Understanding Canadian payroll and employment tax regulations is key for global employers when thinking about moving into the Canadian market. With complex requirements for payroll tax in Canada and multiple mandatory contributions, payroll processes and assuring compliance can be complex.
Payroll in Canada involves the calculation and distribution of employee salaries, taxes, and other deductions. As payroll costs rise in 2024, It’s crucial for businesses to properly process payroll and stay in line with Canadian laws. Proper management of processes and payroll taxes in Canada keeps your business compliant with local tax laws and provides employees with essential social benefits.
To help you feel at ease with required steps, this article provides a comprehensive guide to payroll tax in Canada, outlining key obligations, calculation methods, setup procedures, and available options for employers.
The Key Elements of Payroll in Canada
Employers in Canada must perform payroll regularly, but exactly how often depends on the province. This varies from weekly to monthly.
For each payroll period, employers must calculate the wages paid to employees, the deductions required for income tax and payroll tax in Canada, and then make the appropriate social security contributions on behalf of their employees (along with associated employer contributions).
Employers also need to be aware of the appropriate taxes levied on benefits or allowances. Allowances are typically subject to taxation in Canada and must be included in the employee’s taxable income.
Deductions are then withheld from employees’ earnings and remitted to the relevant authorities.
Finally, employers must provide accurate and timely wages to their employees.
What are the Mandatory Payroll Taxes and Contributions in Canada?
In Canada, employers are required to withhold and remit various mandatory contributions on behalf of their employees. As the exact amounts of each element of payroll tax in Canada depend heavily on the province where an employee is working, it’s advised to seek guidance from a local tax compliance expert before getting started.
Tax and social security contributions in Canada include:
| Tax/Contribution | What is It? | Who Pays | Rate/Threshold Calculation |
| Canada Pension Plan (CPP) | Provides retirement benefits and disability. | Both Employees and Employers | Contributions based on earnings, up to a maximum threshold |
| Employment Insurance (EI) | Provides temporary income support for workers. | Both Employees and Employers | Contributions based on earnings, up to a maximum threshold |
| Workers’ Compensation | Provides benefits for work-related injuries. | Employers | Rates vary by province and industry |
| * The elements found below relate only to some provinces and are not levied across the country | |||
| Employer Health Tax (EHT) | A payroll tax for employers in some provinces. | Employers (in provinces where applicable) | Progressive rates based on payroll |
| Other Provincial Payroll Taxes | Some provinces may have additional payroll taxes | Employers | Rates and thresholds vary by province |
| Health Care Premiums | Some provinces levy health care premiums. | Individuals (varies by province) | Varies by province |
| Quebec Pension Plan (QPP) | Similar to CPP, but for residents of Quebec. | Both Employees and Employers (for Quebec-based) | Contributions based on earnings, up to a maximum threshold |
| Quebec Parental Insurance Plan (QPIP) | Provides benefits for parental leave in Quebec. | Both Employees and Employers (for Quebec-based) | Contributions based on earnings, up to a maximum threshold |
Canadian Pension Plan (CPP)
The Canada Pension Plan (CPP) provides retirement benefits, disability benefits, and survivor benefits to eligible contributors. Employers are obligated to deduct CPP contributions from employees’ earnings and match these contributions up to a specified limit. Employees are then eligible for retirement with a pension thanks to this fund at 65.
In 2024, CPP taxable earnings are capped at CAD 68,500 and a higher-earners supplementary cap of CAD 73,200. For the 1st cap, the employer and employee each contribute an amount equivalent to 5.95% of the employee’s wage, up to a maximum contribution of CAD 3,867.50. For amounts between the 1st and 2nd cap, the employer and employee each contribute an additional 4.00%, up to a maximum of CAD 188.
It should be noted that in some provinces, an additional survivor benefit contribution is levied, which provides benefits to the dependents of employees who die.
Employment Insurance (EI)
Employment Insurance (EI) provides temporary financial assistance to workers who lose their jobs. Employers and employees contribute to the EI program through premiums based on employees’ insurable earnings.
In 2024, EI premiums for employees are CAD 1.66 for every CAD 100 in earned income up to a maximum of CAD 1,049.12. Employers also contribute CAD 2.32 for every CAD 100 of earned income up to a maximum of CAD 1,468.77. These figures are lower in Quebec.
Workers’ Compensation
Workers’ Compensation programs provide compensation and benefits to employees who suffer work-related injuries or illnesses. Employers must register with their provincial Workers’ Compensation Board and pay premiums.
Workers’ compensation contribution rates vary across the country, but they are always paid by the employer. Examples include Ontario, where employers pay CAD 1.33 per CAD 100 of earned income, and Quebec, where employers pay CAD 1.50 per CAD 100 of earned income. Each state also includes a maximum amount of assessable income.
Employee Income Taxes
Employers are responsible for withholding and remitting federal and provincial income taxes on behalf of their employees.
While provincial tax rates vary, federal income tax rates for 2024 are as follows:
| Income Bracket Amounts (CAD) | Tax on the excess (%) | |
| Over | Not over | |
| 0 | 53,359 | 15.0 |
| 53,359 | 106,717 | 20.5 |
| 106,717 | 165,430 | 26.0 |
| 165,430 | 235,675 | 29.0 |
|
235,675 |
33.0 |
|
How is Payroll Tax in Canada Calculated?
Payroll tax calculation in Canada involves various components, including deductions, contributions, and taxable benefits. Employers must also consider factors such as gross earnings, statutory deductions, and employer contributions to determine total employee costs.
How to Set Up Payroll in Canada
Establishing a compliant payroll system in Canada involves several steps and requires an in-depth understanding of the process at a provincial and federal level.
The process includes:
- Registration – Employers must register for payroll accounts with the Canada Revenue Agency (CRA) and relevant provincial authorities.
- Calculations – Determine employee wages, statutory deductions, and employer contributions based on applicable tax rates and regulations.
- Payroll Software Integration – Invest in payroll software or engage a payroll service provider to streamline payroll processing and ensure compliance.
- Consistent Documentation – Maintain accurate records of employee earnings, deductions, and remittances for reporting and compliance purposes.
Payroll Options for Employers in Canada and Their Benefits
Employers in Canada have several options for managing payroll:
Internal Payroll Management
Managing payroll tax in Canada in-house provides greater control and flexibility but requires dedicated resources and expertise to ensure compliance with tax regulations and reporting requirements.
Local Payroll Outsourcing
Outsourcing payroll tax in Canada to a local provider in Canada offers convenience and expertise in navigating local tax laws and regulations, relieving employers of administrative burdens and compliance risks. However, this can limit the options for easy integration of local payroll into international systems.
Global Payroll Outsourcing
Global payroll providers with operations in Canada offer integrated payroll solutions for companies that operate worldwide, ensuring consistency, compliance, and efficiency across multiple jurisdictions.
How to Administer Payroll in Canada Before Entity Establishment Through a Canadian Employer of Record
Prior to establishing a formal business presence in Canada, employers can manage payroll for employees through various means, such as engaging independent contractors, establishing a Canadian entity, or partnering with a global employer of record (EOR) provider like INS Global.
By engaging an EOR in Canada like INS Global, companies can onboard employees locally and outsource all required employee process management to a professional organization with expertise in blending local and international payroll systems.
An Employer of Record in Canada takes responsibility for setting up compliant payroll, withholding and managing tax and social contributions, simplifying required record keeping, and maintaining total compliance, all without requiring you to go through the hassles of setting up a local company entity.
Later, if you want to open a company in Canada, your EOR partner can help guarantee that the transition of local employees to your new entity goes smoothly.
Simplify Payroll Tax in Canada and more than 160 Other Countries Worldwide with INS Global
INS Global offers comprehensive services to assist employers with payroll and tax obligations as part of compliant and efficient global operations. From payroll setup and compliance to ongoing support and advisory services, INS Global helps streamline payroll processes, mitigate risks, and ensure regulatory compliance for global employers operating in Canada and the world.
Managing payroll tax in Canada requires in-depth knowledge of requirements, calculation methods, and compliance. Thanks to the differences between provinces in terms of systems and rates, ensuring payroll compliance can be difficult in Canada. That’s why companies from all over the world trust INS Global with key payroll and employment functions when expanding to Canada.
For globally-minded companies, understanding local systems and properly bringing them into a global system can be a hassle that takes time and energy away from growth goals.
However, with the right knowledge and support from experienced partners like INS Global, employers can effectively focus on their core business needs in the Canadian market.
To learn more about how INS Global Employer of Record services in Canada can help you achieve expansion success, contact our team of expert advisors today for a free consultation.
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