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CPP, EI & Payroll Deductions: Complete Guide for Canadian Employers in 2026

Hiring your first employee is an exciting milestone — but it also means you’re now responsible for calculating, withholding, and remitting payroll deductions correctly. Get it wrong, and CRA penalties can be severe: missed remittances are penalized at up to 20% of the amount owing, plus interest.

At Booboo Accounting Services, we manage payroll for small businesses across Richmond Hill, Markham, Vaughan, and the GTA. This guide breaks down exactly what you need to withhold, remit, and report as a Canadian employer in 2026.

💡 Quick Answer: As an employer, you must withhold CPP, EI, and income tax from every employee paycheque, match the CPP and EI contributions yourself, and remit everything to CRA by your assigned deadline — usually the 15th of the following month for most small businesses.

📊 2026 Payroll Deduction Rates at a Glance

Deduction Employee Rate Employer Match Max Annual (Employee)
CPP (base + enhanced) 5.95% 5.95% (matched) ~$4,034
CPP2 (on higher earnings) 4% 4% (matched) ~$396
EI 1.64% 1.4× employee amount ~$1,077
Federal Income Tax Varies by income No match N/A
Ontario Provincial Tax Varies by income No match N/A

Source: CRA – CPP Contribution Rates

⚠️ Important: As the employer, you pay roughly the SAME amount in CPP as your employee, plus 1.4 times their EI contribution. A $60,000 salary costs you significantly more than $60,000 once you factor in employer-side payroll costs.

🔑 Step 1: Register Your Payroll Account

Before you can pay an employee, you need a Payroll Program Account (RP) attached to your Business Number.

How to Register:

  • Online: Through CRA My Business Account
  • By phone: Call CRA Business Enquiries at 1-800-959-5525
  • Already have a Business Number? You just need to add the RP program account

You’ll need this account number for every remittance, T4 filing, and Record of Employment (ROE) you issue.

💡 Timing Tip: Register your payroll account before your first employee’s start date. CRA recommends registering as soon as you know you’ll be hiring, since processing can take a few business days.

💰 Step 2: Calculate the Right Deductions

Canada Pension Plan (CPP)

  • Applies to employees aged 18–69 (with some exceptions for those already collecting CPP)
  • Basic exemption: First $3,500 of annual earnings is CPP-exempt
  • Base CPP rate: 5.95% on earnings between the exemption and the Year’s Maximum Pensionable Earnings (YMPE)
  • CPP2 (enhanced): An additional 4% applies on earnings between the YMPE and the Year’s Additional Maximum Pensionable Earnings (YAMPE) — introduced in 2024 for higher earners
  • Employer matches both the base CPP and CPP2 amounts dollar-for-dollar

Employment Insurance (EI)

  • Employee rate: 1.64% of insurable earnings
  • Employer rate: 1.4 times the employee rate (so roughly 2.296%)
  • Applies up to the Maximum Insurable Earnings (MIE) ceiling
  • No basic exemption — EI applies from the first dollar earned

Income Tax (Federal + Provincial)

  • Based on the employee’s TD1 forms (federal and Ontario) which they complete when hired
  • TD1 forms determine personal tax credit amounts that reduce withholding
  • Use CRA’s Payroll Deductions Online Calculator (PDOC) to calculate exact amounts per pay period

Example: Biweekly Pay of $2,000 (Employee)

Employee Deductions:

CPP: ~$108
EI: ~$33
Federal + Ontario tax: ~$280
Net pay: ~$1,579

Employer Also Pays:

CPP match: ~$108
EI match (1.4×): ~$46
Total employer cost this pay period: ~$2,154

Total remitted to CRA: $575 (employee + employer CPP/EI + employee tax)

📅 Step 3: Remit Deductions on Time

CRA assigns your remitter type based on your average monthly withholding amount (AMWA) from two years prior.

Remitter Type Average Monthly Withholding Due Date
New Small Employer N/A (first year) 15th of following month
Regular Remitter Under $25,000 15th of following month
Quarterly Remitter Under $3,000, good compliance history 15th after quarter end
Accelerated (Threshold 1) $25,000 – $99,999.99 Twice monthly
Accelerated (Threshold 2) $100,000+ Within 3 days of pay date

Source: CRA – Remittance Due Dates

⚠️ Severe Penalties for Late Remittance: CRA charges 3% for 1–3 days late, 5% for 4–5 days, 7% for 6–7 days, and 10% for more than 7 days late (up to 20% for repeat failures). Unlike income tax, there’s no grace period — these are trust funds you’re holding on CRA’s behalf.

📄 Step 4: Year-End Reporting — T4 Slips

By the last day of February each year, employers must:

  • Issue T4 slips to all employees showing total income and deductions for the year
  • File a T4 Summary with CRA reconciling all T4s issued
  • Provide copies to employees (electronically or by mail)

💡 Reconciliation Matters: CRA compares your T4 Summary totals against the remittances you made throughout the year. Discrepancies trigger automatic review letters. Accurate monthly payroll records prevent year-end surprises.

📋 Records of Employment (ROE)

You must issue a Record of Employment within 5 calendar days whenever an employee:

  • Quits, is terminated, or laid off
  • Goes on leave (parental, sick, etc.)
  • Has an interruption of earnings of 7 or more consecutive days

ROEs are submitted electronically through ROE Web and are required for the employee to claim EI benefits. Late or missing ROEs can delay an employee’s EI claim and create liability for the employer.

🧾 Other Deductions and Considerations

Vacation Pay

Ontario requires a minimum of 4% vacation pay (2 weeks) for employees with under 5 years of service, rising to 6% (3 weeks) after 5 years. This can be paid out each pay period or accrued and paid before vacation is taken.

Statutory Holiday Pay

Employees are generally entitled to public holiday pay calculated based on average daily wages — even part-time and casual employees, with some eligibility conditions.

Employer Health Tax (EHT)

Ontario employers with total annual payroll over $1,000,000 must pay EHT (rates from 0.98% to 1.95%). Most small businesses fall under the exemption threshold, but it’s worth tracking as you grow.

WSIB (Workplace Safety and Insurance Board)

Most Ontario employers are required to register with WSIB and pay premiums based on payroll and industry risk classification — separate from CRA payroll remittances.

✅ Don’t Forget WSIB: Many new employers register for CRA payroll but overlook WSIB registration, which is a separate provincial requirement. Operating without required WSIB coverage can result in penalties and leaves you personally exposed for workplace injury claims.

🚫 Common Payroll Mistakes Small Employers Make

  1. Misclassifying employees as contractors — CRA scrutinizes this heavily; misclassification triggers retroactive CPP/EI assessments plus penalties
  2. Missing remittance deadlines — Even one day late triggers automatic penalties
  3. Forgetting the CPP basic exemption — The first $3,500 annually is CPP-exempt; over-withholding shortchanges your employee’s net pay
  4. Not collecting TD1 forms — Without them, you must withhold at the basic personal amount only, often over-withholding tax
  5. Ignoring CPP2 — A relatively new rule that’s easy to miss if using outdated payroll templates
  6. Late or missing ROEs — Delays your former employee’s EI claim and creates compliance risk
  7. Skipping WSIB registration — Separate from CRA but equally mandatory in most industries
  8. Manual calculation errors — Payroll software or professional payroll services dramatically reduce error rates

💼 How Booboo Accounting Handles Your Payroll

At Booboo Accounting Services, we manage full-cycle payroll for small businesses across Richmond Hill, Markham, Vaughan, and the GTA — so you never have to worry about remittance deadlines or calculation errors again.

✅ Our Payroll Services Include:

  • ✅ Payroll Account Setup — CRA registration done right, from day one
  • ✅ Accurate Deduction Calculations — CPP, CPP2, EI, federal & provincial tax
  • ✅ On-Time Remittances — Never miss a CRA deadline again
  • ✅ T4 Preparation & Filing — Slips and summary filed accurately each February
  • ✅ ROE Processing — Filed within the 5-day requirement
  • ✅ Vacation & Statutory Pay Tracking — Compliant with Ontario employment standards
  • ✅ WSIB Coordination — Registration guidance and premium tracking
  • ✅ Contractor vs Employee Classification — Protect yourself from CRA reassessment risk

💰 Client Example: A Vaughan retail business was manually calculating payroll for 6 employees and had been under-remitting CPP2 for months without realizing it. We corrected the account, filed amended remittances before CRA flagged it, and set up automated payroll — avoiding what would have been a multi-thousand-dollar penalty assessment.

🎯 Key Takeaways

  1. Register your payroll account before your first hire — RP account attached to your BN
  2. Withhold CPP, CPP2, EI, and income tax — every pay period, no exceptions
  3. You match CPP dollar-for-dollar and pay 1.4× EI — budget for the real cost of an employee
  4. Remit on time based on your assigned frequency — penalties start immediately when late
  5. File T4s by the last day of February — both slips and summary
  6. Issue ROEs within 5 days — whenever earnings are interrupted
  7. Don’t forget vacation pay, stat holidays, and WSIB — separate obligations from CRA remittances
  8. Worker classification matters — misclassifying employees as contractors is a major audit risk
  9. Professional payroll management pays for itself — penalties and missed credits cost far more than the service fee

📞 Hiring Your First Employee? Let Us Handle Payroll.

Don’t risk CRA penalties on DIY payroll. Let our Richmond Hill team set up and manage your payroll correctly from day one.

📞 Book Your Free Payroll Consultation

Call: (905) 508-4711

10909 Yonge ST Unit 211, Richmond Hill, Ontario

📧 [email protected] | 🌐 boobooaccounting.ca

📌 Proudly Serving Small Business Employers in Richmond Hill, Markham, Vaughan, Newmarket, Aurora, and the Greater Toronto Area

📚 Related Resources from BooBoo Accounting

📚 External Resources

Disclaimer: This guide provides general information about payroll deductions for Canadian employers. Rates, thresholds, and requirements are subject to change and individual circumstances vary. Always consult with Booboo Accounting Services or a qualified payroll/tax professional before making decisions. Information current as of June 2026.

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