Dealership payroll: commissions, chargebacks, and flat-rate flags done right

Three pay plans, one set of floors

Dealership payroll is really three systems wearing one uniform. The ESA does not care which plan a person is on: minimum wage must be met on actual hours every pay period, vacation pay accrues on commissions exactly as it does on salary, and public holiday pay is computed from total regular wages. The plans decide how people are motivated; payroll's job is to prove the floors were met anyway.

Vacation pay is the floor dealers miss most. Four percent — six after five years — applies to the whole T4, commissions included, not just the base or the draw. A closer earning $150,000 in commission accrues real vacation dollars, and the liability compounds quietly until someone resigns and does the arithmetic.

The sales floor: draws, reconciliation, and lumpy tax

A draw is an advance against commission, not a wage, but every pay period must still stand on its own for minimum-wage purposes — so hours get tracked even for people who would laugh at a punch clock. On the tax side, commission months are lumpy, and payroll software left on defaults over-withholds in the big months; the CRA bonus method smooths the withholding to the annual picture. Salespeople with significant employment expenses can file a TD1X so deductions reflect expected commissions and expenses, and their commission earnings belong in box 42 of the T4.

Top performers hit the CPP and EI ceilings by summer, including the second CPP contribution on earnings between the two ceilings. One dealer-group trap deserves its own sentence: move a salesperson from one store's corporation to another in October and both corporations withhold from zero. The employee recovers the excess CPP and EI on their T1; the employer shares are simply gone. If a restructure is coming, its effective date is a payroll decision, not just a legal one.

F&I: chargebacks live in the plan document, not the pay run

A chargeback is only clean if the written plan says the commission was never fully earned until the contract survives — for example, past the lender's cancellation window. Drafted that way, the recovery is just plan math inside the commission calculation. Without that language, pulling back a paid commission is a wage deduction, and the ESA permits deductions only with specific written authorization, never for faulty work, and only for cash shortages where the employee had sole access. Two more rails: a chargeback-heavy month can never push pay below minimum wage for the hours worked, and the plan must say what happens to pending deals when someone quits — that gap is where ESA complaints are born.

The shop: flags, clocks, and the two-clock problem

Flat-rate technicians are paid on flagged hours, but the ESA runs on clock hours, so a dealership records both. Earnings divided by actual hours must clear minimum wage in each pay period; overtime is owed past 44 actual hours in a week, at a rate derived from what those earnings imply; holiday pay uses the four-week divide-by-20 formula with flat-rate earnings included. Warranty jobs paying lean factory times versus retail times is a comp and morale question rather than a legal one — but when a tech disputes it, the payroll records are where everyone will look, so they need to exist.

Group mechanics: EHT, the DMS, and year-end

The Employer Health Tax finds dealerships early because payrolls are large: the $1 million Ontario exemption is a single exemption shared across associated corporations, and the rate tops out at 1.95 percent. Your DMS — CDK, PBS, Reynolds — already holds flags, hours and gross deals; we map its exports into the payroll run and into the dealership bookkeeping so labour cost sits beside front-end and back-end gross where it belongs. Year-end is T4s with commissions in the right boxes, ROEs filed on time in a high-turnover trade, and the comp plans themselves versioned and signed. If the store buys US auction inventory or runs USD floorplan, those flows carry their own questions — they live in our cross-border tax page for dealerships, fed by the same payroll and DMS data.

Source: CRA — T4001 Employers' Guide: Payroll Deductions and Remittances.