GL Codes: Employee Benefits Guide for Canadian Firms

GL Codes for Employee Benefits: Complete Reference Guide for Canadian Businesses

Accurate GL coding for employee benefits separates compliant, audit-ready businesses from those scrambling during tax season. Every health insurance premium, CPP contribution, and vacation accrual needs a proper home in your chart of accounts.

GL codes are unique alphanumeric identifiers that categorize financial transactions within your general ledger. For employee benefits, these codes track payroll-related expenses beyond base wages, including insurance premiums, retirement contributions, statutory deductions, and paid time off.

Canadian businesses face an additional layer of complexity: GIFI (General Index of Financial Information) codes. When filing T2 returns, your internal GL codes must map correctly to CRA-mandated GIFI codes. Get this wrong, and you risk filing errors, audit triggers, and compliance headaches.

This guide provides the complete reference you need to map employee benefits to the correct expense and liability accounts, with Canadian-specific GIFI codes, journal entry examples, and practical implementation tips.

Understanding Employee Benefits GL Codes

Employee benefit transactions require two types of accounts working together: expense accounts that hit your income statement and liability accounts that appear on your balance sheet.

When your company incurs a benefit cost, you debit an expense account. When that cost remains unpaid (whether to an insurance provider, pension plan, or government agency), you credit a liability account. The liability clears when you remit payment.

The critical distinction lies between employer-paid benefits and employee-withheld amounts. Payroll source deductions like CPP, EI, and income tax are liabilities because you collect them on behalf of employees and remit them to the CRA later. When eventually paid, the liability converts to an expense for the employer portion.

This dual-account structure ensures your financial statements accurately reflect both the cost of benefits (income statement) and your outstanding obligations (balance sheet).

Canadian GIFI Codes for Employee Benefits

Canadian corporations must use GIFI codes when filing T2 or T5013 returns. The CRA provides specific codes for employee benefit transactions, and your internal GL structure should map cleanly to these standards.

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These are official CRA codes. Your internal GL codes can use any numbering system that works for your business, but you must maintain a clear crosswalk to GIFI codes for tax filing purposes.

Health and Welfare Benefits GL Codes

Health and welfare benefits represent the largest category of employee benefit expenses for most Canadian businesses. Proper coding here prevents the most common audit issues.

Medical, Dental, and Vision Insurance

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Sample Journal Entry for Monthly Health Insurance:

• Debit: Health Insurance Expense (6210) - $5,000

• Credit: Health Insurance Payable (2210) - $5,000

This entry records your monthly employer health insurance cost. When you pay the insurance provider, you debit the payable and credit cash.

Life and Disability Insurance

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Life and disability insurance premiums follow the same expense-liability pattern. Keep these separate from health insurance accounts for clearer reporting and easier GIFI mapping.

Retirement Benefits GL Codes

Canadian retirement benefits include RRSP matching, registered pension plans, and deferred profit sharing plans. Each requires distinct GL treatment.

Employer Pension and RRSP Contributions

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Employer contributions to registered pension plans, DPSPs, and EPSPs are reported under GIFI 8623 for tax purposes. Maintain clear documentation of contribution limits and ensure timely remittance to avoid penalties.

Statutory Benefits and Payroll Taxes GL Codes

Statutory benefits represent non-negotiable employer obligations. CPP and EI contributions, along with workers' compensation premiums, require meticulous tracking.

CPP and EI Employer Contributions

Employers must match employee CPP contributions and pay 1.4 times the employee EI premium. These amounts add significantly to your total compensation costs.

Quebec employers face additional complexity with QPP (Quebec Pension Plan) and QPIP (Quebec Parental Insurance Plan). These require separate GL accounts and follow different rate structures.

Workers' Compensation

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Workers' compensation rates vary by province and industry classification. Track these costs separately for accurate job costing and premium audits. All statutory contributions are reported under GIFI 8622 for tax purposes.

Leave and PTO Accrual GL Codes

Vacation and sick leave accruals create ongoing liabilities that must be tracked accurately. Many businesses underestimate these obligations.

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Sample Vacation Accrual Journal Entry:

• Debit: Vacation Accrual Expense (6510) - $2,000

• Credit: Vacation Liability (2500) - $2,000

This monthly entry builds your vacation liability as employees earn PTO. When employees take vacation, you debit the liability and credit wages payable. Most payroll systems require a dedicated GL code for vacation balance tracking.

Other Fringe Benefits GL Codes

Miscellaneous benefits round out your employee compensation package. These often fall through the cracks during chart of accounts setup.

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These benefits typically flow straight to expense accounts without corresponding liabilities, since payment usually occurs immediately or through petty cash reimbursement.

Common Journal Entry Patterns for Employee Benefits

Understanding how benefits flow through your GL helps prevent posting errors and simplifies month-end reconciliation.

Employer-Paid Benefits (Full Cost)

When your company pays 100% of a benefit, the entry is straightforward:

• Debit the appropriate expense account (e.g., Medical Insurance Expense)

• Credit the corresponding payable account (e.g., Health Insurance Payable)

• When paying the provider, debit the payable and credit cash

Shared-Cost Benefits (Employee Deductions)

Benefits with employee contributions require more complex entries:

• Record gross wages expense (debit) and employer benefit expense (debit)

• Record employee deductions as liability (credit to Employee Deductions Payable)

• Record net pay as cash disbursement (credit to Cash)

• When remitting to the provider, debit the liability accounts and credit cash

This pattern applies to any benefit where employees contribute via payroll deduction, including health insurance premiums, RRSP contributions, and union dues.

Streamlining Benefits Accounting with Modern Financial Tools

Managing employee benefits GL codes becomes significantly easier when your banking, payments, and accounting systems work together. Manual data entry between disconnected systems creates errors and wastes time.

Venn integrates directly with QuickBooks and Xero, automating the categorization of benefit-related payments and reducing manual GL coding errors. When you pay insurance premiums, pension contributions, or other benefit providers through Venn, transactions sync automatically to the correct accounts in your accounting software.

Venn's expense management features, including OCR receipt capture and invoice matching, help finance teams maintain accurate records for benefit-related expenses. The automated payables feature ensures transactions are properly coded and tracked from payment initiation through reconciliation.

For paying benefit providers, Venn offers free unlimited Interac e-Transfer® for domestic payments and low-cost EFT options. This reduces the administrative cost of benefits management while maintaining clear audit trails. Businesses with international employees or benefit providers can leverage Venn's multi-currency accounts (CAD, USD, EUR, GBP) to hold and pay in the appropriate currency without excessive conversion fees.

Best Practices for Employee Benefits GL Code Management

Strong GL code management prevents year-end scrambles and audit headaches. Follow these practices:

• Maintain consistency: Use the same GL codes across all benefit types within a category. If medical insurance uses 6210, keep dental at 6211 and vision at 6212.

• Document your mapping: Create a crosswalk between your internal GL codes and GIFI codes. Update it whenever you add new accounts.

• Separate employer vs. employee portions: Never combine employer expenses with employee deductions in the same account. This creates reconciliation nightmares.

• Review quarterly: Reconcile benefit payable accounts to ensure all liabilities are properly recorded and no payments are missed.

• Use sub-accounts: Break down broad categories like "Benefits Expense" into specific accounts for better reporting and analysis.

Frequently Asked Questions

Q: Where should employer CPP contributions be recorded?

A: Employer CPP contributions are recorded as a payroll tax expense on the income statement. When payroll is processed, debit Payroll Tax Expense and credit CPP Payable. When the remittance is sent to the CRA, debit CPP Payable and credit Cash.

Q: How do I code employee health insurance deductions?

A: Employee-withheld health insurance premiums are recorded as a liability when deducted from payroll. Credit Employee Deductions Payable at payroll time, then debit that liability and credit Cash when the premiums are remitted to the insurance provider.

Q: Should vacation accrual hit benefits expense or wages expense?

A: Vacation accruals should be recorded in a separate Vacation Expense account rather than wages expense. This keeps paid time off costs distinct from regular payroll and improves reporting accuracy. The accrual is recorded by debiting Vacation Expense and crediting Vacation Payable.

Q: What’s the difference between benefits expense and benefits payable?

A: Benefits expense records the cost of employee benefits in the period they are earned. Benefits payable is a liability that represents amounts owed but not yet paid to benefit providers or government agencies. One reflects cost recognition, the other reflects outstanding obligations.

Q: How do I handle benefits for employees paid in different currencies?

A: Benefits should always be recorded in your company’s functional currency using the exchange rate in effect on the payroll date. Any difference between the accrued amount and the amount ultimately paid due to FX movements should be recorded as a foreign exchange gain or loss.

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**Disclaimer:** This publication is provided for general information purposes and does not constitute legal, tax or other professional advice from Venn Software Inc or its subsidiaries and its affiliates, and it is not intended as a substitute for obtaining advice from a financial advisor or any other professional. We make no representations, warranties or guarantees, whether expressed or implied, that the content in the publication is accurate, complete or up to date.