Payroll in Canada: what your bookkeeping should cover once you have employees.

What changes the day you hire someone

A contractor sends you an invoice and you pay it. An employee is a different arrangement entirely, and the difference is not the person, it is the paperwork behind them.

The moment you have an employee, you are collecting money on the government's behalf. Income tax, Canada Pension Plan contributions, and employment insurance premiums come off the employee's pay, you add your own employer share on top, and the total goes to the CRA on a schedule you do not get to choose. You are also filing slips at year end, and in Ontario you may be registering for two provincial programs that have nothing to do with the CRA.

None of this is difficult. It is just unforgiving about timing, which is a different problem, and it is the reason payroll is usually the point where owners stop doing their own books.

What you have to withhold

Three things come off an employee's pay before they see it.

Income tax. Federal and provincial, based on the employee's TD1 forms (the personal tax credits return every new hire signs) and their earnings. The CRA's payroll deductions tables and its online calculator do the arithmetic. This one is a pass-through: you withhold it, you send it, you do not match it.

Canada Pension Plan contributions. For 2026, you withhold 5.95 percent of pensionable earnings above the $3,500 basic exemption, up to the year's maximum pensionable earnings of $74,600. That caps the employee's base contribution at $4,230.45, and you match it dollar for dollar.

There is now a second tier that catches employers off guard. CPP2, the second additional contribution that started in 2024, applies at 4.00 percent on earnings between $74,600 and $85,000, which adds up to $416 for the employee and another $416 from you. If you pay anyone above about $75,000, CPP2 applies to them and your payroll software needs to be current enough to handle it.

Employment insurance premiums. For 2026, the employee rate outside Quebec is 1.63 percent on insurable earnings up to $68,900, capping the employee at $1,123.07. Your share is 1.4 times theirs, which works out to 2.282 percent and a maximum of $1,572.30 per employee.

That last one is the detail people miss. CPP you match evenly. EI you pay 40 percent more than your employee does.

Quebec runs its own pension and parental insurance plans, so the rates above are the ones that apply everywhere else in the country. If you employ anyone in Quebec, the numbers change and so does the return.

What it costs you on top of the wage

Put the numbers together and an employee costs meaningfully more than their salary. At the 2026 maximums, your CPP, CPP2, and EI share alone comes to $6,218.75 per employee before you have added vacation pay, WSIB premiums, the Employer Health Tax, or any benefits.

This is worth modeling before you hire rather than discovering it in your first month of payroll. A $70,000 hire is not a $70,000 line in your budget. Our comparison of hiring a bookkeeper vs outsourcing vs doing it yourself walks through the same math for one specific role.

When you have to remit

The CRA assigns you a remitter type based on your average monthly withholding amount, which is the total of employee deductions plus your employer share, averaged across a calendar year. Your type sets your deadlines, and your type changes as you grow.

If a due date lands on a weekend or a public holiday, your payment counts as on time if the CRA receives it, or a Canadian financial institution processes it, on the next business day.

Two things to take from that table. First, most small employers are regular remitters, and the 15th of the following month is the date to build your month-end around. Second, the quarterly options require a clean compliance record, so one stretch of late remittances can move you to a tighter schedule and keep you there.

What Ontario adds: WSIB and the Employer Health Tax

Two provincial obligations sit alongside the federal ones, and neither is administered by the CRA.

WSIB. The Workplace Safety and Insurance Board covers workplace injury and illness. Most Ontario employers are required to register and pay premiums based on their industry classification and payroll, and the deadline is 10 calendar days from the day you hire your first employee. Some industries are not required to register, including banks, trade unions, private day cares, travel agencies, photography businesses, and most hair salons and barber shops. Classification matters beyond the registration itself, because premium rates vary widely between industries.

Employer Health Tax. Ontario's EHT applies to your annual Ontario payroll. Eligible private-sector employers get an exemption on the first $1 million of remuneration, rates start at 0.98 percent and rise on a scale to a maximum of 1.95 percent above $400,000 of taxable payroll, and the exemption is eliminated entirely once combined payroll reaches $5 million. Most small employers fall under the exemption and owe nothing, which is why it gets forgotten.

The trap is association. Related and associated corporations have to combine their payroll to test the exemption, and they have to file an allocation form agreeing how to share it. Miss an employer off that form, or skip the form, and every employer in the group is denied the exemption. So a group of small companies that each look exempt on their own can owe EHT collectively. If you run more than one entity, this is worth checking rather than assuming.

Year end: T4 and T4A slips

Payroll has an annual close of its own.

T4 slips go to every employee, reporting their employment income and everything you withheld. You file the T4 information return with the CRA and give employees their copies by the last day of February following the calendar year. For the 2026 tax year that day is Sunday, February 28, 2027, so the deadline moves to Monday, March 1, 2027.

T4A slips cover other kinds of payments, including fees for services over $500 paid to contractors and self-employed individuals, which go in box 048. Worth being precise here, because the obligation and the enforcement are not the same thing: the CRA is currently not assessing penalties for failing to complete box 048, with one exception it introduced for 2025, which is fees paid to a Canadian-controlled private corporation in the trucking industry. Treat box 048 as a rule you should be following rather than one you are being fined over, and expect the relief to narrow further.

If you have been paying contractors, this is also where the employee-versus-contractor question stops being theoretical, because the CRA treats misclassification as your problem, not the worker's. Our employee vs subcontractor checklist covers where that line actually falls.

The work that makes February easy happens in the preceding 12 months. If your payroll has been reconciled to your general ledger every month, slips are a report you run. If it has not, February is the month you find out.

What your bookkeeper should handle, and what stays with you

A reasonable division of labor, in our experience.

Your bookkeeper should be handling:

• Running payroll on schedule and calculating every deduction correctly, including CPP2 and the employer shares.
• Remitting to the CRA by your assigned deadline, and telling you before your remitter type changes rather than after.
• Reconciling payroll to the general ledger every month, so the year-end slips already tie out.
• Tracking vacation accrual, so the liability is on the balance sheet rather than being a surprise when someone takes three weeks.
• WSIB and EHT reporting and remittance.
• Preparing and filing T4 and T4A slips.
• Records of employment when someone leaves.

What stays with you:

• The decision to hire, and at what wage.
• Whether someone is an employee or a contractor. Your bookkeeper can flag the risk, but this is a business decision with legal consequences and it is yours.
• Collecting signed TD1 forms from new hires.
• Approving hours, bonuses, and any change in pay.
• Anything employment-law adjacent: contracts, terminations, accommodations.

You probably already know, but a bookkeeper is not an HR department and not an employment lawyer. The line sits at the point where the question stops being "what do I record" and becomes "what am I allowed to do."

The mistake that costs the most

Late remittances, by a wide margin.

Source deductions are money you withheld from someone else's pay, which the CRA treats differently from money you simply owe. The penalty is a percentage of what you failed to remit and it scales with how late you are. It generally applies to the part of the amount over $500, and to the whole amount where the failure was made knowingly or through gross negligence.

Interest runs on top of that. And in serious cases the liability reaches past the corporation: under the Income Tax Act, directors can be held jointly and severally liable for source deductions the corporation failed to remit, along with the penalties and interest. There is a due diligence defense, and it is a real one, for a director who took genuine steps to make sure the remittances were made. But the defense is something you have to be able to evidence after the fact, which is a poor substitute for having remitted. Very little else in small business accounting reaches through the corporation to the owner personally. This does.

If you are already behind, the fix is to get current and stay current, and to do it before the CRA opens the conversation rather than after. Being behind on payroll usually means being behind on the books generally, and catch-up bookkeeping is the first move rather than the second.

Sources and further reading