For more than 15 years, Abacus has provided a wide variety of bookkeeping and accounting services to Bermuda businesses. We’re experts at looking at your systems, your processes, and your team and helping you find financial and operational efficiencies. One of the aspects of accounting we work in the most often is helping clients with payroll services and understanding Bermuda’s payroll tax system. We work closely with the Bermuda Economic Development Corporation and the Office of the Tax Commissioner in order to stay updated on everything related to payroll and payroll tax, and this series of blogs will help put our knowledge and understanding into a resource that’s easy for you to return to whenever you need a refresher.
As you read through this blog series, remember that the information here is shared in a way that is meant to be the most useful to the majority of readers. If you have questions specific to your company or situation, we encourage you to get in touch with a member of the Abacus team or contact the Office of the Tax Commissioner.
What is Payroll Tax and What is Considered Taxable Remuneration?
Payroll tax is a government tax remitted by employers, self-employed individuals, and deemed employees to the Office of the Tax Commissioner. The amount due for Payroll Tax is determined by the taxable remuneration paid to employees and is due quarterly, on 15 April, 15 July, 15 October, and 15 January every year. In Bermuda, the tax year follows the government fiscal year, which is April 1st through March 31st.
Taxable remuneration is the sum of wages/salaries and benefits paid, in cash or in kind, to employees, self-employed persons, and/or deemed employees as a result of services (Payroll Tax) provided in Bermuda. That might seem like a lot of industry jargon, but the easiest way to think of it is that remuneration is what is paid to employees, either through wages or benefits. Taxable remuneration is the portion of this value that is then considered taxable by the government.
Benefits, when it comes to defining taxable remuneration, include things the employer is paying for on behalf of the employee. So, for example, if you, as the business owner, are paying a portion of your employee’s health or social insurance, that portion that you’re paying on their behalf is taxable. Another way to think of it is anything that you elect to pay that essentially puts more money in your employee’s pocket is taxable.
How Taxable Remuneration Works for Self-Employed or “Deemed” Employees
The other piece to clarify is self-employed and “deemed” employees. We know that self-employment refers to someone who works for themselves, either as a consultant or as the owner of their own business.
A deemed employee, on the other hand, is anyone who provides a service to an entity and who shares, either indirectly or directly, in the profits of that entity. This may include lawyers, accountants, and medical practitioners that work for, and also share in the profits of, their business. Another good example of this is directors, in that directors’ fees are also taxable remuneration. For shareholders who work in the business, if there is a dividend paid, that would be taxable, because those individuals are providing services to the company. Dividends paid to shareholders who do not also work for the business, but act merely as investors, are not taxable.
Other Remuneration Clarifications: Foreign Contractors and Taxi Drivers
In addition to the standard remuneration, contractors and subcontractors who are working in Bermuda, who are not registered for their own companies, must also pay payroll tax. So, if you were to hire a vendor, for example, Abacus, who has a legitimate payroll tax ID, there would not be tax on any fees paid to us. However, if you hired a subcontractor who doesn’t have their own company and is who is not paying payroll tax, you would be liable for taxes on fees paid to that person.
Finally, as of 2018, taxi drivers no longer need to pay the standard quarterly payroll tax to the Office of the Tax Commissioner. Instead, they must pay a flat annual rate to the Department of Transport Control before their vehicle license is issued.
Avoiding Payroll Tax Avoidance: Don’t Do These Things
So now that we know what taxable remuneration is, we should clarify that, perhaps unsurprisingly, there’s very little that isn’t taxable. Trying to hide payments that qualify for payroll tax as other, non-taxable payments would be considered avoidance and can lead to many issues. The following situations are examples of what would be considered avoidance:
- Giving untaxed loans to employees, including yourself as the owner, that are actually compensation for their work
- Making payments to family members or peripheral individuals that don’t have any commercial substance in order to avoid paying taxes
- Paying personal expenses through your business
If you feel like you have a current practice that sounds similar to any of these, we encourage you to examine that practice closely and reach out so we can help you correct any issues.
Taxable Remuneration Exemptions: When are Certain Wages or Benefits Not Taxable?
We’ve covered the definition of taxable remuneration, but does that mean that all wages or salaries are always considered taxable? The answer to that is no. Certain types of employment, specific situations, and more can fall under tax exemptions as granted by the Office of the Tax Commissioner, and as such, would not need to be taxed.
The examples below are general exemptions and would apply to all companies, regardless of industry, unless otherwise stated.
- A person is not considered an employee if they’re under 16 years of age, or are employed by an employer for 16 hours or less in each month of a tax period. However, the 16-hour provision does not apply to self-employed individuals.
- Students on weekend or vacation/holiday employment are not subject to tax.
- Tax is not charged for Bermudian employees on training schemes that have been approved by the National Training Board. To get your training approved for an exemption, submit an Application for Approval of a Training Scheme to the Office of the Tax Commissioner, along with a complete description of the training program.
- There is no payroll tax for employees who care for people with physical or mental disabilities. You must submit the Application for Disabled Person Payroll Tax Exemption to receive consideration for this exemption.
- Employer contributions to approved health, life, and pension schemes are also exempt. Exemption application forms can be found on the Office of the Tax Commissioner’s website.
We hope this has been a helpful introduction to the world of remuneration and what parts of wages and benefits are considered taxable or exempt. Payroll Tax can feel incredibly complicated, but the Abacus team is always here to help you. If you’d like assistance or additional information, please contact us today.