Once you have an employee, you must withhold income tax, Canada Pension Plan (CPP) contributions and Employment Insurance (EI) premiums from every cheque, add the employer's share on top, and remit the total to the CRA on time. You also issue a T4 to each employee the following February. Miss a remittance and the penalties start at 3% and climb fast. This guide covers the 2026 numbers, the employer share and the deadlines.
Register a payroll account first
Source deductions flow through a payroll (RP) program account linked to your Business Number. Open it before your first payday. From then on, every pay run involves three steps: withhold the employee's portions from gross pay, calculate the employer's matching portions, and remit the combined amount to the CRA.
CPP and CPP2 for 2026
CPP has had a two-tier structure since 2024. The 2026 figures:
- Maximum pensionable earnings (YMPE): $74,600
- Basic exemption: $3,500 (no CPP is charged on the first $3,500 of pay)
- Employee CPP rate: 5.95%, to a maximum employee contribution of $4,230.45
- CPP2 applies to earnings between $74,600 and the $85,000 second ceiling (YAMPE), at 4.00% for the employee, to a maximum of about $416
- The employer matches the employee dollar for dollar on both CPP and CPP2
A self-employed person, with no employer to match them, pays both halves: the combined CPP maximum for 2026 is $8,460.90, and the combined CPP2 maximum is about $832.
EI for 2026
- Maximum insurable earnings: $68,900
- Employee EI rate: 1.63%, to a maximum employee premium of $1,123.07
- Employer EI rate: 1.4 times the employee rate, which is 2.282%, to a maximum employer premium of $1,572.30
So for every dollar of EI an employee pays, you pay $1.40. EI premiums stop once an employee's insurable earnings for the year pass $68,900.
The Quebec difference
Quebec runs its own systems. Instead of CPP, Quebec employers and workers contribute to the Quebec Pension Plan (QPP). Quebec also has the Quebec Parental Insurance Plan (QPIP), funded separately, which is why EI rates in Quebec are lower: roughly 1.31% for the employee and about 1.83% for the employer. If you employ anyone in Quebec, your deductions and remittances run through Revenu Quebec as well as the CRA, and the numbers above do not apply unchanged.
Calculating the deduction
You do not work the percentages out by hand. Use the CRA's Payroll Deductions Online Calculator (PDOC) or compliant payroll software: enter the gross pay, province of employment and the employee's TD1 claim, and it returns the income tax, CPP and EI to withhold. The TD1 forms (federal and provincial), completed by the employee when hired, tell the software how much income tax to take.
Remitting on time
Your remittance schedule depends on your average monthly remittance:
- New employer or regular remitter (under $25,000 a month): remit by the 15th of the month after you paid the wages.
- Quarterly (micro-employer, under $3,000 a month and no arrears): remit by the 15th of the month after each quarter.
- Accelerated threshold 1 ($25,000 to $99,999 a month): remit within three working days of the pay dates that fall in the 1st-to-15th and 16th-to-end halves of the month.
- Accelerated threshold 2 ($100,000 a month or more): remit within three working days of every pay date.
Late remittance penalties escalate quickly: 3% if one to three days late, 5% at four to five days, 7% at six to seven days, 10% beyond seven days, and 20% for a repeat failure in the same calendar year.
The T4 cycle
After year-end, give each employee a T4 (Statement of Remuneration Paid) and file the T4 Summary with the CRA by the last day of February for the year just ended (so the 2026 T4s are due by the end of February 2027; if that date is a weekend, the next business day applies). If you file more than five slips of one type, you must file electronically; paper-filing more than five carries penalties from $125 to $2,500 per return type. Remember that subcontractors paid for construction work get a T5018, not a T4 (see T5018: Reporting Subcontractor Payments).
Worked example
A construction labourer earns $60,000 in Ontario in 2026. The employer's own costs on top of wages include employer CPP of about 5.95% of ($60,000 minus the $3,500 exemption), roughly $3,359, and employer EI of 2.282% of $60,000, roughly $1,369. Add the employer's share of workers' compensation, vacation pay and statutory holiday pay and the all-in cost lands at roughly $35 to $37 an hour against a $30 base. The rule of thumb across Canada is that an employee costs about 1.2 to 1.4 times their base wage once the mandatory add-ons are counted.
Common mistakes
- Treating deductions as your money. The withheld amounts are held in trust for the CRA. Spending them is a serious problem.
- Missing the 15th. The penalty starts at 3% the day after, not after a grace period.
- Forgetting the employer share. You owe matching CPP and 1.4 times the EI on top of what you withhold; budget for it.
- Applying CPP and EI rates to Quebec. Quebec uses QPP, QPIP and lower EI rates through Revenu Quebec.
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