Complete Guide · Payroll · Canadian Businesses
Payroll in Canada: The Complete Guide
CPP and EI calculations, T4 preparation, Record of Employment, WSIB, Employer Health Tax, payroll remittances. Every rate, rule, deadline and penalty in one comprehensive guide for Canadian business owners.
What This Guide Covers
1. CPP and EI Rates and Calculations (2026) 2. Payroll Deductions: How to Calculate 3. Payroll Remittances: Tiers, Deadlines and Penalties 4. T4 Preparation and Filing 5. Record of Employment (ROE) 6. WSIB: Workplace Safety and Insurance 7. Employer Health Tax (EHT) 8. Taxable Benefits: What Gets Reported on the T4 9. Employees vs. Independent Contractors 10. Frequently Asked Questions1. CPP and EI Rates and Calculations (2026)
2026 CPP and EI Rate Summary
| Component | Employee Rate | Employer Rate | Maximum Annual Contribution |
|---|---|---|---|
| CPP (earnings $3,500 to $71,300) | 5.95% | 5.95% | Employee: $4,034. Employer: $4,034. |
| CPP basic exemption | $3,500/year. CPP only applies on pensionable earnings above $3,500. Prorated monthly for partial-year employees. | ||
| CPP2 (earnings $71,300 to $81,200) | 4.00% | 4.00% | Employee: $396. Employer: $396. |
| CPP2 note | No basic exemption on CPP2. Applies dollar-for-dollar on earnings between $71,300 and $81,200. | ||
| EI | 1.64% | 2.30% (1.4x employee) | Employee: $1,077. Employer: $1,508. Max insurable: $65,700. |
| Self-employed CPP | Self-employed pay both employee and employer CPP: 11.90% total (max $8,068). No EI unless opted in. | ||
CPP Calculation: Employee Earning $65,000
| Step | Calculation | Amount |
|---|---|---|
| Annual salary | $65,000 | |
| Less: basic exemption | ($3,500) | |
| Pensionable earnings (CPP) | $65,000 - $3,500 | $61,500 |
| Employee CPP | $61,500 x 5.95% | $3,659.25 |
| Employer CPP (matching) | $61,500 x 5.95% | $3,659.25 |
| CPP2 | $0 (salary below $71,300 first ceiling) | $0 |
| Total CPP cost to employer | $3,659.25 |
CPP + CPP2 Calculation: Employee Earning $78,000
| Step | Calculation | Amount |
|---|---|---|
| Annual salary | $78,000 | |
| CPP pensionable earnings | $71,300 - $3,500 | $67,800 |
| Employee CPP | $67,800 x 5.95% (capped at max) | $4,034.00 |
| CPP2 pensionable earnings | $78,000 - $71,300 | $6,700 |
| Employee CPP2 | $6,700 x 4.00% | $268.00 |
| Total employee CPP + CPP2 | $4,034 + $268 | $4,302.00 |
| Total employer CPP + CPP2 | $4,034 + $268 | $4,302.00 |
EI Calculation: Employee Earning $65,000
| Step | Calculation | Amount |
|---|---|---|
| Annual salary (below $65,700 max) | $65,000 | |
| Employee EI | $65,000 x 1.64% | $1,066.00 |
| Employer EI | $1,066 x 1.4 | $1,492.40 |
Shareholder-Employees (40%+ voting shares) Are Exempt from EI. Neither the employee nor the employer pays EI. On a $100,000 salary: employee saves $1,077 and employer saves $1,508. Total savings: $2,585/year. CPP is still required. This exemption must be configured correctly in your payroll software. Payroll Services →
Total Employer Payroll Cost per Employee
| Employee Salary | Employer CPP + CPP2 | Employer EI | Total Employer Statutory Cost |
|---|---|---|---|
| $50,000 | $2,766.75 | $1,148.00 | $3,914.75 |
| $65,000 | $3,659.25 | $1,492.40 | $5,151.65 |
| $78,000 | $4,302.00 | $1,508.00 | $5,810.00 |
| $100,000 | $4,430.00 | $1,508.00 | $5,938.00 |
| $100,000 (shareholder 40%+) | $4,430.00 | $0 | $4,430.00 |
2. Payroll Deductions: How to Calculate
| Deduction | How to Calculate | Remit To |
|---|---|---|
| Federal income tax | Based on TD1 claim code and CRA payroll tables. Progressive: 15% on first $57,375, 20.5% on next $57,375, 26% on next $62,850, 29% on next $75,400, 33% above $253,000. | CRA (RP account) |
| Ontario provincial tax | Based on TD1ON. Rates: 5.05% on first $52,886, 9.15% on next $53,428, 11.16% on next $44,686, 12.16% above $150,000. Ontario surtax above $4,991 provincial tax. | CRA (combined remittance) |
| CPP (employee) | 5.95% on earnings $3,500 to $71,300. CPP2 4.00% on $71,300 to $81,200. | CRA |
| EI (employee) | 1.64% on earnings up to $65,700. Exempt for 40%+ shareholders. | CRA |
| Voluntary deductions | Group RRSP, union dues, charitable donations, garnishments. Not remitted to CRA. | Various institutions |
Employers Must Withhold and Remit: The employer calculates, withholds and remits all statutory deductions to CRA. The employer also pays employer CPP (matching), employer EI (1.4x employee rate), WSIB premiums and EHT. Failure to withhold or remit payroll deductions is treated as misuse of trust funds. Directors of the corporation are personally liable under Section 227.1 of the Income Tax Act.
3. Payroll Remittances: Tiers, Deadlines and Penalties
Remittance Frequency by Tier
| Tier | Criteria (AMWA) | Remittance Deadline |
|---|---|---|
| Quarterly | Under $1,000 average monthly withholding + perfect compliance history | 15th of month after the quarter. Q1: Apr 15. Q2: Jul 15. Q3: Oct 15. Q4: Jan 15. |
| Regular (monthly) | Under $25,000 | 15th of the month following the pay period. Jan payroll: remit by Feb 15. |
| Accelerated Threshold 1 | $25,000 to $99,999 | Twice monthly. Pay dates 1st-15th: by 25th. Pay dates 16th-end: by 10th of next month. |
| Accelerated Threshold 2 | $100,000+ | Within 3 business days of each pay date. |
Late Remittance Penalties
| Days Late | Penalty Rate | Example: $10,000 Remittance |
|---|---|---|
| 1 to 3 days | 3% | $300 |
| 4 to 5 days | 5% | $500 |
| 6 to 7 days | 7% | $700 |
| 8+ days or failure to remit | 10% | $1,000 |
| Second offence (same calendar year) | 20% | $2,000 |
Director Personal Liability (Section 227.1): Directors are personally liable for unremitted payroll deductions. CRA can assess directors after the corporation fails to remit. This includes income tax withheld, CPP and EI. The liability extends to the full amount plus penalties and interest. CRA considers payroll deductions as trust funds held on behalf of employees and the government. A due diligence defence is available only if the director can prove they took reasonable steps to prevent the failure. Resignation does not eliminate liability for amounts that were due before the resignation date. Payroll Services →
4. T4 Preparation and Filing
T4 Filing Requirements
| Requirement | Details |
|---|---|
| Who must file | Every employer who paid salary, wages, commissions, bonuses, vacation pay or taxable benefits during the calendar year. |
| Filing deadline | Last day of February following the calendar year. 2026 T4s: due February 28, 2027. |
| Electronic filing | Mandatory for 6 or more T4 slips. Filed via CRA Internet File Transfer (XML) or Web Forms. |
| T4 Summary | Filed with CRA showing totals: salaries paid, CPP/EI/tax deducted, remittances made. Must reconcile to PD7A remittance records. |
| Penalty for late filing | $25/day per slip. Minimum $100. Maximum $2,500 per filing. |
| Amended T4 | Filed through CRA online services. Issue corrected slip to the employee immediately. |
Key T4 Boxes
| Box | Description | What to Report |
|---|---|---|
| Box 14 | Employment income | Total gross salary, wages, commissions, bonuses, vacation pay and taxable benefits before any deductions. |
| Box 16 | Employee CPP contributions | Total CPP deducted from the employee during the calendar year. |
| Box 16A | Employee CPP2 contributions | Total CPP2 deducted (earnings between $71,300 and $81,200). |
| Box 18 | Employee EI premiums | Total EI deducted. Report $0 for shareholders owning 40%+ of voting shares (exempt). |
| Box 22 | Income tax deducted | Total federal and provincial income tax withheld during the year. |
| Box 24 | EI insurable earnings | Earnings on which EI was calculated (max $65,700 for 2026). |
| Box 26 | CPP pensionable earnings | Earnings on which CPP was calculated (max $71,300). |
| Box 26A | CPP2 pensionable earnings | Earnings on which CPP2 was calculated ($71,300 to $81,200). |
| Box 34 | Personal use of vehicle | Standby charge + operating cost benefit for personal use of employer vehicle. |
| Box 40 | Other taxable allowances | Non-cash gifts over $500, group life insurance over $25K, other taxable benefits. |
| Box 44 | Union dues | Total union or professional dues deducted (deductible on employee's T1). |
| Box 52 | Pension adjustment | If employer has a registered pension plan. Most small businesses: $0. |
5. Record of Employment (ROE)
| ROE Requirement | Details |
|---|---|
| When to issue | Within 5 calendar days of the employee's last day of work or the date they stop being paid, whichever is earlier. |
| When an ROE is required | Every interruption of earnings: termination, layoff, leave of absence, retirement, maternity leave, parental leave, illness, injury, reduction in hours below a threshold. |
| How to file | Electronically through ROE Web (Service Canada). Paper ROEs are being phased out. Most employers must file electronically. |
| Penalty | Up to $2,000 per offence for failing to issue or filing a false ROE. The employee cannot apply for EI without an ROE. |
ROE Reason Codes (Block 16)
| Code | Reason | Common Use |
|---|---|---|
| A | Shortage of work / layoff | Seasonal businesses, project-based layoffs, workforce reduction. |
| D | Illness or injury | Employee unable to work due to medical condition. |
| E | Quit | Employee voluntarily resigned. Generally not eligible for EI (exceptions exist). |
| K | Other | Situations that do not fit standard codes. Requires explanation. |
| M | Dismissal / termination | Terminated with or without cause. EI eligibility depends on circumstances. |
| N | Leave of absence | Unpaid leave, sabbatical, personal leave. |
| P | Parental leave | Maternity or parental leave. Employee eligible for EI maternity/parental benefits. |
The 5-Day Deadline Is Strict. The employee needs the ROE to apply for EI benefits. A delay in issuing the ROE delays the employee's claim and triggers Service Canada inquiries. We prepare and file ROEs electronically within 48 hours for all payroll clients. The correct reason code is critical because it determines EI eligibility. Payroll Services →
6. WSIB: Workplace Safety and Insurance Board
Who Must Register for WSIB
| Industry | WSIB Mandatory? | Notes |
|---|---|---|
| Construction (all trades) | Yes | Mandatory for all employers and independent operators. Sole proprietors in construction must carry personal coverage even without employees. |
| Manufacturing | Yes | All manufacturing operations with employees. |
| Transportation and trucking | Yes | Drivers, warehouse staff, logistics workers. |
| Food service and restaurants | Yes | All employees including kitchen, serving and delivery. |
| Retail | Yes | Most retail operations with employees. |
| Healthcare | Yes | Hospitals, clinics, dental offices, physiotherapy, home care. |
| Financial services | No (optional) | Banks, insurance, accounting firms. Optional coverage available. |
| Professional services (non-health) | No (optional) | Consulting, legal, IT services. Optional coverage available. |
WSIB Premium Rates (Ontario, Selected Industries)
| Industry | Rate per $100 Insurable Earnings | Example: $500,000 Payroll |
|---|---|---|
| General construction | $4.20 | $21,000/year |
| Electrical contracting | $2.80 | $14,000/year |
| Plumbing and HVAC | $3.10 | $15,500/year |
| Trucking | $5.60 | $28,000/year |
| Manufacturing (general) | $2.40 | $12,000/year |
| Restaurants | $1.80 | $9,000/year |
| Retail | $1.20 | $6,000/year |
Clearance Certificates: Construction companies bidding on commercial and government projects must provide WSIB clearance certificates confirming the account is in good standing. General contractors are required to obtain clearance certificates from all subcontractors before issuing payment. Without a clearance certificate, the general contractor may withhold payment or become liable for the subcontractor's WSIB premiums. We advise on WSIB registration and clearance certificate requirements for all new incorporations.
7. Employer Health Tax (EHT)
| EHT Component | Details |
|---|---|
| What is EHT | Ontario provincial payroll tax. Paid entirely by the employer (not deducted from employees). Funds the Ontario health care system. |
| Exemption threshold | Eligible employers with total Ontario payroll of $1,000,000 or less are exempt. The exemption must be shared among associated employers if combined payroll exceeds $1,000,000. |
| Filing deadline | Annual return due March 15 of the following year. Filed with Ontario Ministry of Finance (not CRA). |
| Instalment threshold | Monthly instalments required if annual EHT exceeds $600. Due by the 15th of each month. |
EHT Rate Table (Ontario 2026)
| Total Ontario Payroll | EHT Rate |
|---|---|
| $0 to $200,000 | 0.98% |
| $200,001 to $230,000 | Graduated (0.98% to 1.101%) |
| $230,001 to $400,000 | Graduated (1.101% to 1.829%) |
| $400,001 to $1,000,000 | 1.95% |
| Above $1,000,000 (no exemption) | 1.95% on entire payroll |
EHT Calculation Examples
| Scenario | Total ON Payroll | Exemption | Taxable | Annual EHT |
|---|---|---|---|---|
| Small business (3 staff, eligible) | $180,000 | $1,000,000 | $0 | $0 |
| Medium business (8 staff, eligible) | $640,000 | $1,000,000 | $0 | $0 |
| Larger business (eligible) | $1,400,000 | $1,000,000 | $400,000 | $7,800 |
| Large employer (not eligible) | $2,000,000 | $0 | $2,000,000 | $39,000 |
| Large employer (not eligible) | $5,000,000 | $0 | $5,000,000 | $97,500 |
Most Small Businesses in Ontario Pay $0 EHT. If your total Ontario payroll is under $1,000,000 and you are not associated with other employers exceeding $1,000,000 combined, you are fully exempt. We monitor EHT eligibility for all payroll clients and file the annual return when applicable.
8. Taxable Benefits: What Gets Reported on the T4
| Benefit | Taxable? | Subject to CPP? | Subject to EI? |
|---|---|---|---|
| Personal use of company vehicle | Yes. Standby charge + operating cost benefit. | Yes | Yes |
| Group term life (employer-paid, over $25K) | Yes. Premium on coverage above $25,000. | No | Yes |
| Employer RRSP contributions | Not taxable (deductible). Creates pension adjustment. | No | No |
| Non-cash gifts/awards (over $500/yr) | Yes on amount above $500. Cash gifts always taxable. | Yes | Yes |
| Employer-provided cell phone | Not taxable if plan is reasonable and primarily for business. | N/A | N/A |
| Parking (commercial area) | Yes if commercial parking is available nearby. | Yes | Yes |
| Meals (subsidized below cost) | Yes. Overtime meals (reasonable, not regular): not taxable. | Yes | Yes |
| Moving expenses (40 km+ closer) | Not taxable if employee moves 40 km+ closer to new work location. | N/A | N/A |
9. Employees vs. Independent Contractors
CRA Classification Criteria
| Factor | Employee | Independent Contractor |
|---|---|---|
| Control | Employer controls how, when and where. | Contractor controls schedule, methods, location. |
| Tools and equipment | Employer provides. | Contractor provides own tools. |
| Financial risk | No risk of loss. Paid regardless. | Bears cost of redo, errors, downtime. |
| Exclusivity | Works primarily for one employer. | Free to work for multiple clients. |
| Integration | Integral to employer's operations. | Provides a specific service externally. |
Cost of Reclassification
| Workers Reclassified | Years Under Review | Estimated CRA Reassessment |
|---|---|---|
| 3 contractors at $60,000 each | 2 years | $32,000 to $48,000 |
| 5 contractors at $80,000 each | 3 years | $68,000 to $95,000 |
| 8 contractors at $75,000 each | 3 years | $96,000 to $150,000 |
CRA Reclassification Is the #1 Payroll Audit Issue. If CRA determines contractors should have been employees, the employer owes: all back CPP (both portions), all back EI (both portions), income tax that should have been withheld, WSIB premiums, penalties on every late remittance and interest from original due dates. IT staffing firms, construction companies, trucking operators and cleaning companies are CRA's top targets. We review every worker relationship at the time of incorporation and flag reclassification risk during annual reviews. Payroll Services →
Frequently Asked Questions: Payroll in Canada
What are the CPP and EI rates for 2026?
CPP: 5.95% employee + 5.95% employer on earnings $3,500 to $71,300 (max $4,034 each). CPP2: 4.00% each on $71,300 to $81,200 (max $396 each). EI: 1.64% employee, 2.30% employer (max insurable: $65,700). Shareholders owning 40%+ exempt from EI. Payroll Services →
When are payroll remittances due?
Quarterly: 15th after the quarter. Regular monthly: 15th of the following month. Accelerated T1: twice monthly (25th and 10th). Accelerated T2: within 3 business days. Late: 3% to 10% penalty (20% repeat). Directors personally liable for unremitted amounts.
When are T4s due?
Last day of February. 2026 T4s: February 28, 2027. Electronic filing mandatory for 6+ slips. Penalty: $25/day per slip (min $100, max $2,500). CRA Deadlines →
When must I issue an ROE?
Within 5 calendar days. Filed electronically through ROE Web. Required for every interruption of earnings: termination, layoff, leave, maternity/parental. Penalty: up to $2,000 per offence. The correct reason code determines EI eligibility.
Does my business need WSIB?
Mandatory for construction, manufacturing, transportation, food service and most industries with Ontario employees. Construction sole proprietors: mandatory personal coverage even without employees. Clearance certificates required for commercial projects. Failure to register: retroactive premiums + 100% surcharge.
What is the Employer Health Tax?
Ontario payroll tax paid by employers. Exempt on first $1,000,000 (eligible private-sector employers not associated with others above $1M). Rates: 0.98% to 1.95%. Filed annually with Ontario Ministry of Finance by March 15. Most small businesses pay $0.
What happens if I misclassify workers?
CRA assesses back CPP (both portions), EI (both portions), income tax, WSIB and penalties for all years. 8 contractors at $75,000 over 3 years: $96,000 to $150,000 reassessment. CRA targets construction, IT staffing, trucking and cleaning.
Are shareholder-employees exempt from EI?
Yes if the shareholder owns 40%+ voting shares. On $100,000 salary: $2,585/year saved (combined employee + employer EI). CPP still required. Must be configured correctly in payroll software.
What is vacation pay in Ontario?
4% of gross earnings for employees with under 5 years of service. 6% for 5+ years. Accrued as a liability. Paid when vacation is taken. Must be tracked separately from regular pay on pay stubs.
How much does payroll service cost?
$125/month for the first employee. $75/month each additional. Includes pay stub preparation, CPP/EI/tax calculations, remittance filing, T4 preparation, ROE filing and year-end reconciliation. Know Your Exact Fee →
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