Employer Payroll Obligations in Canada: What You Must Do
Running payroll in Canada is one of the most heavily regulated business activities — and the consequences of getting it wrong can be severe. Unlike corporate income tax (where errors are discovered at year-end), payroll failures are detected monthly and can result in personal director liability for the corporation’s unpaid source deductions. This guide covers every employer payroll obligation you need to know in Canada for 2025.
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The Three Payroll Deductions: CPP, EI, and Income Tax
Every employer in Canada must calculate and deduct three amounts from each employee’s pay:
| Deduction | 2025 Employee Rate | 2025 Employer Rate | 2025 Maximum (Employee) |
|---|---|---|---|
| Canada Pension Plan (CPP) | 5.95% on pensionable earnings | 5.95% (matched) | $3,867.50 on earnings up to $68,500 |
| CPP2 (second additional CPP) | 4% on earnings $68,500–$73,200 | 4% (matched) | $188 (on up to $4,700 additional earnings) |
| Employment Insurance (EI) | 1.64% on insurable earnings | 2.296% (1.4× employee rate) | $1,077.48 on earnings up to $65,700 |
| Federal income tax | Based on TD1 federal claim and payroll tables | None | No maximum |
| Ontario income tax | Based on TD1ON provincial claim and payroll tables | None | No maximum |
CPP basic exemption: The first $3,500 of annual employment earnings is exempt from CPP. For employees earning less than $3,500 annually, no CPP is deducted.
Payroll Remittance: When and How to Pay the CRA
Employers must remit the deducted amounts PLUS the employer’s share of CPP (matched) and EI (1.4× employee) to the CRA. The remittance frequency depends on the employer’s average monthly payroll deduction amount in the previous calendar year:
| Remitter Type | Average Monthly Remittances (Prior Year) | Due Date |
|---|---|---|
| Regular | Less than $25,000/month | 15th of the following month |
| Quarterly (small employer) | Less than $3,000/month AND consistently compliant | 15th of the month following each quarter |
| Accelerated Tier 1 | $25,000–$99,999/month | 1st–15th paid by 25th; 16th–end of month paid by 10th of next month |
| Accelerated Tier 2 | $100,000+/month | Within 3 business days of each pay date |
New employer default: Most new employers are classified as regular remitters (due the 15th of the following month) until they have 12 months of history. The CRA assigns your remitter type and notifies you — but you are responsible for knowing your obligations.
Penalty for Late or Missing Payroll Remittances
The CRA does not forgive payroll remittance failures. Penalties are steep and escalate quickly:
| Days Late | Penalty |
|---|---|
| 1–3 days late | 3% of amount due |
| 4–5 days late | 5% of amount due |
| 6–7 days late | 7% of amount due |
| More than 7 days late, or no payment | 10% of amount due |
| Second or subsequent failure in the same year | 20% of amount due (gross negligence) |
Director liability: If a corporation fails to remit payroll source deductions, directors can be assessed PERSONALLY for the full amount owed (including CPP, EI, and income tax deducted from employees). Directors have a defence only if they acted with reasonable due diligence to prevent the failure — but this defence is difficult to establish. This is one of the most serious personal tax risks for Canadian business owners.
T4 Slip Preparation and Filing
By February 28, 2025, every employer must:
- Prepare a T4 slip (Statement of Remuneration Paid) for each employee paid in the calendar year
- Give each employee their T4 slip by February 28
- File the T4 Summary and all individual T4 slips electronically with the CRA by February 28
Key T4 Box Codes for Employer-Managers
| Box | What Goes Here |
|---|---|
| Box 14 | Employment income (total gross pay before deductions) |
| Box 16 | Employee CPP contributions deducted |
| Box 17 | Employee CPP2 contributions deducted |
| Box 18 | Employee EI premiums deducted |
| Box 22 | Income tax deducted (federal + provincial combined) |
| Box 26 | CPP/QPP pensionable earnings (usually same as Box 14 after adjustment) |
| Box 40 | Other taxable allowances and benefits (car allowance, housing, gifts over $500) |
| Box 44 | Union dues (if applicable) |
| Box 85 | Employee-paid premiums for Private Health Services Plan |
Taxable Benefits: What Goes on the T4
Many benefits provided to employees (and shareholder-employees) are taxable and must appear on the T4:
- Personal use of company vehicle: Standby charge + operating cost benefit (calculated using CRA formulas)
- Group term life insurance (employer-paid over $25,000 coverage): Premium amount is a taxable benefit
- Housing and lodging allowances: Fully taxable unless employee is at a special work site
- Gifts and awards over $500/year: Excess above $500 is taxable (up to $500/year in non-cash gifts is non-taxable)
- Interest-free or low-interest loans from employer: Deemed interest benefit based on prescribed rate
Frequently Asked Questions: Canadian Payroll
Do I have to remit CPP and EI for myself as a business owner?
It depends on how you pay yourself. If you pay yourself a salary (T4), you must remit both the employee AND employer share of CPP (5.95% each = 11.90% combined) and EI (employee 1.64% + employer 2.296% = 3.936% combined). If you pay yourself only dividends (T5), there are NO CPP or EI contributions — saving you the employer’s share but also meaning you accumulate no CPP retirement benefits and no EI coverage. Many business owners choose a hybrid approach — salary up to the CPP maximum for CPP benefits and RRSP room, then dividends for the remainder.
What happens if I make a payroll deduction mistake?
If you discover you have under-deducted CPP, EI, or income tax from an employee, you must correct it as quickly as possible — remit the shortfall and make catch-up deductions from the employee’s remaining pay in the year (you must inform the employee about the correction). If it is discovered after year-end, the employer may be responsible for the employer’s share of under-deducted amounts. If you have over-deducted, issue a refund to the employee in the following pay period and adjust your remittance accordingly. For any payroll error, document the correction clearly in your payroll records. A CPA can help resolve payroll discrepancies and communicate corrections to the CRA proactively.
When must I start remitting payroll for a new employee?
Payroll obligations begin with the very first pay period in which you pay an employee. You must register for a CRA payroll account (RP account linked to your Business Number) BEFORE your first payroll run. New employers register through CRA My Business Account or by calling the CRA business enquiries line. Once registered, you receive your RP account number and begin deducting and remitting from your first payroll as a regular remitter (15th of following month) unless the CRA designates a different frequency.
Can I use payroll software instead of a CPA for payroll?
Yes — payroll software (ADP, Payworks, Ceridian, Quickbooks Payroll, Humi, and others) can handle the mechanical calculations of CPP, EI, and income tax deductions and generate T4 slips. However, software does not replace the judgment a CPA provides for: optimal salary vs. dividend mix for owner-managers, taxable benefit calculation and T4 reporting, handling terminations and ROE (Record of Employment) properly, and navigating complex situations (stock options, severance, non-resident employees, multi-province payroll). For a simple one or two-employee payroll with no complexity, software may suffice. For incorporated businesses where the owner’s compensation is a key tax planning variable, a CPA’s involvement pays for itself.
