By law, employers are required to deduct the following from your wages:
- Income tax
- Contributions to the Canada Pension Plan (CPP)
- Contributions to Employment Insurance (EI)
These deductions mean that the amount you receive from your paycheque will be less than what you’ve earned. Employers must withhold and remit these amounts directly to the Canada Revenue Agency (CRA). Although, employees do get credit for having paid these amounts, which are reported on their T4 for annual tax returns.
Depending on how you receive your wages, your pay stub will either be attached to your cheque or a direct deposit statement. Standard pay stubs illustrate the following common terms:
- Gross pay – the amount you make every week, month or hour before your employer deducts anything.
- Net pay – your gross pay minus all amounts deducted and forwarded to the CRA on your behalf by your employer.
Required deductions
Income tax
Employees in Canada pay income tax at graduated rates. That means the higher the income, the higher the tax rate. The following table shows the federal tax rates that apply in 2019. In addition to federal tax, workers must also pay provincial tax, which can vary by province. These percentages work in a staggered way meaning if you earn $50,000 only the portion between $47,630 to $50,000 ($2,370) is taxed at 20.5% while the amount below that is taxed at 15%.
| Income Level | Tax Rate (2019) |
| < $47,630 | 15% |
| $47,630 to $95,259 | 20.5% |
| $95,259 to $147,667 | 26% |
| $147,667 to $210,371 | 29% |
| > $210,371 | 33% |
Basic Personal Amount
All workers in Canada do not have to pay tax on their first $12,069 of taxable income in 2019. The basic personal amount tax credit varies each year.
Employment Insurance (EI) and Canada Pension Plan (CPP)
The federal government runs these programs and participation in them is mandatory by all workers. You can receive these benefits in the future through payments from these programs. EI, for example, protects workers who become unemployed by paying benefits to those who apply and qualify. If you retire after age 65, the CPP pays benefits to eligible seniors.
In addition to the amounts subtracted from your pay, your employer contributes to EI and CPP from your salary. The amount they deduct depends on how much you contribute.
Additional Payroll Deductions
Finally, your employer may deduct other items from your pay, like if you choose to participate in your company’s:
- RRSP savings plan
- Pension plan
- Group insurance plan
Participation in these types of programs will reduce your net take-home pay.
Quick Facts
The 2019 maximum annual federal employee contributions are:
- EI – $860.22
- CPP – $2,748.90
To make sure your employees’ income deductions are accurate, create their pay stubs through StubGen. Our easy-to-use pay stub generator does all the calculating for you and provides a professional copy for you and your employees. Other instant pay stub makers require you to input tax rates manually. Ours has current information already integrated, so all you have to know is how much your employees get paid.