Many small business owners probably use some form of accounting assistance, whether it's a bookkeeper or software, but even with support, paying employees can be challenging. Those who plan on doing their own payroll and want to avoid payroll mistakes must thoroughly understand employer payroll taxes.
Preparing for employer payroll taxes when hiring employees
Before new hires start working, they need to fill out the Federal TD1 form which specifies the new hire’s personal tax witholding direction. The TD1 indicates to the employer, the amount of tax credits claimed by the employee for the purpose of calculating income taxes on employment income. Employees also have to complete the Provincial TD1 if more than the basic personal amount is claimed. In Quebec specifically, employees must submit the Federal TD1 and the Provincial TP-1015.3-V source deductions return form. Learn more about TD1 forms from the Government of Canada website.
How employer payroll taxes work
Employers are responsible for deducting the correct amount of taxes from employee wages, calculating their own share of taxes, depositing the payments and filing returns with government agencies on time. The taxes that generally must be paid every pay period include:
- Federal Income Tax
- Provincial Income Tax
- Canada Pension Plan (CPP)
- Employment Insurance (EI ) Premiums
In Quebec:
- Federal Income Tax
- Provincial Income Tax
- Quebec Pension Plan (QPP)
- Employment Insurance (EI ) Premiums
- Quebec Parental Insurance Plan (QPIP)
The Canada Revenue Agency (CRA) website provides an online payroll deduction calculator to help employers calculate federal, provincial, and territorial payroll deductions.
Registering with the CRA
Employers need to register their business with the CRA and create a payroll account. Once registered, employers are able to make deductions for CPP, EI, federal and provincial income taxes from employee pay and also receive refunds on payroll deductions.
Employers may also need to register to pay provincial payroll taxes based on where the business is located. Provincial payroll taxes are paid the employer and are based off the annual eanrings of their employees.
Getting help with employer payroll taxes
With all of the numbers to juggle, calculating employer payroll taxes can quickly become complicated. That’s why many businesses hire a dedicated payroll administrator or work with a payroll service provider, who can automate the process and save time.
Breakdown of payroll taxes by Canadian province and territory
Frequently Asked Questions
Do both employers and employees pay payroll taxes?
Both employers and employees pay payroll taxes. But, employers only contribute to some of these payroll taxes at different rates compared to employees.
How do I know how much income tax to withhold for each employee?
The CRA payroll deduction tables and an employee’s TD1 form determine the amount of income tax to withhold.
What are my income tax responsibilities as a Canadian employer?
Canadian employers must withhold the correct federal and pronvincial or territorial income tax amount at each pay period. This differs when paying contractors as they manage their own income tax.
How are other payroll taxes different than income taxes in Canada?
Income tax requires employers to withhold amounts from employee pay, EI and CPP require employer contributions. For CPP, employers must match the amount deducted from the employee’s pay. For EI, the employee pays 1.4X the amount withheld from the employee’s pay.
Learn More
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This guide is intended to be used as a starting point in analyzing an employer’s payroll obligations and is not a comprehensive resource of requirements. It offers practical information concerning the subject matter and is provided with the understanding that ADP is not rendering legal or tax advice or other professional services.