Construction Payroll Guide · Ontario
Payroll Services for Construction Companies
The complete payroll guide for Ontario construction companies. Covers subcontractor vs. employee classification, T5018 filing, WSIB mandatory coverage, seasonal layoffs, per diem and travel allowances, union payroll, apprentice wages, overtime rules, multiple job site tracking and the payroll errors that trigger CRA audits. From $125/month. 900+ five-star reviews.
Why Construction Payroll Is More Complex Than Other Industries
Construction payroll is the most audited payroll category in Canada. The combination of subcontractor vs. employee classification risk, mandatory WSIB coverage, T5018 filing obligations, seasonal workforce fluctuations, per diem and travel allowances, union collective agreement compliance, apprentice ratio requirements and multiple job site tracking makes construction payroll the highest-risk area for CRA reassessment. A general contractor with 10 workers classified as subcontractors who should have been employees faces a CRA reassessment of $80,000 to $200,000 for unremitted CPP, EI, income tax, employer contributions and penalties.
We handle payroll for construction companies across Ontario. Every pay run is calculated correctly for CPP, EI, income tax, vacation pay and statutory holiday pay. T4s are filed with accurate earnings and benefit reporting. T5018 slips are reconciled against subcontractor payments. ROEs are issued within 5 days of every layoff and separation. For a general overview of our payroll services, see our payroll services page.
Subcontractor vs. Employee: The #1 Construction Payroll Risk
CRA uses the two-factor test (control test and economic dependence test) to determine whether a worker is an employee or independent contractor. The classification is based on the actual working relationship, not what the contract says. If a worker walks, talks and works like an employee, CRA will classify them as an employee regardless of the contract title.
| Factor | Employee (must run through payroll) | Independent Contractor (T5018, not payroll) |
|---|---|---|
| Control over work | You direct what work is done, when and how. You set the schedule and supervise the methods. | The worker controls how and when the work is done. You specify the result, not the process. |
| Tools and equipment | You provide the tools, equipment, materials and PPE. | The worker provides their own tools, equipment and materials. They own or lease their own heavy equipment. |
| Financial risk | The worker is paid hourly or daily regardless of job outcome. No risk of loss. | The worker bears financial risk: they quote a fixed price, absorb cost overruns and may profit or lose money on the job. |
| Exclusivity | The worker works exclusively or primarily for your company. You are their main source of income. | The worker has multiple clients. Your company is one of several they service. |
| Business registration | The worker does not have a business number, HST registration or their own corporation. | The worker has a business number, HST registration and often their own corporation. They invoice you with HST. |
| Integration | The worker is integral to your operations. They attend your meetings, use your email and are presented as part of your team. | The worker operates independently. They have their own business identity, insurance and Workers Comp coverage. |
CRA Worker Reclassification Is the Most Expensive Construction Payroll Error: If CRA reclassifies 5 workers from subcontractors to employees over a 3-year audit period, the construction company owes all unremitted CPP (5.95% employee + 5.95% employer), EI (1.64% employee + 2.30% employer), income tax withholdings, plus penalties and interest on the entire amount for all 3 years. At $60,000/year per worker, the reassessment is $150,000 to $250,000. We review every worker classification at onboarding and document the relationship to withstand a CRA audit. If CRA has already sent an audit letter, see our CRA audit support for construction companies page.
T5018: Statement of Contract Payments
Construction companies must file T5018 slips for every subcontractor paid $500 or more during the fiscal year. CRA cross-references T5018 amounts against what the subcontractors reported on their own tax returns. Mismatches trigger audits on both parties.
| T5018 Requirement | Details |
|---|---|
| Who must file | Any corporation, partnership or individual in the construction industry that makes payments of $500 or more to subcontractors during a fiscal year. |
| What is reported | The subcontractor's name, address, business number and total amount paid during the reporting period. One slip per subcontractor. |
| Filing deadline | 6 months after the end of the fiscal year in which the payments were made. December 31 year-end: due June 30. |
| Penalty for not filing | $25/day per slip (minimum $100, maximum $2,500). Plus CRA flags the construction company for a deeper audit. |
| How it triggers audits | CRA matches your T5018 payments against the sub's reported income. If you paid $80,000 to a sub but the sub reported $45,000 total income, CRA audits both parties. |
T5018 Is Not Payroll, But It Is Connected: T5018 slips are filed for subcontractors (not employees). However, if CRA reviews your T5018 filings and determines that some of those "subcontractors" should have been employees, the entire amount moves from T5018 to payroll. That is why we reconcile T5018 slips against worker classifications on every filing. If a worker is on your T5018 but fails the two-factor test, they belong on payroll.
WSIB: Mandatory Coverage for Construction
Unlike most industries in Ontario, WSIB coverage is mandatory for construction companies. Every construction employer must register with WSIB and pay premiums based on insurable earnings.
| WSIB Requirement | Details |
|---|---|
| Mandatory coverage | All construction employers in Ontario must have WSIB coverage. This is not optional. Failure to register is an offence under the WSIA. |
| Premium rate (construction) | Varies by classification. General construction: approximately $2.50 to $6.00 per $100 of insurable earnings. Heavy construction: $4.00 to $8.00 per $100. Rates depend on the employer's claims history (NEER/MAP). |
| Insurable earnings maximum | $112,500 per worker (2026). Earnings above this amount are not subject to WSIB premiums. |
| Subcontractor WSIB clearance | Before paying a subcontractor, verify they have their own WSIB clearance certificate. If the sub does not have coverage and is injured on your site, YOU are liable for the claim. Request a WSIB clearance certificate before every sub starts work. |
| Independent operator coverage | Sole proprietors and partners in construction must also register for WSIB. The optional coverage available to other industries is mandatory in construction. |
| Reporting and premium payment | Annual reconciliation required. Premiums paid quarterly based on estimated payroll, then reconciled to actual insurable earnings at year-end. Underpayment results in a year-end assessment plus interest. |
Overtime, Hours of Work and ESA Rules for Construction
| ESA Rule | Construction Application | Common Violation |
|---|---|---|
| Overtime threshold: 44 hours/week | Overtime pay at 1.5x the regular rate after 44 hours in a work week. Applies to all construction employees unless a different arrangement exists under a collective agreement. | Not tracking hours across multiple job sites. A worker who does 25 hours on Site A and 22 hours on Site B in the same week has worked 47 hours. 3 hours of overtime are owed. |
| Daily limit: 8 hours (unless agreed) | Workers cannot be required to work more than 8 hours/day without a written agreement. Most construction companies use written agreements for 10-hour or 12-hour shifts. | Scheduling 10-hour days without a written agreement. The worker can refuse hours beyond 8 per day. |
| Weekly limit: 48 hours (unless ESA approval) | A worker cannot work more than 48 hours in a week unless the employee agrees in writing AND the employer obtains ESA Director approval (or is covered by a collective agreement that permits it). | Scheduling 55-hour weeks during peak construction season without ESA approval. Even with the employee's agreement, ESA Director approval is required above 48 hours. |
| Rest period: 11 hours between shifts | Employees must have at least 11 consecutive hours free from work between shifts. A worker finishing at 8 PM cannot start at 5 AM the next day (only 9 hours between). | Scheduling early starts after late finishes during project deadlines. Very common in construction. |
| Weekly rest: 24 consecutive hours off every work week | Every employee is entitled to at least 24 consecutive hours off each work week or 48 consecutive hours off every 2 work weeks. | Scheduling 7-day work weeks during busy periods without providing the required rest day. |
| Public holiday work | If the employee works on a public holiday: public holiday pay PLUS premium pay (1.5x) for hours worked. Or a substitute day off with public holiday pay. Most construction companies work statutory holidays during project deadlines. | Paying regular rate for Canada Day or Labour Day work. The employee is owed premium pay on top of public holiday pay. |
Per Diem, Travel Allowances and Board and Lodging
| Allowance Type | Taxable? | CRA Treatment |
|---|---|---|
| Reasonable per diem for meals (out-of-town job site) | Not taxable if reasonable | CRA considers $23 breakfast, $23 lunch, $27 dinner ($73/day total) as reasonable for 2026. If the per diem is at or below these rates and the worker is required to be away from the municipality of the employer's establishment, it is not a taxable benefit and not included on the T4. |
| Flat daily allowance exceeding CRA guidelines | Taxable portion | If you pay $100/day and CRA's reasonable rate is $73/day, the $27 excess is a taxable benefit reported on the T4. Alternatively, reimburse actual receipts with no taxable benefit. |
| Travel between home and regular job site | Taxable benefit if employer pays | Commuting from home to a regular job site is personal. If the employer provides transportation or pays mileage for this commute, it is a taxable benefit. |
| Travel between job sites during the day | Not taxable | Travel from one job site to another during the work day is business travel. Mileage reimbursement or employer-provided transportation is not a taxable benefit. |
| Board and lodging (employer-provided) | Taxable benefit (with exceptions) | If the employer provides free housing at a remote job site (more than 80 km from the nearest community of 40,000+), the benefit may be exempt. Otherwise, the fair market value of board and lodging is a taxable benefit on the T4. |
| Vehicle allowance (flat monthly amount) | Taxable if not reasonable | A flat monthly vehicle allowance is taxable unless it is based on kilometres driven for business purposes. A per-km allowance at or below CRA's prescribed rate ($0.72/km for the first 5,000 km, $0.66 thereafter in 2026) is not taxable. |
Per Diem Errors Are Common and Expensive: Many construction companies pay a flat $100 or $120/day per diem without tracking it against CRA's reasonable rates. The excess above CRA's rate ($73/day in 2026) is a taxable benefit that must be reported on the T4 with CPP, EI and income tax deducted. If CRA audits 20 workers receiving $120/day for 180 days/year and finds $47/day unreported ($8,460/worker), the reassessment for 20 workers is $169,200 in unreported benefits plus CPP, EI, income tax and penalties. We calculate the taxable portion of every per diem and include it on the T4.
Construction Payroll from $125/Month. T4s, T5018s and ROEs Included.
Worker classification, WSIB, per diem tracking, CPP/EI/tax remittances, T4s. We handle it all.
Vacation Pay, Public Holiday Pay and Seasonal Layoffs
| Entitlement | Amount | Construction-Specific Notes |
|---|---|---|
| Vacation pay (under 5 years) | 4% of gross wages earned | Most construction companies pay vacation pay on every cheque (accrued and paid each period) rather than accumulating it for a vacation period. This is permissible under the ESA if the employee agrees. |
| Vacation pay (5+ years) | 6% of gross wages earned | Construction workers with 5+ years with the same employer earn 6%. Track hire dates. Many construction employees do not reach this threshold due to seasonal layoff/rehire cycles. |
| Public holiday pay (variable hours) | (4 weeks wages / 20) | Calculated individually for each employee on each of the 9 Ontario public holidays. For workers with variable hours and frequent layoffs, only wages actually earned in the 4 weeks before the holiday are included. |
| Seasonal layoff ROE | ROE filed within 5 days of last day worked | Construction workers are frequently laid off during winter months. ROE Block 16 Reason Code: A (Shortage of Work). ROE must include all insurable hours and earnings. If the worker is rehired in spring, a new ROE is required on the next separation. |
| Recall after seasonal layoff | Temporary layoff rules apply | Under the ESA, a temporary layoff can last up to 13 weeks in a 20-week period (or 35 weeks if the employer continues benefits). Beyond this, the layoff becomes a termination and the employee is entitled to termination and potentially severance pay. |
What Our Construction Payroll Service Includes
| Service | What We Do |
|---|---|
| Pay run processing (weekly or biweekly) | Every pay run calculated with correct CPP, EI and income tax deductions. Variable hours from job site timesheets. Overtime tracked across multiple sites per worker per week. Per diem and travel allowances calculated with taxable/non-taxable split. |
| Worker classification review | Every worker classified at onboarding: employee (payroll) or independent contractor (T5018). Two-factor test documented. Contracts, invoicing patterns, tool ownership, HST registration and multi-client evidence reviewed. Classification defensible against CRA audit. |
| T5018 preparation and filing | T5018 slips prepared for every subcontractor paid $500 or more. Business numbers verified. Payments reconciled against invoices and bank records. Filed by the 6-month deadline. |
| WSIB premium tracking and reconciliation | WSIB premiums calculated on insurable earnings by classification code. Quarterly payments tracked. Annual reconciliation filed. Subcontractor WSIB clearance certificates collected and verified before payment. |
| Vacation pay accrual and payment | 4% (or 6% at 5+ years) calculated on every pay run. Paid on each cheque or accrued, based on your preference and employee agreements. Year-end balances verified and paid out. |
| Public holiday pay calculation | Variable-hours formula applied for each worker on each of the 9 Ontario public holidays. Premium pay (1.5x) calculated for workers who work the holiday. Substitute day tracking. |
| Per diem and travel allowance tracking | Per diem amounts compared against CRA's reasonable rates. Taxable excess calculated and included on the T4. Non-taxable portion documented. Board and lodging at remote sites evaluated for the 80-km exemption. |
| CRA remittances | CPP, EI and income tax remitted by the deadline. Monthly, quarterly or accelerated frequency determined. Penalties for late remittance: 3% to 10%. We never miss a deadline. |
| ROE filing (seasonal and permanent separations) | ROE filed within 5 calendar days. Seasonal layoffs coded correctly (Reason A: Shortage of Work). Insurable hours and earnings calculated. Recall tracking for temporary layoff ESA compliance. |
| T4 and T4 Summary preparation | All T4s prepared and filed by February 28. Per diem taxable benefits included. Vehicle allowance taxable portions calculated. Employer-provided housing benefits reported. T4 Summary reconciled to total remittances for the year. |
Worked Example: Weekly Payroll for a 15-Employee Construction Company
| Line Item | Amount | Notes |
|---|---|---|
| Gross wages (15 employees, weekly) | $22,800 | Mix of labourers ($22 to $28/hour), carpenters ($30 to $38/hour) and a site supervisor ($42/hour). Variable hours per week. |
| Overtime (3 workers exceeded 44 hours) | $1,890 | Worker A: 48 hours (4 OT hours x $33/hr x 1.5 = $198). Worker B: 50 hours (6 OT hours x $36/hr x 1.5 = $324). Worker C: 52 hours (8 OT hours x $28.50/hr x 1.5 = $342). Total across all job sites. |
| Per diem (6 workers at out-of-town sites) | $3,066 | $73/day x 6 workers x 7 days = $3,066. At CRA's reasonable rate, this is fully non-taxable. No T4 reporting required. |
| Vacation pay accrued (4%) | $988 | 4% of $24,690 (gross + overtime). Paid on each cheque or accrued. |
| Total pensionable earnings | $24,690 | $22,800 + $1,890. Per diem at reasonable rates is excluded from pensionable earnings. |
| Employee CPP deductions (total) | $1,374 | 5.95% on pensionable earnings above the $3,500 basic exemption (prorated weekly). |
| Employee EI deductions (total) | $405 | 1.64% on insurable earnings. |
| Employee income tax withheld (total) | $3,420 | Federal + Ontario provincial based on each employee's TD1 and earnings. |
| Employer CPP (1:1 match) | $1,374 | Employer pays 1:1 match of employee CPP. |
| Employer EI (1.4x employee) | $567 | Employer pays 1.4x the employee EI deduction. |
| WSIB premium (estimated) | $1,110 | $24,690 insurable earnings x $4.50/$100 (general construction rate) = $1,111. Paid quarterly, reconciled annually. |
| Total CRA remittance (this pay period) | $7,140 | Employee CPP + EI + tax ($5,199) + Employer CPP + EI ($1,941). Due by the 15th of the following month (regular remitter) or within 3 days (accelerated). |
Subcontractor Payments Are Separate: In addition to the $24,690 in employee payroll above, this construction company may also pay $15,000 to $40,000/week to subcontractors. Those payments are not payroll. They are business expenses reported on T5018 slips. No CPP, EI or income tax is deducted. The subcontractor invoices the company, the company pays the invoice and reports the payment on the T5018 at year-end.
10 Common Payroll Errors Ontario Construction Companies Make
| # | Error | Consequence |
|---|---|---|
| 1 | Classifying employees as subcontractors to avoid payroll | CRA reclassifies as employees. Company owes all unremitted CPP, EI, income tax, employer contributions and penalties for the entire audit period. 5 workers over 3 years at $60,000/year: $150,000 to $250,000 reassessment. |
| 2 | Not filing T5018 slips for subcontractors | $25/day penalty per missing slip. CRA flags the company for a deeper audit. Combined with worker classification review, this can escalate into a full payroll and income tax audit. |
| 3 | Not verifying subcontractor WSIB clearance | If the sub is injured on your site and has no WSIB coverage, your WSIB account is charged for the claim. One serious injury claim can cost $50,000 to $500,000+ in WSIB premiums and surcharges. |
| 4 | Not tracking overtime across multiple job sites | A worker who does 25 hours on Site A and 22 hours on Site B has worked 47 hours. 3 hours of overtime are owed. Failing to aggregate hours across sites is an ESA violation. Payroll Services → |
| 5 | Paying per diem above CRA reasonable rates without reporting the excess | The excess above $73/day is a taxable benefit. Not reporting it on the T4 results in unreported income for CRA reassessment. 20 workers x $47/day excess x 180 days = $169,200 in unreported benefits. |
| 6 | Not registering for WSIB (mandatory in construction) | WSIB can issue a compliance order, assess premiums retroactively to the date the employer should have registered and charge penalties. Operating without WSIB in construction is an offence under the WSIA. |
| 7 | Not filing ROEs within 5 days of seasonal layoff | Service Canada penalties. Worker's EI claim is delayed. Multiple late ROEs flag the employer for review. Construction companies with seasonal layoffs must file ROEs for every worker laid off in the fall/winter. |
| 8 | Exceeding the 13-week temporary layoff limit | Under the ESA, a temporary layoff beyond 13 weeks in a 20-week period (or 35 weeks with continued benefits) becomes a termination. The worker is entitled to termination pay and potentially severance pay. |
| 9 | Not calculating public holiday pay for variable-hours workers | Using a flat rate instead of the formula (4 weeks wages / 20) is incorrect. Underpayment triggers ESA complaints and Ministry of Labour orders for back pay plus penalties. |
| 10 | Missing CRA remittance deadlines | Penalties: 3% (1-3 days late), 5% (4-5 days), 7% (6-7 days), 10% (7+ days or repeated). On a $7,000 weekly remittance, a 7-day delay costs $490. Repeated late filing triggers accelerated remitter status. |
Construction Payroll Setup Checklist
- Register for a CRA payroll account (RP program account) if not already registered
- Register with WSIB (mandatory for all Ontario construction employers)
- Collect TD1 (federal) and TD1-ON (Ontario) from every employee before the first pay period
- Document worker classification (employee vs. subcontractor) for every worker at onboarding using the two-factor test
- Collect WSIB clearance certificates from every subcontractor before their first day on site
- Configure payroll software for multiple job site tracking (hours per site per worker per week)
- Set up overtime calculation: aggregate hours across all job sites, overtime at 1.5x after 44 hours/week
- Configure per diem tracking: separate taxable excess above CRA's $73/day rate from non-taxable amounts
- Set up vacation pay accrual at 4% (or 6% for 5+ year employees) on each pay run
- Establish CRA remittance schedule (monthly, quarterly or accelerated based on annual deductions)
- Set up T5018 tracking for all subcontractor payments of $500 or more
- Configure ROE electronic filing through Service Canada's ROE Web portal for seasonal layoffs
Need Construction Payroll Set Up Correctly? From $125/Month.
Worker classification, WSIB, T5018, per diem, T4s, ROEs. We handle every pay run.
CRA Payroll Audits for Construction Companies
CRA has a dedicated Construction Industry Audit Program that specifically targets payroll compliance. Construction is audited more frequently than any other industry for payroll issues.
| CRA Focus Area | What CRA Reviews | How We Prevent Issues |
|---|---|---|
| Worker misclassification | CRA reviews T5018 slips and selects workers for the two-factor test. If the sub fails the test, the entire payment history is reclassified as employment income with CPP, EI and tax owing retroactively. | Every worker classified at onboarding with documented two-factor analysis. Contracts, invoicing, tool ownership and multi-client evidence maintained. Classification defensible against CRA audit. |
| Unreported per diem and allowances | CRA reviews per diem rates against the reasonable amount ($73/day). Excess amounts not reported on T4s are taxable benefits. CRA also reviews flat vehicle allowances and board-and-lodging arrangements. | Per diem calculated against CRA's rate on every pay run. Taxable excess included on T4. Non-taxable amounts documented with job site location and distance from employer's establishment. |
| T5018 cross-referencing | CRA matches T5018 amounts against the sub's reported income. Missing T5018 filings or mismatched amounts trigger audit queries to both the GC and the sub. | T5018 reconciled against invoices and bank payments. Business numbers verified. Slips filed on time. If discrepancies exist, they are on the sub's side, not yours. |
| WSIB compliance | WSIB audits insurable earnings against payroll records and T4 amounts. Discrepancies result in premium reassessments. CRA and WSIB share data through joint audit programs. | WSIB premiums calculated on actual insurable earnings. Annual reconciliation filed on time. Sub clearance certificates collected. No gaps in coverage. |
CRA Audit Support FREE for Payroll Clients: If CRA audits your construction payroll, we represent you at no additional charge. We respond to every CRA request, prepare the worker classification documentation, reconcile T5018 filings and negotiate any proposed reassessment. For more information on our construction CRA audit defence, see our CRA audit support for construction companies page.
Frequently Asked Questions: Payroll for Construction Companies
How do I know if a worker is an employee or subcontractor?
CRA uses the two-factor test: the control test (who directs the work, sets hours, provides tools) and the economic dependence test (does the worker have multiple clients, own equipment, bear financial risk). If you control how and when the work is done and the worker depends on you for income, they are an employee. The contract title does not matter. We document the classification for every worker at onboarding.
What is the T5018 and do I need to file it?
The T5018 (Statement of Contract Payments) reports all payments of $500 or more to subcontractors. Every construction company that pays subcontractors must file T5018 slips. CRA cross-references the amounts against the sub's tax return. Missing or late filings trigger penalties and flag you for a deeper audit.
Is WSIB mandatory for construction companies?
Yes. WSIB coverage is mandatory for all construction employers in Ontario. This includes sole proprietors and partners. Premium rates vary by classification (general construction $2.50 to $6.00 per $100 of insurable earnings). You must also verify that every subcontractor has their own WSIB clearance before they start work on your site.
Is per diem taxable for construction workers?
Per diem at or below CRA's reasonable rate ($73/day in 2026 for meals) is not taxable if the worker is required to be away from the municipality of the employer's establishment. Any amount above $73/day is a taxable benefit that must be reported on the T4 with CPP, EI and income tax deducted. Payroll Services →
When does overtime start for construction workers?
After 44 hours in a work week at 1.5x the regular rate. Hours must be aggregated across all job sites. A worker with 25 hours on Site A and 22 hours on Site B has worked 47 hours and is owed 3 hours of overtime. Written agreements are required for daily shifts exceeding 8 hours.
How do I handle seasonal layoffs?
File an ROE within 5 calendar days of the last day worked. Use Reason Code A (Shortage of Work). A temporary layoff can last up to 13 weeks in a 20-week period (or 35 weeks with continued benefits). Beyond this, it becomes a termination with termination pay obligations. Track recall dates carefully.
What triggers a CRA payroll audit for construction?
Worker misclassification (T5018 payments to workers who look like employees), missing T5018 filings, per diem and allowances not reported on T4s, late or missing remittances, T4 amounts not matching remittance totals and WSIB/CRA data mismatches. CRA has a dedicated Construction Industry Audit Program.
How much does construction payroll cost?
From $125/month for the first employee, $75/month for each additional employee. Includes every pay run, overtime tracking, per diem calculation, WSIB premium tracking, vacation and holiday pay, CPP/EI/tax remittances, T4 preparation, T5018 filing and ROE filing. Know Your Exact Fee →
Do you file T5018 slips as part of payroll?
Yes. T5018 preparation and filing is included with our construction payroll service. We reconcile every subcontractor payment against invoices and bank records, verify business numbers and file all T5018 slips by the deadline.
What if CRA reclassifies my subcontractors as employees?
CRA audit support is FREE for every payroll client. We prepare the two-factor test documentation for every worker under review, submit contracts, invoices and evidence of the sub's independent business activity and negotiate the outcome. If CRA issues a reassessment, we file an objection. CRA Audit Support for Construction →
Stop Risking CRA Reclassification. Let a CPA Handle Construction Payroll.
Worker classification, T5018, WSIB, per diem, overtime, T4s, ROEs. We handle every pay run correctly. From $125/month. 900+ five-star reviews.
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