Taxes for Canadian Employers: A Guide to EI & CPP Payroll Contributions

As a small business owner, employer payroll contributions or source deductions aren’t just about crunching numbers. They’re about the commitment you’re making to the backbone of your business: your employees.

This guide offers a breakdown of the payroll contribution process, so you have the knowledge to handle your payroll confidently and in compliance with Canada Revenue Agency (CRA) guidelines.

What payroll taxes do employers pay in Canada?

Let’s face it: Running your own business means you have a ton on your plate—and the last thing you need is to get tangled in a web of payroll taxes. The key to getting untangled? Understanding your payroll obligations as an employer. 

Here’s an overview of the main employer payroll contributions and source deductions in Canada:

CPP/QPP deductions

CPP (Canada Pension Plan)/QPP (Quebec Pension Plan) contributions are made up of both employer and employee contributions to the CPP, Canada’s retirement-related pension and benefits program (the QPP is Quebec’s version of the CPP). Think of the CPP/QPP as a savings jar for your employees’ retirement, with both you and your employees chipping in to build a nest egg for your employees’ golden years.

For employees ages 18 to 69 (who aren’t already receiving CPP disability benefits), you’ll deduct a portion of their pay for CPP/QPP contributions, and then match it with an equal amount on your end. These joint contributions grow over time, creating a financial cushion to help support their retirement. 

EI deductions

Employment Insurance (EI) premiums are collected from both employees and employers to help fund the EI program, which provides Canadians with temporary financial assistance during periods of unemployment or major life transitions such as the birth of a child. If your employees’ employment counts as “insurable employment” (which most jobs in Canada do), you’ll both contribute to this safety net.

Your employees’ share of EI premiums is deducted from their pay. You’ll add your contribution, which is 1.4 times the amount of their EI deduction. These contributions keep the EI system going strong for everyone who might need it one day. 

Income tax deductions

You’re the boss—so taking the appropriate income tax deductions from your employees’ pay should top your to-do list. You’ll need to deduct these amounts every time you pay your employees. 

Your guides for this task? The TD1 forms, which calculate federal and provincial deductions for most employees. 

How can you kick-start the CRA payroll process?

Here’s what you’ll need to get the ball rolling: 

CRA payroll account. When you register for a CRA payroll account, you’ll receive a 15-character identifying number for that account. This number is made up of your nine-digit Business Number (BN), a two-letter code (RP, for the payroll program), and a four-digit reference number for each account you have in a CRA business program.

Your employee’s Social Insurance Number (SIN). When you hire a new employee, you must get their SIN within three days of their employment start date. This 9-digit number is essential for a person to be legally employed in Canada. Make sure you have their correct SIN, as mistakes can result in penalties and negatively affect the employee’s CPP/QPP entitlements. 

Completed federal and provincial/territorial TD1 forms. TD1 forms can help you calculate the right amount of income tax to deduct from your employee’s pay. You’ll need to have your employee fill out the federal TD1 form when they start their employment with you (as well as the TD1 form for their province or territory, if they’re claiming more than the basic personal amount). 

How much do you contribute to CPP/QPP?

Calculating your employee’s CPP/QPP contribution isn’t as tricky as it might sound. You can determine the amount manually, or use one of the following tools: 

• CRA payroll tables
• CRA’s online payroll deductions calculator
• accounting software, such as Intuit QuickBooks

How do you calculate EI contributions?

Just like CPP/QPP contribution amounts, you can calculate an employee’s EI premiums manually, or use a tool like the CRA’s online payroll deductions calculator or accounting software such as QuickBooks.

How do you to calculate income tax deductions?

You’ll use the TD1 forms you completed to calculate the amount of income tax you’ll need to deduct from employees’ pay: 

• Find the claim code (using the total claim amount from the TD1 form) on the federal claim code chart.
• Once you have the claim code, check the appropriate federal and provincial payroll table to determine the federal and provincial tax amounts to be deducted.

How to remit CPP/QPP, EI, and income tax deductions