Payroll deductions are amounts withheld from your gross pay before you receive your take-home (net) pay. In Canada, every employee has four mandatory deductions — Canada Pension Plan contributions, Employment Insurance premiums, federal income tax, and provincial or territorial income tax.
Employers calculate these using CRA payroll deduction tables, withhold the amounts from each paycheque, and remit them to the government on the employee's behalf. Additional deductions (pension plans, union dues, benefits premiums) vary by workplace. In this article, we'll be exploring:
- Quebec's separate payroll system
- What happens when deductions go wrong
- How to read your pay stub from gross to net
- Payroll deduction tables and CRA's online calculator
- Six common deductions you might see on a pay stub
- The four mandatory payroll deductions and how each works
TLDR: payroll deductions at a glance
Here is the quick summary.
| Deduction | Required? | Employee pays? | Employer also pays? |
|---|---|---|---|
| CPP/QPP | Yes (pensionable earnings) | Yes | Yes (matching) |
| EI | Yes (insurable earnings) | Yes | Yes (1.4x employee rate) |
| Federal income tax | Yes | Yes | No |
| Provincial/territorial income tax | Yes | Yes | No |
| Group pension, benefits, and union dues | Depends on the workplace | Yes (if enrolled) | Varies |
What are the four mandatory deductions?
Every Canadian employee with pensionable or insurable earnings has these withheld at source.
CPP or QPP
Canada Pension Plan contributions fund your future retirement pension. Both employee and employer contribute equally (the employer matches your deduction dollar for dollar).
Quebec uses the Quebec Pension Plan (QPP) instead. CPP2 — an additional contribution layer for higher earners introduced in 2024 — increases deductions on earnings above the first ceiling, but does not apply to most middle-income workers.
Employment Insurance
EI premiums fund temporary income support programs (job loss, parental leave, illness, caregiving).
The employer pays 1.4 times the employee's premium — a cost that never appears on your pay stub but adds significantly to the employer's total labor expense.
Quebec employees pay a reduced EI rate because QPIP (Quebec Parental Insurance Plan) covers parental benefits separately.
Federal income tax
Withheld based on your estimated annual taxable income, pay frequency, and the personal tax credits you claimed on your TD1 form. The withholding is an estimate — your actual tax is settled when you file your annual return.
Provincial or territorial income tax
Calculated based on your province of employment (not necessarily your province of residence). Each province and territory has its own bracket structure and rates, applied in addition to federal tax.
What are six common payroll deductions?
Beyond the four mandatory deductions, two additional categories commonly appear on Canadian pay stubs.
- EI premiums
- Federal income tax
- CPP or QPP contributions
- Provincial or territorial income tax
- Benefits, insurance premiums, or union dues
- Pension or group retirement plan contributions (RPP, group RRSP)
Not every employee has all six. Optional or employment-specific deductions depend on the workplace benefit plan, union agreement, or employee election. Some employees also see deductions for charitable donations, parking, or garnishments — but these are less common.
How do you read your pay stub?
Your pay stub breaks the math into a simple sequence from earnings to take-home pay.
| Line item | What it means |
|---|---|
| Gross pay | Total earnings before any deductions |
| CPP/QPP | Pension contribution |
| EI | Employment Insurance premium |
| Federal tax | Federal income tax withheld |
| Provincial tax | Provincial/territorial income tax withheld |
| Benefits/pension | Workplace plan deductions (if applicable) |
| Net pay | Amount deposited into your bank account |
| Year-to-date (YTD) | Cumulative totals for the calendar year |
The T4 slip your employer issues at year-end summarizes the same information across all pay periods — and is what you use to file your tax return.
A worked example helps clarify the flow. On a $4,000 biweekly gross pay in Ontario, approximate deductions might look like $230 CPP, $63 EI, $370 federal tax, $220 provincial tax, and $80 in workplace benefits — leaving roughly $3,037 in net pay (actual amounts depend on TD1 claims, benefits, and current rates).
What are payroll deduction tables?
CRA publishes T4032 Payroll Deduction Tables for every province and territory. Employers (or payroll software) use these tables to look up the correct income tax, CPP, and EI deduction for a given pay amount and pay frequency.
| Tool | Best for | What it calculates |
|---|---|---|
| T4032 tables | Manual payroll, verification | CPP, EI, federal + provincial tax |
| CRA PDOC (online calculator) | Quick one-off calculations | Full payroll deduction for a specific scenario |
| Payroll software | Ongoing payroll processing | Everything, including remittances, records, slips |
The tables are updated annually. Using last year's tables produces incorrect withholding — a common mistake for small businesses managing payroll manually.
How does Quebec payroll differ?
Quebec operates a partially separate payroll system that creates a meaningfully different experience for both employees and employers.
- QPP replaces CPP (similar structure, different rates)
- Provincial income tax is remitted to Revenu Quebec (not CRA)
- EI is withheld at a reduced rate because QPIP covers parental benefits
- Employees complete the TP-1015.3-V form (Quebec's equivalent of the federal TD1)
- QPIP (Quebec Parental Insurance Plan) is a separate premium deducted from both employee and employer
An employee working at a Quebec facility — even if they live in Ontario — uses Quebec payroll deduction tables. The province of employment determines which rules apply, which is a frequent source of errors for businesses with cross-province remote workers.
What must employers do with payroll deductions?
Employers carry significant compliance responsibilities beyond simply calculating deductions.
- Collect each employee's SIN before the first pay
- Issue T4 slips (and RL-1 slips in Quebec) after year-end
- Have employees complete federal TD1 and provincial TD1 forms
- Calculate CPP, EI, and income tax deductions for each pay period
- Determine the province or territory of employment for each employee
- Hold withheld amounts separately from operating funds (they are trust funds)
- Open a CRA payroll program account (and register with Revenu Quebec if applicable)
- Remit deductions to CRA on the required schedule (monthly, quarterly, or accelerated)
What happens when deductions go wrong?
For employees, incorrect deductions mean either an unexpected tax bill or a larger-than-expected refund at filing time. For employers, the consequences are more severe.
- Incorrect T4s create filing complications for employees
- Repeated or grossly negligent failures can trigger 20% penalties
- CRA can impose a 10% penalty for amounts that should have been withheld but were not
- Withheld amounts held in trust carry personal liability for company directors if not remitted
Self-employed workers do not have payroll deductions at source — they pay CPP (both employee and employer portions) and income tax through quarterly installments. Missing those installments triggers interest charges.
Frequently asked questions
Here are some commonly asked questions on this topic:
Are payroll deductions the same in every province?
No. Federal CPP and EI rules apply nationally, but provincial and territorial income tax rates and brackets differ significantly. Quebec has an entirely separate system — QPP instead of CPP, QPIP for parental benefits, and provincial income tax remitted to Revenu Quebec rather than CRA. An employee working in Alberta faces different provincial tax withholding than one in Ontario, even at the same salary. The province of employment (not residence) determines which provincial deduction tables apply. Remote employees working from a different province than their employer's location add another layer of complexity that many small businesses handle incorrectly.
Does my employer pay payroll deductions too?
Yes. Employers match your CPP or QPP contribution dollar for dollar and pay 1.4 times your EI premium. The employer also pays its own contributions to QPIP (in Quebec) and workers' compensation premiums. None of these employer-side costs appear on your pay stub — they are additional labour costs paid directly by the business. For every dollar deducted from your paycheque for CPP and EI, the employer pays an additional $1.00 (CPP) and $0.40 (EI) on top. Many employees are surprised to learn that the true cost of their employment is substantially higher than their gross salary.
Why does my bonus seem taxed at a higher rate?
Payroll systems withhold tax on bonuses by annualizing the payment and applying the marginal tax rate for that projected income level — which is often higher than your regular pay period withholding. The actual tax is calculated on your total annual income when you file your return. If the annualized projection over-estimated your income (because the bonus was a one-time event, not recurring), you receive a refund for the over-withholding. The bonus is not taxed at a special "bonus rate" — it just looks that way on the pay stub because of how the withholding formula works.
What is the difference between gross pay and net pay?
Gross pay is your total earnings before any deductions — salary, hourly wages, overtime, commissions, bonuses, and taxable benefits combined. Net pay is the amount deposited to your bank account after all mandatory deductions (CPP/QPP, EI, federal tax, provincial tax) and any voluntary deductions (pension contributions, benefits premiums, union dues) are removed. The gap between gross and net is entirely explained by payroll deductions. For most Canadian employees, net pay is roughly 65-75% of gross pay, depending on income level, province of employment, and benefit enrollment. Year-to-date totals on your pay stub let you track cumulative deductions throughout the year.
Can an employee stop payroll deductions?
Not for mandatory deductions. CPP/QPP, EI, and income tax withholding are required by law — neither the employee nor the employer can opt out (except in narrow circumstances, such as CPP-exempt employment or employees who have reached annual maximums). Voluntary deductions (certain benefit premiums, additional pension contributions, charitable payroll giving) can typically be changed or stopped by notifying the employer or HR department, subject to workplace policy and any contractual obligations. If you believe too much income tax is being withheld, you can request a letter of authority from CRA (Form T1213) that allows your employer to reduce withholding based on expected deductions.
