select the Earning Code for the automobile allowance.

  2. Enter the flat-rate allowance amount into the Rate field.

Caution:
Rate will default to per Hours, but for a flat-rate allowance the flat-rate should be per Amount.
  1. Add the automobile allowance to the Employee Profile by pressing OK.

Example of Earning Code on Payroll

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Figure 4. Example of the fixed-rate automobile allowance added to an employee’s payroll.
J
Jack is the author of this solution article.

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