Canadian payroll is run through one federal body, the Canada Revenue Agency (CRA), but the rules change as soon as you cross a provincial border. Income tax has a federal part and a provincial part. Some provinces add their own employer health tax. Québec runs a parallel system for pensions and parental insurance, and files its own income tax with Revenu Québec. The result is that two employees in the same company can have very different payslips.
This guide explains how Canadian payroll works for an employer: what you deduct, what you pay on top, the forms and deadlines, how Québec differs, and the mistakes that cost small employers the most. It is for owners and HR managers hiring in Canada for the first time, whether you are based there or paying a team from another country.
Start with a payroll account
Before the first payday you need a business number (BN) and a payroll program account (RP) with the CRA. That account is what you use to remit deductions and to file your year-end slips. Each employee needs a Social Insurance Number (SIN), and you need to keep it confidential and on file.
What you deduct from each paycheque
Income tax
Federal and provincial income tax are withheld together. The amount depends on the employee's pay and on the claim amounts they give you on a TD1 form: one federal TD1 and one for their province or territory. If an employee does not give you a TD1, you apply only the basic personal amount. Both federal and provincial rates and credit amounts are reviewed each year.
Canada Pension Plan (CPP)
CPP contributions are withheld from the employee, and you pay a matching amount. They are calculated on pay above a basic exemption up to a yearly maximum. A second additional contribution (CPP2) applies to earnings above the first ceiling, up to a higher ceiling. Employees aged 18 to 70 contribute, and from age 65 they can choose to opt out.
Employment Insurance (EI)
EI premiums are withheld from the employee up to a yearly maximum. The employer pays 1.4 times the employee premium. Some people are exempt or have special rules, such as certain owners and family members, so check the employment type before you stop deducting.
What the employer pays on top
- Employer CPP, matching what the employee pays
- Employer EI at 1.4 times the employee premium
- Workers' compensation premiums, which come from the provincial board and not the CRA
- Employer health tax in some provinces (for example Ontario and British Columbia), usually above an exemption threshold
- Paid vacation, statutory holiday pay and any other benefits you offer
How Québec is different
Québec has its own set of programs, and an employee who works in Québec is treated differently from every other province.
- The Québec Pension Plan (QPP) is used instead of CPP, run by Retraite Québec, with its own rates and ceilings
- The Québec Parental Insurance Plan (QPIP) is deducted from both employee and employer
- EI premiums for Québec employees are lower, because QPIP covers parental benefits
- Québec income tax is withheld on the basis of Revenu Québec's form and tables, and remitted to Revenu Québec
- Employers contribute to the Health Services Fund (HSF), at a rate that depends on total payroll
- The year-end slip is the Relevé 1 (RL-1) instead of the federal T4 alone
If you have even one employee in Québec, you need a separate registration there. Do not assume your CRA account covers it.
Forms and deadlines
| What | When |
|---|---|
| TD1 federal and provincial forms | When an employee starts, and when their situation changes |
| Remit deductions to the CRA | Most small employers by the 15th of the month after the pay period. Larger employers remit more often |
| Record of Employment (ROE) | Electronic ROE: within five calendar days after the end of the pay period in which earnings are interrupted (for monthly pay, the earlier of that date and 15 days after the first day of the interruption) |
| T4 slips to employees and the CRA | By the last day of February after the calendar year (the next business day if that falls on a weekend) |
| Québec RL-1 slips and Québec remittances | Per the Revenu Québec schedule, with the RL-1 usually due at the end of February |
Remittance frequency depends on the size of your average monthly withholding, and the CRA tells you which one applies. Late or short remittances carry penalties and interest, so check the current rules on the CRA website and ask your accountant when you are unsure.
Employment standards you cannot ignore
- Vacation pay: every province has a minimum, often 4% of earnings, rising with years of service
- Public holidays: eligibility and pay rules differ by province
- Overtime: the threshold and rate depend on the province, and some roles are exempt
- Minimum wage: set by province and sometimes by occupation, and reviewed regularly
- Termination: notice, severance and ROE rules differ by province and by length of service
The mistakes that cost the most
- Using the wrong province, because the tax and deduction rules follow where the employee works and not where your office is
- Treating an employee as a contractor and being reclassified after an audit
- Remitting late, which attracts penalties
- Applying CPP to an employee in Québec, or the reverse
- Not keeping each employee's current TD1 on file
- Issuing the T4 without reconciling it to what you remitted during the year
A simple checklist for every pay run
- Confirm each employee's province, TD1 and pay are up to date
- Check hours, overtime, vacation pay and unpaid leave before you calculate
- Compare gross pay, deductions and employer cost with the previous period
- Approve the run, then pay, then record the payment date
- Remit to the CRA, and to Revenu Québec if you have Québec staff, before the due date
How WibesHR handles Canadian payroll
The WibesHR HR and payroll module has a Canada payroll pack. It calculates federal and provincial income tax from each employee's TD1 amounts, CPP and the CPP2 contribution, and EI, with the employer's matching amounts shown separately. For Québec employees it applies QPP and its second contribution, QPIP, the lower Québec EI rate and the Health Services Fund at your own rate.
Each pay run produces payslips, a CRA remittance summary and a register, and year-end T4 figures built from the payslips. Pay periods can be monthly, weekly, every two weeks or twice a month.
To be clear about the limits: WibesHR prepares the figures and files, but it does not remit to the CRA or Revenu Québec for you. Québec income tax is not calculated from the Revenu Québec formulas yet, so for those employees you enter the withholding percentage that the tables give you. Bonuses are not withheld by the lump-sum method. Bank files are provided as a standard CSV, because each Canadian bank has its own layout. Plans are priced per employee per month, and the 7-day free trial includes every feature and needs no payment details, so you can run a real pay period first.
Hiring in more than one country? Read the US payroll guide and the UK payroll guide, and see how HRMS pricing works per employee.
Frequently asked questions
What does a Canadian employer deduct from pay?
Federal and provincial income tax, the employee's CPP (or QPP in Québec), EI premiums (plus QPIP in Québec), and any other deductions the employee has agreed to, such as benefits or union dues.
What does an employer pay on top of salary in Canada?
A matching CPP amount, EI at 1.4 times the employee premium, workers' compensation, employer health tax in the provinces that charge it, and in Québec the QPIP, QPP and HSF contributions.
When do I have to remit to the CRA?
Most small employers remit by the 15th of the month after the pay period. The CRA assigns a schedule based on your average withholding, and larger employers remit more often, so confirm your own schedule.
What is the T4 and when is it due?
The T4 is the year-end slip that summarises each employee's pay and deductions for the calendar year. You give it to the employee and file it with the CRA by the last day of February, or the next business day if that falls on a weekend.
Do I register separately for Québec?
Yes. Employing someone in Québec means you also register with Revenu Québec and with the provincial bodies for QPP, QPIP and the Health Services Fund, and you file your slips in the Québec format.
Is this tax advice?
No. Rates, ceilings and deadlines change every year and individual situations differ. Use it to understand the process, and confirm the details with the CRA, Revenu Québec or your accountant.
