Payroll taxes in Canada: An employer’s guide

When you hire in Canada, you — as the employer — are responsible for calculating, withholding, and submitting payroll taxes from your team members’ pay slips. For some taxes, you are also required to make employer contributions.

In this article, we’ll explain clearly which taxes you need to withhold, which taxes you need to contribute to, and how to remit and make payments. So let’s jump straight in.

What is payroll tax?

Payroll taxes are the contributions employees and businesses make to the government to fund public programs, such as retirement, healthcare, and unemployment insurance. They typically include income tax and social contributions, and are set at pre-determined rates.

These rates (and the rules governing them) vary by country, but it’s every employer’s responsibility to ensure they are compliant, and that they are withholding and submitting the correct amounts.

What is the difference between payroll taxes and corporate taxes?

Generally, payroll taxes are tied to your employees’ wages, while corporate taxes are based on your company’s profits. 

Which payroll taxes do you need to withhold from your employee in Canada?

In Canada, the main taxes you’ll need to withhold are:

Income tax

Canadian residents are taxed at both the federal and state/provincial level. Federal income tax rates are as follows:

You must withhold the correct amount from your employees’ pay slips based on these rates.

At the state/provincial level, income tax rates and tax thresholds vary. For instance, the top rate in Alberta is 15%, but is 20.5% in British Columbia. It’s also worth noting that, in Ontario, there is an additional provincial surtax.

You will need to calculate these taxes based on where your team members are based, although they are submitted and collected alongside federal taxes.

What about Quebec?

Quebec operates its own tax system, independent of the federal Canadian government. If you have (or plan to have) team members based in Quebec, you will need to withhold their income tax separately.

The current income tax rates in Quebec are between 14% and 25.75%. 

When to pay: If your company’s average monthly withholding amount (AMWA) in Canada is less than CA$1,000 (and you have a strong compliance record), you can make payments on a quarterly basis. If your AMWA is between CA$1,000 and $24,999, you must make monthly payments.

If your AMWA is:

• Between CA$25,000 and CA$99,999, you must pay monthly, with stricter deadlines.

• CA$100,000 or more, you must remit within three working days following the end of the week in which the deductions were made.

Revenu Quebec also generally follows these deadlines.

Canada Pension Plan (CPP) contributions

For employees aged 18 to 69 who are not receiving CPP benefits, you must also deduct and withhold CPP contributions. The contribution rate and annual maximum are set by the Canada Revenue Agency (CRA) and may change annually.

When to pay: CPP payments should be made at the same time as your income tax payments (see previous section).

Employment Insurance (EI) premiums

EI premiums are deducted from your employees' insurable earnings up to a yearly maximum. The rate and maximum insurable earnings are determined annually by the CRA.

When to pay: CPP payments should also be made at the same time as your income tax payments.

In Quebec, employees do not make CPP or EI contributions. Instead, you must withhold:

• Quebec Pension Plan employee contributions

• Quebec Parental Insurance Plan (QPIP) employee contributions 

You may also be required to withhold additional taxes for certain employees, such as court-ordered garnishments, or education taxes for those who are repaying student loans.

Which payroll taxes does your business need to contribute to?

As well as withholding the taxes and contributions listed above, you are also required to make your own contributions, as follows:

CPP contributions

You must match the CPP contributions deducted from your employees' pay. This means you contribute an amount equal to what is withheld from each employee.

When to pay: At the same time as your income tax payments.

EI premiums

You must contribute 1.4 times the amount deducted from each of your employees’ pay for EI premiums. This multiplier is set by the CRA and may be subject to change.

When to pay: At the same time as your income tax payments.

Note that, in Quebec, you don’t need to contribute to the CPP or EI plans. However, you must make:

• QPP employer contributions

• QPIP employer contributions

• Health Services Fund (HSF) contributions

• Labour standards contributions

To quickly see a full breakdown of payroll taxes and employment costs for your Canadian hire(s) based on their salary, use our free Employee Cost Calculator tool.

How do you remit and pay payroll taxes in Canada?

To remit and pay employer and employee taxes and contributions, you will need to:

1. Calculate the correct amounts for withholding (both federal and state/provincial), and then add your employer contributions. If you use Remote Payroll or Remote EOR, we will do this for you.

2. Ensure that you adhere to the payment deadlines detailed above.

3. Make the payments through the CRA’s online portal, using your My Business account. You can also make the payments in-person or by mail.

For your Quebec-based team members, you will need to:

1. Calculate the correct amounts for withholding and then add your employer contributions. Again, if you use Remote Payroll or EOR, we will do this for you.

2. Ensure that you adhere to the payment deadlines (these are the same as the CRA’s deadlines).

3. Make the payments in person, by mail, or through Revenu Quebec’s online portal.

How do you manage payroll taxes as an international employer?

When you hire a Canadian-based team member from abroad, there are several ways you can manage their payroll and payroll taxes.

If you already have your own legal entity in Canada, you can:

• Handle it in-house. You can hire your own payroll tax specialists and manage everything internally. This can be costly, however.

• Use a local third party. You can hire a local firm to handle payroll, although this can be unreliable, costly, and pose data risks.

• Use a PEO. A professional employment organization (PEO) acts as an outsourced HR provider, and includes payroll.

• Use a global payroll provider. Global payroll providers — like Remote — have local specialists in multiple countries, ensuring that you are fully compliant with all tax requirements in each one. This is especially convenient if you have (or plan to have) employees in different countries, as you can manage all of them through one platform.

If you don’t have your own entity in Canada and you still want to hire there, you can:

• Set up your own entity. This can be extremely costly and time-consuming, but if you plan on establishing your business long-term in Canada, it might be a viable approach. To pay your employees, you would then need to choose one of the options above.

• Use an EOR. Employer of record (EOR) providers — like Remote — enable you to quickly and easily hire anywhere in the world, and also handle all the core HR functions (such as compliance and payroll). As well as being generally more cost-effective than opening your own entity, this option is highly scalable and, again, enables you to streamline all your global HR tasks in one place. How does an EOR work?

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What about independent contractors?

In Canada, independent contractors are classified differently to employees. As a result, they (in most cases) are responsible for calculating, managing, and paying their own taxes.

However, it’s crucial to understand the difference between contractors and employees, as you may inadvertently create misclassification risk. This can result in severe fines and penalties for your business. Learn more about hiring contractors in Canada.

How can Remote help?

Knowing which payroll taxes you need to calculate, withhold, and contribute to requires local expertise, especially as these rules can — and do — change. And if you make a mistake or fail to comply, the financial consequences can be significant.

Whether you have your own entity in Canada or not, Remote ensures that you are withholding and contributing the correct amounts, and that you are fully compliant at all times with Canadian tax and employment laws. We also provide 24/7 support for any guidance you may need.

To see how we can help — and to learn which approach is the most suitable for your business — speak to one of our friendly payroll experts today.

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