PF1 Payroll Fundamentals 1Exam Questions and Answers

In Block 6 (Pay period type), Service Canada instructs employers to enter the employee’s actual pay period type—one of the standard types such as weekly, biweekly, semi-monthly, monthly, or 13 pay periods a year.

Service Canada identifies a special rule only for employees “paid solely on commission or on salary plus irregularly paid commission”: in those cases, the employer must use a weekly pay period and average earnings using the weekly averaging formula.

Because this question specifies salary plus regularly paid commission (not irregularly paid commission), the “special situation” rule does not apply. Therefore, you enter the pay period type that matches the employer’s normal payroll cycle for that employee (for example, weekly, biweekly, semi-monthly, monthly, etc.).

For payroll deductions, the key concept is the employee’s province of employment (POE)—not where they live. The CRA states that the POE is determined primarily by the employer’s establishment where the employee “reports for work.” If an employee reports for work at an employer’s establishment located in Quebec, then the POE is Quebec, even if the employee’s province of residence is Ontario.

This matters because Quebec has distinct payroll requirements. The CRA notes that when the POE is Quebec, employers must apply Quebec-based payroll rules, including deducting Québec Pension Plan (QPP) contributions instead of CPP, and deducting Québec parental insurance plan (QPIP) premiums, along with Quebec provincial income tax withholding.

In practice, payroll must set up the employee using Quebec as the POE and ensure stakeholders (HR, finance, the employee) understand why deductions may differ from Ontario residents working in Ontario. Any over/under-withholding due to POE vs. residence is typically reconciled when the employee files their personal tax return.

An expense reimbursement is a repayment to an employee for business costs they already paid personally (for example, meals, mileage, supplies), typically supported by receipts or an expense report. CRA’s guidance explains that a reimbursement is a payment made to repay amounts the employee spent while conducting the employer’s business, and that a reasonable reimbursement is generally not included in the employee’s income.

That’s why reimbursements are generally not part of “earnings” for payroll calculations—they are not compensation for work performed; they are repayment of a business expense. This differs from an allowance, which is usually a fixed amount paid without requiring receipts; allowances are often taxable unless a specific CRA exception applies.

So the correct term for “dollar amounts paid to cover job expenses incurred, but not considered earnings” is expense reimbursements (option D). Payroll best practice is to ensure reimbursements are properly documented and reasonable to support non-taxable treatment.

Service Canada treats commission salespeople (paid solely by commission or salary plus irregularly paid commission) as a special ROE situation where the weekly averaging formula is used. In that scenario, the ROE Guide states that for Block 12 (Final pay period ending date) you must use the Saturday of the week that contains the last day for which paid (Block 11).

This is different from the usual rule for most employees, where Block 12 is simply the end date of the final pay period that includes the Block 11 date (and it can’t be earlier than Block 11).

The key reason is consistency in applying the weekly averaging approach: even if the employer’s actual payroll cycle is not weekly, commission-only/irregular-commission employees are reported using a weekly framework for ROE purposes. Payroll should therefore align Block 12 to the correct “weekly” period end (Saturday) when that rule applies, to avoid ROE errors and Service Canada follow-up.

A hiring authorization package/checklist typically ensures the organization collects the documents needed to onboard the employee and set them up correctly in payroll and HR systems. This often includes items like an offer letter, signed policies, banking details for direct deposit, emergency contacts, and required HR/legal acknowledgements. A confidentiality agreement is a common onboarding document because it protects the employer’s confidential information and can be required regardless of payroll deductions.

The other options are not good examples of “required information” for all new hires. Employees do not give “consent” for statutory deductions—deductions like CPP, EI, and income tax withholding are required by law and employers must withhold them when applicable. A “clearance certificate” is not a standard universal onboarding requirement for payroll in Canada. A T1213 is only completed in special situations where an employee requests CRA authorization to reduce tax withheld at source; it is not something most new hires must provide.

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.

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).

Service Canada’s ROE Guide is clear that vacation pay paid because of separation (termination/layoff) must be reported in Block 17A – Vacation pay.

But it doesn’t stop there. Vacation pay is generally insurable earnings, so when you enter insurable earnings in Block 17A, you must also add those amounts into Block 15B (Total insurable earnings) and into Block 15C, Pay Period 1 (P.P. 1) as applicable. The ROE Guide explicitly states: when you enter insurable earnings in Blocks 17A/17B/17C, you must also add them to the totals in Blocks 15B and 15C (P.P. 1 field)—and it gives the example that vacation pay paid on separation must be added to 15B and 15C because it is insurable.

Therefore, vacation pay on termination is recorded in Blocks 15B, 15C P.P. 1, and 17A (option C).

Because Elodie is subject to QPP, her pensionable earnings for the pay period include both salary and commissions (both are pensionable employment earnings, assuming no exemptions apply). First, determine total pensionable earnings for the bi-weekly pay:

$1,000.00 + $4,300.00 = $5,300.00.

For 2026, Revenu Québec shows the QPP basic exemption is $3,500 annually and the (employee) QPP contribution rate on earnings up to the maximum pensionable earnings is 6.30%.

Payroll applies the exemption per pay period. For bi-weekly pay (26 pay periods):

$3,500 ÷ 26 = $134.62 (rounded to cents).

Pensionable earnings subject to QPP this pay:

$5,300.00 − $134.62 = $5,165.38.

QPP contribution:

$5,165.38 × 6.30% = $5,165.38 × 0.063 = $325.41894, which rounds to $325.42.

Step 1 — Mara’s gross earnings / taxable earnings components

Semi-monthly salary = $54,500.00 ÷ 24 = $2,270.83

Life insurance coverage = 2 × $54,500 = $109,000

Monthly premium (excl. tax) = 109 × $0.57 = $62.13

9% insurance premium tax = $62.13 × 1.09 = $67.72

Semi-monthly taxable benefit = $67.72 ÷ 2 = $33.86

Health premium (excl. tax) = $260.00

9% insurance premium tax = $260.00 × 1.09 = $283.40

Semi-monthly taxable benefit (Quebec) = $283.40 ÷ 2 = $141.70

GTE (total taxable in Quebec) = 2,270.83 + 33.86 + 141.70 = $2,446.39

Step 2 — Pensionable earnings (PE)

For this calculation, treat salary + taxable group term life as pensionable for QPP withholding, while EI remains non-insurable for non-cash benefits.

PE = 2,270.83 + 33.86 = $2,304.69

Step 3 — Insurable earnings (IE)

IE = salary only = $2,270.83

Step 4 — Net taxable income (CRA) (NTI)

Federal taxable income uses salary plus taxable benefits used for federal withholding tables here.

NTI (CRA) = $2,304.69

Step 5 — Net taxable income (RQ) (NTI)

NTI (RQ) = $2,446.39

Step 6 — QPP contribution

Use the QPP employee rate (basic + additional) and apply the basic exemption prorated per pay period.

Basic exemption per semi-monthly period = $3,500 ÷ 24 = $145.83

Contributory earnings = PE − 145.83 = 2,304.69 − 145.83 = $2,158.86

QPP = 2,158.86 × 6.4% = $138.17

QPP = $138.17

Step 7 — EI premium

Quebec EI employee rate for 2026: 1.30%.

EI = 2,270.83 × 0.0130 = $29.52

Step 8 — QPIP premium

Use the Revenu Québec employee QPIP rate shown for 2026.

QPIP = 2,270.83 × 0.00430 = $9.76

Step 9 — Federal income tax

From the CRA Quebec federal tax deductions table (24 pay periods), at pay $2,304.69 (range 2288–2306) and claim code 3, the federal tax is:

Federal tax = $139.95

Step 10 — Quebec provincial income tax

From TP-1015.TI.24 (24 pay periods) at remuneration $2,446.39 (range 2445.00–2464.99) and deduction code C, the tax is:

Quebec tax = $214.81

Step 11 — Total deductions

QPP 138.17

EI 29.52

QPIP 9.76

Federal 139.95

Quebec 214.81

= $532.21

Total deductions = $532.21

Step 12 — Net pay

Net pay is based on cash pay (salary) minus deductions (tax still applies even when part of taxable income is a benefit).

Net pay = 2,270.83 − 532.21 = $1,738.62

For payroll income tax purposes, net taxable income starts with the employee’s gross taxable income and then subtracts only those deductions that are deductible for income tax and can be recognized at source. CRA payroll guidance shows this approach by subtracting items such as RPP contributions and union dues when determining net taxable income for calculating income tax deductions.

Gross taxable income (weekly): $750.00.

RPP contributions are deductible (the amounts reported from box 20 of the T4 are generally deductible).

Regular union dues are deductible; however, the CRA states that deductible annual union/professional dues do not include special assessments or charges for anything other than ordinary operating costs. A levy specifically for constructing a new union hall is a special assessment, so it is not deductible as union dues.

So the deductions that reduce federal taxable income here are: $18.00 (union dues) + $20.00 (RPP) = $38.00.

Net federal taxable income = $750.00 − $38.00 = $712.00.

Block 11 on the ROE is “Last day for which paid.” Service Canada instructs employers to enter the last day for which the employee received insurable earnings. This date usually coincides with the last day of work, unless the employee continues to receive insurable earnings after the last day worked (for example, paid leave like vacation/sick leave or salary continuance).

In Tanya’s case, she gave notice on April 2, but her resignation is effective April 27. There’s no information indicating paid leave after April 27 or salary continuance. So Block 11 should be April 27 (the last day she worked/received insurable earnings).

The question also mentions the pay period ending April 28—that date belongs in Block 12 (Final pay period ending date), which is the end date of the final pay period that includes the Block 11 date, and is often different from Block 11.

A fixed amount paid to an employee for meals each pay period is typically a meal allowance. CRA guidance distinguishes an allowance from a reimbursement: an allowance is usually a set amount paid without the employee having to submit receipts for actual costs, while a reimbursement repays specific expenses and is generally supported by receipts or an expense claim.

Because Charlene “receives $50.00 each pay for her meals,” it is a flat amount, which aligns with an allowance rather than a reimbursement. Whether the allowance is taxable or non-taxable depends on the facts (for example, whether it is reasonable and paid under conditions CRA recognizes as non-taxable for certain travel situations). If it’s not a reasonable travel allowance under CRA’s exceptions, it is generally a taxable allowance and must be included in income with appropriate deductions.

So the correct classification is A (an allowance).

CRA’s method for bonus/irregular payments paid separately is to calculate income tax on the combined pay (regular pay + the irregular payment) using the regular tax tables, then subtract the tax that would apply to the regular pay alone. The difference is the income tax to withhold from the irregular payment.

Here, the semi-monthly taxable pay is:

Regular pay = $1,800.00

Regular + vacation payout = $3,200.00

Using the 2026 Alberta semi-monthly (24 pay periods) tax tables with claim code 1:

At $1,800, Federal tax = $130.45 and Alberta tax = $58.55 → Total = $189.00.

At $3,200, Federal tax = $356.50 and Alberta tax = $174.00 → Total = $530.50.

Income tax on the vacation payout = $530.50 − $189.00 = $341.50.

CPP (including the enhanced portion) is a separate statutory deduction that must also be calculated on the payout, but this question asked specifically for income tax withholding.

Piecework (also called piece-rate pay) is a pay method where an employee’s earnings are determined by output—they are paid a set amount per unit produced or completed, rather than by hours worked or a fixed salary. This aligns directly with option C. A time-based hourly/daily wage (option A) is a different earnings method, and a fixed pay-per-period arrangement (option B) describes salary. Therefore, “all of the above” is incorrect because these are three distinct compensation structures.

In payroll calculations, piecework earnings are typically calculated as: piece rate × number of units produced in the pay period. Employers still have to ensure compliance with employment standards, such as minimum wage and overtime rules, even where piecework is used. A Canadian payroll educational reference defines piecework as payment for each unit produced “regardless of the amount of time taken.”

Bonuses and incentives are treated as taxable remuneration, so they are generally subject to the same core statutory deductions as regular earnings: CPP/QPP, EI, and income tax (and in Quebec, QPIP also applies when the remuneration is subject to EI). The CRA specifically notes that you must deduct EI premiums from bonuses/retroactive pay (up to the annual maximum), and the CRA’s guidance for bonuses/irregular amounts uses tools (PDOC/formulas) that calculate CPP contributions, EI premiums, and income tax on these payments.

In Quebec payroll, remuneration that is subject to EI premiums is generally also subject to QPIP premiums, so bonuses/incentives that are EI-insurable are typically QPIP-insurable as well.

In the Northwest Territories and Nunavut, there is also a statutory territorial payroll tax that employers must withhold/remit where applicable, and the NWT guidance explicitly lists bonuses as part of employment income subject to payroll tax.

Step 1 — Gross Taxable Earnings (GTE)

Salary per pay: 49,500 ÷ 24 = $2,062.50

Taxable car allowance: $50.00

Group term life taxable benefit:

Coverage = 2 × 49,500 = 99,000

Monthly premium = (99,000 ÷ 1,000) × 0.62 = 99 × 0.62 = 61.38

Semi-monthly benefit = 61.38 ÷ 2 = $30.69

GTE = $2,143.19

Step 2 — Pensionable Earnings (PE)

PE = $2,112.50 (2,062.50 + 50.00)

Step 3 — Insurable Earnings (IE)

IE = $2,112.50

Step 4 — Net Taxable Income (CRA) (NTI)

RPP = 5% × 2,062.50 = $103.13

Union dues = 2% × 2,062.50 = $41.25

NTI (CRA) = 2,143.19 − 103.13 − 41.25 = $1,998.81

Step 5 — Net Taxable Income (RQ)

$0.00

Step 6 — CPP (base CPP)

Period exemption = 3,500 ÷ 24 = $145.83

Contributory = 2,112.50 − 145.83 = $1,966.67

CPP = 1,966.67 × 5.95% = $117.02

CPP = $117.02

Step 6B — 2nd CPP (CPP2)

CPP2 = $0.00

Step 7 — EI premium

EI = 2,112.50 × 1.63% = $34.43

EI = $34.43

Step 8 — QPIP

$0.00

Step 9 — Federal income tax (CC1, semi-monthly)

$156.10

Step 10 — Alberta income tax (CC1, semi-monthly)

$73.20

Step 11 — Total deductions

Statutory: 117.02 + 34.43 + 156.10 + 73.20 = $380.75

Other: RPP 103.13 + Union 41.25 + United Way 20.00 + Social club 5.00 = $169.38

Total deductions = $550.13

Step 12 — Net pay

Cash pay (salary + car allowance) = 2,062.50 + 50.00 = $2,112.50

Net pay = 2,112.50 − 550.13 = $1,562.37

A defined benefit (DB) pension plan promises a future pension benefit based on a formula (for example, service and earnings). Because the benefit is defined, the plan must ensure it is adequately funded to meet future liabilities. That requires actuarial valuations—professional studies that forecast future obligations and determine required contributions. Regulators describe DB plan funding as being based on actuarial calculations and require administrators to file actuarial valuation reports to establish funding and contribution requirements.

A defined contribution (DC) plan does not promise a specific future pension amount; contributions are defined, and the retirement outcome depends on investment performance—so it does not require the same ongoing actuarial funding valuations for promised liabilities. An RRSP is an individual savings plan, not an employer DB plan requiring actuarial funding reports.

Therefore, the correct answer is Defined benefit pension plan (option A).