To do payroll in Canada, you register a payroll program account with the Canada Revenue Agency, collect a Social Insurance Number and a TD1 form from each new employee, deduct Canada Pension Plan contributions, Employment Insurance premiums, and income tax from every paycheque, remit those amounts to the CRA on the schedule it assigns you, and file a T4 slip for each employee by the last day of February. Everything else, from provincial payroll taxes to year-end Records of Employment, layers onto that core.
Register for a Payroll Account
Before you can pay anyone, you need a Business Number from the CRA. It’s a nine-digit identifier that ties together every federal tax account your business has.1Canada Revenue Agency. Business Number and CRA Program Accounts On top of that, you register a payroll program account, which appears as your Business Number followed by “RP0001” for your first account. You can set both up online through the CRA’s Business Registration Online service, by phone, or by mail.
Get the Paperwork From Each New Hire
Every new employee has to give you their Social Insurance Number within three days of starting. If they’ve applied but haven’t received one yet, they have three days after it arrives to hand it over.2Canada Revenue Agency. Get the Social Insurance Number (SIN) From the Individual
You also need each employee to complete a federal TD1 Personal Tax Credits Return. That form tells you how much income tax to withhold based on their personal credits. An employee claiming more than the basic personal amount must also fill out the provincial or territorial TD1 for the province where they work.3Canada Revenue Agency. Get the Completed TD1 Forms From the Individual If someone doesn’t submit a TD1, you withhold tax using the basic personal amount only, which usually means a larger deduction from their pay.
What to Deduct From Each Paycheque
Three deductions come off nearly every paycheque: CPP, EI, and income tax. You calculate them in that order, then subtract them from gross pay to arrive at net pay.
Canada Pension Plan Contributions
CPP applies to most employees between 18 and 69. For 2026, employee and employer each contribute 5.95% of pensionable earnings up to a maximum of $74,600, with a basic exemption of $3,500. That works out to a maximum annual contribution of $4,230.45 for the employee and $4,230.45 for the employer.4Canada Revenue Agency. CPP Contribution Rates, Maximums and Exemptions You match every dollar the employee contributes.
A second layer, CPP2, applies to earnings above the first ceiling. In 2026, earnings between $74,600 and $85,000 are subject to an extra 4% contribution from both sides.5Government of Canada. Second Additional CPP (CPP2) Contribution Rates and Maximums It’s a separate calculation, so if you have employees earning above $74,600, track both tiers.
If your employees work in Quebec, they contribute to the Quebec Pension Plan instead of CPP. The 2026 QPP employee rate is 6.30%, and the maximum pensionable earnings ceiling matches CPP at $74,600. QPP contributions go to Revenu Québec, not the CRA.6Revenu Québec. Principal Changes for 2026 – Employers Kit
Employment Insurance Premiums
For 2026, employees pay $1.63 per $100 of insurable earnings up to a maximum insurable earnings ceiling of $68,900, which caps the annual employee premium at $1,123.07. Employers pay 1.4 times the employee premium, so the employer rate is $2.28 per $100.7Government of Canada. Summary of the 2026 Actuarial Report on the Employment Insurance Premium Rate
Quebec employees pay a reduced EI rate of $1.30 per $100 because Quebec runs the Quebec Parental Insurance Plan, which covers maternity and parental benefits separately.7Government of Canada. Summary of the 2026 Actuarial Report on the Employment Insurance Premium Rate
Income Tax
After CPP and EI, you calculate federal and provincial income tax based on the employee’s TD1 claim amounts, gross earnings, pay frequency, and province of employment. The CRA’s free Payroll Deductions Online Calculator handles this if you’re doing payroll manually or want to verify what your software produced.8Canada Revenue Agency. Payroll Deductions Online Calculator Most payroll software applies the same CRA-published tax tables automatically.
Net pay is what’s left after those three deductions. Every pay stub should break them out clearly so the employee can check the math.
Don’t Forget Taxable Benefits
Cash wages aren’t the only thing that runs through payroll. Non-cash perks with a measurable value, such as personal use of a company vehicle or free or subsidized housing, are taxable benefits. You calculate the fair market value, add it to the employee’s earnings for that pay period, and withhold CPP, EI, and income tax on the combined total.9Canada Revenue Agency. Employers’ Guide – Taxable Benefits and Allowances
Personal use of an employer-provided vehicle is among the most common and trickiest to value. It covers commuting between home and the office, vacation trips, and any other non-business driving. Board and lodging is another frequent one: the gap between what the employee pays and fair market value is a taxable benefit reported on the T4. Exceptions exist for employees at special work sites or remote locations.
Remit What You’ve Deducted to the CRA
Once you’ve withheld CPP, EI, and income tax, you have to send those amounts to the CRA along with the employer’s share of CPP and EI. Your remittance schedule depends on your average monthly withholding amount, which the CRA uses to sort employers into remitter types and notifies you about by mail.10Canada Revenue Agency. Employers’ Guide – Payroll Deductions and Remittances
- Quarterly: average monthly withholding under $1,000 for new employers, or under $3,000 for existing employers with at least 12 months of history and a perfect compliance record. Due dates are April 15, July 15, October 15, and January 15.
- Regular: average monthly withholding under $25,000. Due by the 15th of the month after the pay period.
- Accelerated Threshold 1: average monthly withholding between $25,000 and $99,999.99. Remit twice a month, by the 25th for pay issued in the first half and by the 10th of the following month for the second half.
- Accelerated Threshold 2: average monthly withholding of $100,000 or more. Remit up to four times a month, within three working days after each roughly weekly period.
Quarterly status requires a spotless record: no late remittances, no penalties, no overdue returns, no outstanding GST/HST balances. One slip loses it.11Canada Revenue Agency. Types of Remitters
You can pay through the CRA’s My Business Account portal, through your bank’s online bill payment (add the CRA as a payee using your payroll account number), or with a physical remittance voucher at a participating financial institution.12Canada Revenue Agency. Remit (Pay) Payroll Deductions and Contributions Interest accrues daily on late balances.
Provincial Costs the CRA Doesn’t Collect
Federal deductions aren’t the whole picture. Two provincial obligations sit outside the CRA payroll account and are paid by the employer directly, not withheld from staff.
Every province and territory requires workers’ compensation coverage through its provincial board. You pay premiums based on total insurable payroll and your industry’s risk classification. Average assessment rates across Canada run roughly $0.95 to $2.65 per $100 of payroll, though your actual rate depends on province, industry, and claims history. Registration and payment go straight to the provincial board.
Five provinces also levy an employer health tax or similar payroll tax: British Columbia, Manitoba, Ontario, Quebec, and Newfoundland and Labrador. Rates range from under 1% to over 4% of total payroll, with exemption thresholds that shelter smaller employers. If you operate in one of these provinces, budget for it separately from CRA remittances.
Vacation Pay and Overtime
Minimums for vacation and overtime depend on whether your business is federally or provincially regulated. Federal jurisdiction covers banking, telecommunications, interprovincial transportation, and similar industries; everyone else follows their province’s employment standards, which vary.
Under the Canada Labour Code, federally regulated employees earn two weeks of vacation and 4% vacation pay after one year, three weeks and 6% after five consecutive years, and four weeks and 8% after 10 consecutive years.13Government of Canada. Annual Vacations and General Holidays for Employees Working for Federally Regulated Employers Overtime starts after 8 hours in a day or 40 hours in a week, whichever comes first, and must be paid at 1.5 times the regular hourly wage.14Government of Canada. Hours of Work – Federally Regulated Workplaces
Year-End: T4 Slips and Records of Employment
By the last day of February, file a T4 slip for every employee you paid during the previous calendar year, plus a T4 Summary reporting your total payroll figures. Distribute each employee’s T4 by the same date so they can file their personal return. Electronic filing is mandatory once you have six or more slips; five or fewer can still go on paper.15Canada Revenue Agency. Employers’ Guide – Filing the T4 Slip and Summary Late filing triggers daily penalties that scale with the number of slips, starting at $10 per day for small employers.
Whenever an employee stops working for you (quit, layoff, or extended leave), you must issue a Record of Employment. That’s the document they need to apply for EI. If you file electronically through Service Canada’s ROE Web portal, you have five calendar days after the end of the pay period in which the interruption of earnings occurred. Paper ROEs go out within five days of the actual interruption.16Canada Revenue Agency. Record of Employment (ROE)
Penalties, Interest, and Records
If you fail to deduct the correct CPP, EI, or income tax, the CRA can assess a penalty of 10% of the amount you should have withheld. A second failure in the same calendar year jumps to 20% if the CRA finds it was made knowingly or through gross negligence.10Canada Revenue Agency. Employers’ Guide – Payroll Deductions and Remittances A genuine calculation mistake that happens twice won’t automatically trigger the higher rate; the CRA looks for a pattern of carelessness or willful disregard. Interest accrues daily on any amount owing, so a missed January remittance grows quietly until year-end.
Keep every payroll record for six years from the end of the last tax year it relates to.17Justice Laws Website. Income Tax Act – Section 230 That covers pay stubs, T4 slips, TD1 forms, benefit calculations, and any supporting documents the CRA might ask for during an audit. Digital storage is fine as long as the records stay accessible and readable. Destroying them early can bring fines, and it leaves you without a defence if the CRA reassesses.