How to Do Payroll in Canada: A Step-by-Step Guide

Running payroll in Canada requires an understanding of complex federal and provincial tax rules, remittance schedules, and reporting obligations. Whether you’re setting up your first Canada payroll run or refining an existing process, getting it right means staying compliant with the Canada Revenue Agency (CRA) while ensuring employees are paid accurately and on time.

That’s why we created this Guide to Running Payroll in Canada: a step-by-step walkthrough to help HR and payroll practitioners navigate every stage with confidence.

Understanding Canadian payroll

Canadian payroll involves calculating employee wages, deducting the correct taxes, and submitting those payments to the CRA. Employers must account for federal and provincial tax brackets, Canada Pension Plan (CPP) contributions, and Employment Insurance (EI) premiums, all of which vary by region and income level.

At a high level, employers in Canada must:

• Register for a CRA payroll account
• Calculate and remit income tax, CPP, and EI
• Issue employee pay stubs that detail gross pay, deductions, and net pay
• File and distribute T4 slips annually

Each province sets its own employment standards—like minimum wage, overtime, and statutory holidays—so payroll isn’t one-size-fits-all. That’s where having a strong foundation in Canadian payroll regulations is key.

How to do payroll in Canada

Setting up payroll in Canada involves both registration and process accuracy. Here’s an overview:

1. Register for a payroll program account

You’ll need a Business Number (BN) and a CRA payroll account to remit source deductions. The CRA uses this to track your employer remittances and compliance.

2. Collect employee information

Before running payroll, collect:

• Personal details (name, address, SIN)
• Employment details (hire date, pay frequency, position)
• Completed TD1 forms (federal and provincial Personal Tax Credits Returns)
• Direct deposit and benefits enrollment information

3. Calculate gross income

Gross income includes salary, bonuses, commissions, and taxable benefits. For hourly employees, multiply the hours worked by their hourly rate.

4. Calculate payroll deductions

Payroll deductions in Canada include:

• Federal and provincial income tax
• CPP contributions (or QPP in Quebec)
• EI premiums (or Quebec Parental Insurance (QPIP) in Quebec)

Use a Canadian payroll calculator or CRA deduction tables to determine the correct amounts. These deductions depend on income, province, and employee benefits, so accuracy is critical.

5. Issue pay stubs and payments

Every employee must receive a payroll stub that clearly shows gross pay, deductions, and net pay. Common pay schedules in Canada include:

• Bi-weekly (most common)
• Semi-monthly
• Weekly or monthly

Canadian employers typically pay through direct deposit or payroll software that automates the process.

6. Remit deductions and file reports

Send all deductions (CPP, EI, income tax) to the CRA by your assigned remittance due date. Late payments can trigger interest or penalties.

Common Canadian payroll terms

• CRA: Canada Revenue Agency—the federal body responsible for tax collection and payroll compliance
• CPP / QPP: Canada (or Quebec) Pension Plan. Both employer and employee contribute based on earnings
• EI: Employment Insurance, shared by employee and employer
• TD1: Employee’s Personal Tax Credits Return, used to determine income tax deductions.
• Gross income: Total pay before deductions
• Net pay: What the employee takes home after deductions
• Payroll deductions: Taxes, CPP, EI, and benefits withheld from gross pay

How much does an employer pay for employee taxes in Canada?

On top of employee deductions, employers must contribute:

• CPP match: Employers contribute an amount equal to the employee’s CPP deduction
• EI contribution: 1.4x the employee’s EI deduction
• Provincial employer health tax (where applicable)

How much are payroll taxes in Canada?

It depends on the province and employee income level, but employers generally pay an additional 7–10% of gross payroll in statutory contributions.

If you’re wondering how much tax is deducted from a paycheck in Canada, the combined deductions (income tax + CPP + EI) can range between 20% and 30% depending on salary and location.

For example, a $100,000 salary after tax in Canada typically results in about $70,000–$74,000 in net pay, depending on the province.

How long do you keep payroll records in Canada?

Employers must retain payroll records for at least six years after the last tax year they relate to. Records must include pay details, tax deductions, benefits, and remittance history.

You’ll also need to maintain:

• T4 slips and T4 summaries
• TD1 forms
• Records of Employment (ROE)
• Timesheets and pay stubs

Accurate recordkeeping ensures compliance with CRA audits and supports transparent payroll management.

US payroll vs. Canadian payroll: Key differences

If you’re familiar with US payroll, you’ll notice several differences in Canadian payroll:

• Canada’s tax system includes both federal and provincial taxes, while the US has federal and state systems
• Canada’s CPP and EI are universal programs; the US has Social Security and Medicare
• Canada uses T4 slips instead of W-2 forms

These nuances make Canadian payroll unique, and why even experienced payroll pros benefit from a detailed guide to ensure compliance across provinces.

Learn more: In-Depth Guide for a US Company Hiring Employees in Canada

Canadian payroll tools and providers

Running payroll manually is time-consuming and error-prone. Most employers rely on Canadian payroll providers or software to automate calculations, remittances, and payslips.

The best Canadian payroll software simplifies compliance by syncing with CRA deduction rates and producing accurate records.

Tools like Deel Payroll integrate directly with HR and accounting systems, helping you manage Canadian and international employees in one platform.