Payroll Deductions

As an employer, you have the responsibility of making a number of deductions on behalf of your employees.

You are generally considered to be an employer if:

You pay a salary, wages (including advances), bonuses, vacation pay, or tips to your employees
You provide certain benefits such as board and lodging to your employees

What are your responsibilities as an Employer?

As an employer, you have to :

ensure that you have a Business Number which identifies the four major Canada Customs and Revenue Agency business accounts: corporate income tax; import/export; payroll deductions; and the goods and services tax (GST)
deduct income tax, Canada Pension Plan (CPP) contributions, and Employment Insurance (EI) premiums from amounts you pay to your employees
send in these amounts along with your share of CPP contributions and EI premiums that you have to pay throughout the year on your employees’ behalf
get a social insurance number from each employee
report all these amounts on an information return by the end of February of the following calendar year.
NOTE: As an employer or payer, you hold payroll deductions in trust for the Receiver General. Therefore, you have to keep these amounts separate from the operating funds of your business. They must not be part of an estate in liquidation, assignment, receivership or bankruptcy.

What to deduct from your employees’ paychecks:

You are responsible for deducting Income tax, Canada Pension Plan (CPP) or Quebec Pension Plan (QPP) contributions, and Employment Insurance (EI) premiums from your employee’s paychecks. You are also responsible for remitting this money to the CCRA at regular intervals, usually on or before the 15th day of the month following the month in which you deducted it.

Income Tax – As an employer, you are responsible for deducting income tax from the salaries, wages, or other remuneration you pay your employees.

Since employees fall into various categories, you need various forms, such as federal and provincial TD1 forms, to help you decided what to deduct from their paycheques.

Canada Pension Plan (CPP) – The Canada Pension Plan (CPP) came into effect as a way to provide financial assistance to Canadians when they retire from the workforce. Every person who works in Canada is eligible to get benefits when he or she retires.

You have to deduct CPP contributions from an employee’s remuneration if that employee:

is 18 or older, but younger than 70;
is in pensionable employment during the year; and
does not receive a CPP retirement or disability pension.
Both employees and employers contribute to the CPP. But you, as an employer, are responsible both for deducting CPP contributions from your employees’ paycheques and for matching those contributions yourself.

Employees fall into many categories, which determine how and when you should deduct CPP. To learn more about this, see the CCRA guide Payroll Deductions (Basic Information).

Employment Insurance (EI) – Employment Insurance (EI) is a federally administered insurance program that gives financial assistance to people who are unemployed. It also helps people get training for jobs.

As an employer, you are responsible for deducting EI premiums from your employees’ paychecks.

You have to withhold Employment Insurance (EI) premiums from each dollar of insurable earnings up to the yearly maximum. Once you have deducted the maximum for the year, you should not deduct any more premiums. For 2017, the maximum annual insurable earnings is $51,300.

You and your employee have to pay EI premiums on gratuities and remuneration from insurable employment. Insurable employment includes most employment in Canada under a contract of service (employer-employee relationship). There is no age limit for deducting EI premiums. Some employment outside Canada is also insurable

Which employment and payments are not subject to EI premiums?

Some types of employment are not included in insurable employment. Also, some types of payments are not subject to EI premiums.

Employment for which you do not deduct EI premiums

Even if there is a contract of service, employment is not insurable and is not subject to EI premiums in the following situations:

casual employment if it is not for your usual trade or business;
employment when you and your employee do not deal with each other at arm’s length. This includes individuals connected by blood relationship, marriage, common-law relationship, or adoption. However, an employee who does not deal with you at arm’s length can be in insurable employment if you would have negotiated a similar contract with a person that you deal with at arm’s length.
when a corporation employs a person who controls more than 40% of the corporation’s voting shares;
employment that is an exchange of work or services;
employment by an employer in agriculture, in an agricultural enterprise, or in horticulture when: the person receives no cash remuneration; or works less than seven days with the same employer during the year;
employment of a person connected with a circus, fair, parade, carnival, exposition, exhibition, or other similar activity, except for entertainers, if that person: is not your regular employee; and works for less than seven days in the year;
employment of a person in a rescue operation, as long as you do not regularly employ that person for that purpose;
employment by a government body as an election worker if the worker: is not a regular employee of the government body; and works for less than 35 hour in a calendar year;
employment in Canada under an exchange program if the employer paying the remuneration is not resident in Canada;
employment of a member of a religious order who has taken a vow of poverty (this applies whether the remuneration is paid directly to the order, or the member pays it to the order);
any employment when premiums have to be paid according to the unemployment insurance laws of any state of the United States, the District of Columbia, Puerto Rico, or the Virgin Islands, or according to the Railroad Unemployment Insurance Act of the United States;
employment in Canada of a non-resident person if the unemployment insurance laws of any foreign country require someone to pay premiums for that employment;
employment in Canada by a foreign government or an international organization, except when the foreign government or international organization agrees to cover its Canadian employees under Canada’s EI legislation (in this case, the employment is insurable if Human Resources Development Canada agrees); or
* employment under the Self-employment assistance and Job creation partnerships employment benefits established by the Canada Employment and Immigration Commission under section 59 of the Employment Insurance Act, or under a similar benefit that a provincial government or other organization provides and is the subject of an agreement under section 63 of the Employment Insurance Act.
Calculating EI premiums