What you deduct and what you owe
For each employee you withhold three things from gross pay: Canada Pension Plan (CPP) contributions, Employment Insurance (EI) premiums and income tax. You then add your own share of CPP and EI and remit the total to the Canada Revenue Agency (CRA). The money you withhold is held in trust for the government, which is why late remittances are penalized.
2026 CPP and EI rates
| Item | 2026 figure |
|---|---|
| CPP rate (employee and employer, each) | 5.95% |
| CPP basic exemption | $3,500 |
| Maximum pensionable earnings (YMPE) | $74,600 |
| Maximum CPP contribution (each) | $4,230.45 |
| CPP2 rate (each), on earnings from $74,600 to $85,000 | 4%, maximum $416 |
| EI rate (employee), outside Quebec | 1.63% |
| Maximum insurable earnings | $68,900 |
| Maximum EI premium (employee) | $1,123.07 |
| EI employer premium | 1.4 times the employee premium |
The employer EI rate works out to about 2.282%, or roughly $1,572.30 at the maximum. Quebec has its own EI rate (1.30% for 2026) because it runs its own parental plan. Rates change every January, so confirm them each year in the CRA's payroll guide.
Income tax withholding
Income tax is not a flat rate. It depends on the employee's pay, pay frequency, province and the claim amounts on their TD1 forms. Use the CRA's payroll deductions tables or payroll software that applies them for you. Collect the TD1 forms when you hire.
How often you remit
The CRA assigns your remitter type from your average monthly withholding amount (AMWA) for the period two calendar years ago.
| Remitter type | AMWA | General due date |
|---|---|---|
| Quarterly | Under $3,000 for small employers (under $1,000 for new employers with a perfect compliance record) | 15th of April, July, October and January |
| Regular | Under $25,000 | 15th of the month after the pay date |
| Threshold 1 | $25,000 to $99,999.99 | Twice a month, on set dates |
| Threshold 2 | $100,000 or more | Up to four times a month, on set dates |
Most small employers are regular remitters, so remittances for pay dates in one month are due by the 15th of the next month. If you are a Threshold 1 or 2 remitter, the CRA publishes the exact dates in its remittance schedule. Check your remitter type on your CRA business account and do not assume it stays the same.
Late remittance penalties
The penalty depends on how late you are, plus interest:
- 3% if 1 to 3 days late
- 5% if 4 to 5 days late
- 7% if 6 to 7 days late
- 10% if more than 7 days late, or if you do not remit at all
- 20% for gross negligence or a knowing failure to remit
The CRA generally does not charge a penalty on amounts under $500 unless the failure is knowing or grossly negligent, but interest can still apply.
Year-end slips: T4 and T4A
File T4 slips with the CRA and give a copy to each employee by the last day of February. The late-filing penalty is at least $100, and for 1 to 50 slips it is $10 per day up to $1,000. T4A slips cover other payments, such as certain fees for services and pensions. Check the CRA guide on when a T4A is required for payments to non-employees.
Record of Employment (ROE)
An ROE is required when an employee has an interruption of earnings, meaning at least seven consecutive days with no work and no insurable earnings. Employers who file electronically must generally issue it within five calendar days after the end of the pay period in which the interruption occurs. If you pay monthly or use a 13-period cycle, the deadline is the earlier of five days after the pay period ends or 15 days after the first day of the interruption. Employees use the ROE to apply for EI, so late ROEs cause real hardship.
Employee or contractor?
Calling someone a contractor does not make them one. The CRA looks at the whole relationship, including:
- control: who decides how, when and where the work is done
- tools and equipment: who provides them
- subcontracting: whether the worker can send someone else
- financial risk: whether the worker bears losses or unreimbursed costs
- investment and management responsibility
- opportunity for profit
If the CRA decides a worker was an employee and you did not deduct CPP and EI, you can owe both the employee's and the employer's share, plus penalties and interest. You can ask the CRA for a CPP/EI ruling if the situation is unclear. See the CRA's guide to employee or self-employed.
Getting started
Before your first pay run, open a payroll account with the CRA, collect TD1 forms and SINs, and set up direct deposit. Our guide to hiring your first employee in Canada walks through those steps. If you would rather not run it yourself, see our payroll service, our accounting and tax support, or contact us.
Official sources: the CRA's remittance due dates and the Employers' guide to payroll deductions and remittances.