What running payroll in Canada involves, pay run by pay run and year by year

Every pay carries three federal source deductions: income tax, Canada Pension Plan (CPP) contributions and Employment Insurance (EI) premiums. The employer deducts them at source, adds its own CPP and EI share, and remits the total. Income tax is calculated with the CRA’s payroll formulas (T4127) or its printed tables (T4032), and the CRA’s employer guide, T4001, sets out the obligations in one place.

The employer share is not a mirror image of the employee share. CPP is matched one for one, but the employer’s EI premium is 1.4 times the employee’s, so 2.282% against 1.63% in 2026. On top of those federal items, each province adds its own employer charges, and in Ontario the Employer Health Tax and WSIB workers’ compensation premiums sit outside the pay slip entirely.

Direct employment requires two CRA registrations before the first pay: a business number, and the payroll program account (RP) linked to it. Employees tell payroll which personal credits to use by filling in a TD1 for federal purposes and the matching provincial form. An employer that fails to deduct can be charged a 10% penalty on the CPP, EI or tax it missed; where a repeat failure was knowing or grossly negligent the rate doubles to 20%, and the missing amounts and interest are due as well.

Vacation pay also passes through payroll. Ontario fixes a floor of 4% of gross wages, moving to 6% once service reaches 5 years, and salaried staff usually receive it as their normal salary continuing while they are on vacation, so it rarely appears as a separate line.

Each contribution runs on a cumulative annual ceiling, so deductions stop once the year’s maximum has been paid. For 2026, employer and employee each put 5.95% into CPP on the earnings that fall between the CAD 3,500 basic exemption and the CAD 74,600 ceiling, so neither side pays more than CAD 4,230.45. The 5.95% combines a base rate of 4.95% with a first additional rate of 1.00%.

CPP2, the second additional contribution, then applies at 4% on each side to earnings between CAD 74,600 and CAD 85,000, with a maximum of CAD 416 each. The band is easy to leave out of a salary budget, and it is explained in detail in our note on CPP2 and the second earnings ceiling.

EI premiums in 2026 charge the worker 1.63% and the employer 2.282%, and insurable earnings stop at CAD 68,900. The maximum annual premium is CAD 1,123.07 for the employee and CAD 1,572.30 for the employer. For an employee on CAD 85,000, the EI ceiling is reached first, the CPP ceiling next, and CPP2 keeps running until the final pay of the year, so take-home pay steps up in the last quarter.

Adding the three employer maximums gives a useful budgeting cap. Outside Quebec, the employer’s CPP, CPP2 and EI for one employee cannot exceed CAD 6,218.75 in 2026 (CAD 4,230.45 plus CAD 416 plus CAD 1,572.30), however high the salary. Provincial levies such as the Ontario Employer Health Tax have no equivalent cap per employee, because they are charged as a percentage of total payroll.

Withholding follows the province of employment, which the CRA fixes by the employer location a person reports to; remote staff are assigned to the location they are reasonably attached to. Payroll annualises each pay, applies the federal and provincial brackets and credits, and withholds the result spread over the pay periods.

The 2026 federal rates are 14% on the first CAD 58,523, 20.5% from there to CAD 117,045, 26% to CAD 181,440, 29% to CAD 258,482 and 33% on income beyond that. Ontario adds 5.05% up to CAD 53,891, rising in bands to 13.16% above CAD 220,000. Ontario withholding also includes the provincial surtax on higher basic Ontario tax and the Ontario Health Premium, which ranges from CAD 0 to 900 and is CAD 750 for taxable income between CAD 72,600 and CAD 200,000.

Credits reduce the tax. The federal basic personal amount is up to CAD 16,452 in 2026 and the Canada employment amount up to CAD 1,501, while Ontario’s basic personal amount is CAD 12,989. For a single Ontario employee on CAD 85,000 with only the basic claims, the annual federal tax works out at CAD 10,226.60 and Ontario tax at CAD 4,574.46 before the CAD 750 health premium. The full calculation, including the employer’s side, is in our worked example of what a Canadian employee costs.

A Quebec employee is on a separate pension plan, a separate parental insurance plan and a separate provincial tax system, so the payroll runs two sets of rules. Revenu Québec, not the CRA, administers Quebec provincial income tax and collects the Quebec-specific deductions, and the Revenu Québec summary of changes for 2026 lists the new figures.

• In place of CPP, staff and employer contribute to the Quebec Pension Plan (Régime de rentes du Québec): 6.30% from each side up to CAD 74,600, capped at CAD 4,479.30.
• The second additional QPP contribution mirrors CPP2: 4% each on CAD 74,600 to 85,000, maximum CAD 416.
• Parental insurance comes from QPIP (Régime québécois d’assurance parentale), at 0.430% for the employee and 0.602% for the employer on pay up to CAD 103,000.
• EI drops to CAD 1.30 of every CAD 100 on the employee side and CAD 1.82 on the employer side, because the provincial plan pays parental benefits.
• The Health Services Fund is an employer-only charge whose rate, between 1.65% and 4.26%, turns on the sector and the size of the total payroll.

Quebec income tax runs at 14%, 19%, 24% and 25.75%, with thresholds of CAD 54,345, CAD 108,680 and CAD 132,245 and a basic personal amount of CAD 18,952. Written communication with Quebec staff, including documents on working conditions, must also be in French under the Charter of the French Language.

The due date depends on how much the employer withholds on average each month. The CRA’s remittance rules put most small employers in the regular category, where the amounts withheld in a given month are payable on or before day 15 of the month that follows.

• Regular remitters: once a month, on or before day 15 of the next month.
• Threshold 1, average monthly withholding of CAD 25,000 to 99,999.99: up to twice a month.
• Threshold 2, CAD 100,000 or more withheld on average each month: as many as 4 remittances a month.

Provincial charges have their own calendars. Ontario expects the yearly Employer Health Tax return by 15 March after the year ends, with monthly instalments once Ontario payroll passes CAD 1.2 million. WSIB premiums are reported to the WSIB, and Quebec source deductions go to Revenu Québec on its own schedule.

Ontario charges Employer Health Tax at 0.98% where total Ontario remuneration is CAD 200,000 or less, at stepped rates in the band up to CAD 400,000, and at 1.95% on larger payrolls. A CAD 1 million exemption helps eligible employers, though it is unavailable to a group whose combined Ontario remuneration is above CAD 5 million. WSIB charges per CAD 100 of insurable payroll by rate class, from CAD 0.18 for Class L (professional, scientific and technical work) to a 2026 average of CAD 1.23, on earnings up to CAD 121,700.

How often the employee is paid is a separate question from how often the employer remits. In Ontario, employers with 25 or more staff must set out the pay period and pay day in writing before the employee starts. Check the pay-frequency rule in the provincial employment standards before fixing a schedule, and keep it the same for every employee in that province so remittance totals are easy to reconcile.

Two documents close the loop: the T4 slip at year-end and the Record of Employment (ROE) whenever earnings stop. Each calendar year’s T4 slips and T4 Summary are filed with the CRA no later than the final day of the next February, and anyone filing more than 5 slips has to do so electronically.

An ROE goes through ROE Web and is generally due within 5 calendar days once earnings are interrupted, such as a resignation, a dismissal or the start of a parental leave. Service Canada administers both EI and the ROE, so an accurate ROE issued on time matters most when the employee is about to claim maternity, parental or regular EI benefits.

Quebec adds a second reporting track. Provincial income tax, QPP and QPIP for Quebec staff are reported to Revenu Québec, which has its own year-end filings, so check the current forms and deadlines with Revenu Québec before the first Quebec year-end. The Ontario Employer Health Tax return, due each 15 March, is a third filing for an employer with Ontario staff, which means one employee in each of two provinces can generate three separate year-end deadlines.

Using Employer of Record Canada moves this work to us: we hold the payroll account, run every deduction and remittance, and issue T4 slips and ROEs, because we are the employer in law. What remains with your team is the information only the business holds.

• Confirm salary changes, bonuses and commissions before each payroll cut-off.
• Approve overtime where the role is not exempt from Ontario’s 44-hour threshold.
• Report leave dates, so vacation pay, sick days and any ROE are correct.
• Tell the employer of record early about an exit, so the final pay and ROE go out on time.

Remote staff need one extra piece of information from you. Tell the employer of record the province the employee lives and works in, and tell it before any move, because the province of employment decides the provincial tax table and the provincial levies on every pay. A move from Ontario to Quebec, for example, switches the employee from CPP to QPP and brings in QPIP, Revenu Québec reporting and French-language documents.

Your cost is the salary and the employer contributions, plus the fee, from USD 560, charged each month for each employee and, in most cases, a set-up fee paid once at the outset. The pricing page sets out how that fee is charged.