Payroll

Payroll is the process by which an employer calculates, pays, records, and reports employee remuneration, withholds statutory deductions, pays employer contributions and payroll taxes, and remits those amounts to the appropriate authorities. In Canada, payroll is governed concurrently by federal legislation (the Income Tax Act, the Canada Pension Plan, and the Employment Insurance Act), provincial and territorial employment standards legislation (or the Canada Labour Code for federally regulated employers), provincial payroll tax statutes, workers' compensation legislation, and, in Quebec, provincial pension, parental insurance, and tax legislation administered by Revenu Québec. This page sets out the payroll framework common to all forms of business. The pages for each business type address the treatment of owners.

EMPLOYEE OR INDEPENDENT CONTRACTOR

Payroll obligations arise only in respect of employees. The distinction between an employee (contract of service) and an independent contractor (contract for services) is determined by the total relationship of the parties, with reference to the following factors (CRA Guide RC4110):

• Degree of control exercised by the payer over the manner, timing, and location of work.

• Ownership and provision of tools and equipment.

• Ability to subcontract work or hire assistants.

• Degree of financial risk, investment, and opportunity for profit.

• Degree of integration of the worker into the payer's business.

• The intention of the parties, as reflected in their written agreement and conduct.

• In Quebec, the Civil Code of Québec criteria apply. Either party may request a ruling from the CRA on employment status (Form CPT1).

REGISTRATION

• CRA payroll deductions program account (RP) under the business number, before the first remittance due date.

• Revenu Québec employer registration for employees reporting to an establishment in Quebec.

• Provincial employer health tax or payroll levy registration where applicable.

• Workers' compensation board registration, generally within days of hiring the first worker in a covered industry.

• Collection of each employee's Social Insurance Number within three days of commencement, and federal and provincial TD1 forms (TP-1015.3 in Quebec).

COMPONENTS OF GROSS PAY

• Regular wages or salary.

• Overtime: payable at not less than 1.5 times the regular rate after the statutory threshold, which is 44 hours per week in Ontario and New Brunswick; 40 hours per week or 8 hours per day in British Columbia, Saskatchewan, Manitoba, Newfoundland and Labrador, the territories, and under the Canada Labour Code; 44 hours per week or 8 hours per day in Alberta; 40 hours per week in Quebec; and 48 hours per week in Nova Scotia and Prince Edward Island. Averaging agreements and industry exemptions apply.

• Vacation pay: at least 4% of gross wages (two weeks) in most jurisdictions, rising to 6% (three weeks) after five years of service in Ontario, British Columbia, Alberta, and Manitoba; after three years in Quebec; after eight years in New Brunswick, Nova Scotia, and Prince Edward Island; and after fifteen years in Newfoundland and Labrador. Saskatchewan provides three weeks from the outset. The Canada Labour Code provides 4%, 6% after five years, and 8% after ten years.

• Statutory (public) holiday pay, calculated under the formula of each jurisdiction.

• Commissions, bonuses, retroactive pay, and pay in lieu of notice.

• Taxable benefits and allowances: employer-paid life insurance premiums, automobile standby charge and operating expense benefits, non-accountable allowances, gifts above the permitted limit, low-interest loans, and board and lodging. Benefits paid in cash or near-cash are subject to income tax, CPP, and EI; most non-cash benefits are subject to income tax and CPP only.

STATUTORY DEDUCTIONS (2026)

• Federal and provincial income tax: calculated from the employee's TD1 claim codes using the CRA Payroll Deductions Online Calculator, the payroll deductions tables, or the formulas in Guide T4127. Quebec provincial income tax is calculated under Revenu Québec's formulas (TP-1015.F).

• Canada Pension Plan: 5.95% of pensionable earnings between the $3,500 basic exemption and the year's maximum pensionable earnings of $74,600 (maximum employee contribution $4,230.45); second additional contribution (CPP2) of 4% on earnings between $74,600 and the year's additional maximum of $85,000 (maximum $416). Contributions are required from age 18 to 70, subject to an election to stop at age 65 to 70 while receiving a CPP pension.

• Quebec Pension Plan: 6.30% on earnings between $3,500 and $74,600 (maximum $4,479.30); second additional contribution of 4% to $85,000 (maximum $416).

• Employment Insurance: $1.63 per $100 of insurable earnings to maximum insurable earnings of $68,900 (maximum employee premium $1,123.07). A reduced rate applies in Quebec, where maternity and parental benefits are provided under the Quebec Parental Insurance Plan.

• Quebec Parental Insurance Plan: employee premium 0.430% on insurable earnings to $103,000 (maximum $442.90).

• Other deductions: registered pension plan contributions, group RRSP contributions, union dues, benefit premiums, garnishments, and family support deductions under court order.

EMPLOYER CONTRIBUTIONS AND COSTS

• CPP or QPP: equal to the employee contribution, including CPP2.

• EI: 1.4 times the employee premium (maximum $1,572.30 per employee for 2026), reducible under the Premium Reduction Program for qualifying wage-loss plans.

• QPIP: employer premium 0.602% on insurable earnings to $103,000.

• Provincial payroll taxes and workers' compensation premiums (see below).

• Employer-paid benefits, vacation and statutory holiday pay accruals, and pension contributions.

REMITTANCE OF SOURCE DEDUCTIONS

• Regular remitter: by the 15th day of the month following the month in which remuneration was paid.

• Quarterly remitter: available to eligible employers with an average monthly withholding amount of less than $3,000 in either of the two preceding years and a perfect compliance record; due by the 15th day of the month following each calendar quarter.

• Accelerated remitter, threshold 1: average monthly withholding of $25,000 to less than $100,000 in the second preceding year; remittances twice monthly.

• Accelerated remitter, threshold 2: average monthly withholding of $100,000 or more; remittances within three working days of the end of each of four monthly periods, through a Canadian financial institution.

• Penalties for late remittance range from 3% to 10%, and 20% for repeated failures; failure to deduct attracts a 10% penalty; interest is charged at the prescribed rate.

• Quebec source deductions and contributions are remitted to Revenu Québec on the same principal schedules.

PAYROLL ACCOUNTING ENTRIES

• Gross payroll: Dr Salaries and Wages Expense; Cr Income Tax Payable; Cr CPP/QPP Payable; Cr EI Payable; Cr QPIP Payable (Quebec); Cr other deductions payable; Cr Salaries Payable (net pay).

• Employer contributions: Dr Employee Benefits (or Payroll Tax) Expense; Cr CPP/QPP Payable; Cr EI Payable; Cr QPIP Payable; Cr Employer Health Tax Payable; Cr Workers' Compensation Payable.

• Payment of net pay: Dr Salaries Payable; Cr Cash.

• Remittance: Dr each payroll liability; Cr Cash.

• Accruals at period-end for earned but unpaid wages, vacation pay, and statutory holiday pay.

YEAR-END REPORTING

• T4 slips and T4 Summary: filed with the CRA and distributed to employees by the last day of February following the calendar year. Electronic filing is mandatory for more than five slips of a type.

• T4A slips for pensions, retiring allowances, fees for services, and other amounts; T4A-NR for non-residents.

• RL-1 slips and the RLZ-1.S summary for Quebec employees, filed with Revenu Québec by the last day of February.

• Record of Employment: issued within five calendar days after the end of the pay period in which an interruption of earnings occurs (when filed electronically).

• Reconciliation of payroll records with remittances, the general ledger, and T4 totals; the CRA conducts a pensionable and insurable earnings review (PIER) to identify deficient contributions.

PROVINCIAL AND TERRITORIAL PAYROLL TAXES

• Ontario Employer Health Tax: graduated rates from 0.98% (payroll up to $200,000) to 1.95% (payroll above $400,000), applied to total Ontario remuneration less the exemption. Eligible private-sector employers, together with associated employers, are exempt on the first $1,000,000 of payroll where total payroll does not exceed $5,000,000. Monthly instalments are required where payroll exceeds $1,200,000; the annual return is due March 15.

• British Columbia Employer Health Tax: exempt on payroll up to $1,000,000; 5.85% on payroll between $1,000,000 and $1,500,000; 1.95% on total payroll above $1,500,000. Quarterly instalments are required where the prior-year tax exceeded $2,925; the annual return is due March 31.

• Quebec Health Services Fund: 1.65% where total payroll is $1,000,000 or less (1.25% for primary and manufacturing employers), rising by formula to 4.26% for payroll of $7,800,000 or more. Additional Quebec obligations: the labour standards contribution to CNESST on remuneration up to $103,000 per employee; the Workforce Skills Development and Recognition Fund contribution for employers whose payroll exceeds $2,000,000 and who do not invest 1% of payroll in eligible training.

• Manitoba Health and Post-Secondary Education Tax Levy: 4.3% on payroll above the exemption threshold, and 2.15% on total payroll above the upper threshold.

• Newfoundland and Labrador Health and Post-Secondary Education Tax: 2% of payroll above a $2,000,000 exemption.

• Northwest Territories and Nunavut payroll tax: 2% of employment income earned in the territory, withheld from employees and remitted by employers.

• Alberta, Saskatchewan, New Brunswick, Nova Scotia, Prince Edward Island, and Yukon: no general provincial or territorial payroll tax.

WORKERS' COMPENSATION

• Newfoundland and Labrador: WorkplaceNL.

• Prince Edward Island: Workers Compensation Board of PEI.

• Nova Scotia: Workers' Compensation Board of Nova Scotia.

• New Brunswick: WorkSafeNB.

• Quebec: Commission des normes, de l'équité, de la santé et de la sécurité du travail (CNESST).

• Ontario: Workplace Safety and Insurance Board (WSIB).

• Manitoba: Workers Compensation Board of Manitoba.

• Saskatchewan: Saskatchewan Workers' Compensation Board.

• Alberta: Workers' Compensation Board-Alberta.

• British Columbia: WorkSafeBC.

• Yukon: Yukon Workers' Safety and Compensation Board.

• Northwest Territories and Nunavut: Workers' Safety and Compensation Commission.

• Premiums are calculated as a rate per $100 of assessable payroll, which varies by industry classification, up to a maximum assessable earnings ceiling set annually by each board.

GENERAL MINIMUM WAGES (OCTOBER 2026)

• Nunavut $20.17; Yukon $18.51; British Columbia $18.25; federal $18.15; Ontario $17.95; Prince Edward Island $17.30; Northwest Territories $17.20; Nova Scotia $17.00; Quebec $16.60; Manitoba $16.40; Newfoundland and Labrador $16.35; New Brunswick $15.90; Saskatchewan $15.70; Alberta $15.00.

• Rates are generally adjusted annually on April 1, May 1, June 1, or October 1, depending on the jurisdiction, and special rates may apply to students, liquor servers, and certain occupations.

PAYROLL RECORDS AND CONTROLS

• Payroll records (TD1 forms, timesheets, payroll registers, and remittance records) are retained for six years for tax purposes; employment standards legislation imposes separate retention periods (three years in Ontario).

• Segregation of duties between hiring, time approval, payroll preparation, and payment.

• Independent review of payroll registers and reconciliation of the payroll bank account.

• Restricted access to payroll systems and employee personal information, in compliance with privacy legislation.

SOURCES

• Canada Revenue Agency, Guide T4001 Employers' Guide: Payroll Deductions and Remittances; Guide T4127 Payroll Deductions Formulas; Guide T4130 Taxable Benefits and Allowances; Guide RC4110 Employee or Self-employed?

• Revenu Québec, Employers: Principal Changes for 2026; Guide for Employers: Source Deductions and Contributions (TP-1015.G).

• Ontario Ministry of Finance, Employer Health Tax; British Columbia Ministry of Finance, Employer Health Tax.

• Provincial employment standards legislation and workers' compensation boards; Canada Labour Code, Part III.