Payroll in Canada 2026: CPP, EI, income tax and T4 slips

In Canada the employer deducts federal and provincial income tax, the employee's Canada Pension Plan (CPP) contributions and Employment Insurance (EI) premiums and remits them to the Canada Revenue Agency (CRA). On top of salary the employer pays the same CPP amount and 1.4 times the employee's EI premium. Québec has its own pension and parental insurance plans.

Canadian payroll at a glance

CPP, EI and the Québec plans

CPP: the $3,500 basic exemption is spread over the year, for example $291.66 a month or $134.61 for a biweekly pay. Contributions stop once the employee reaches the annual maximum. The employer pays the same amount as the employee.

CPP2: on earnings above the year's maximum pensionable earnings of $74,600 and up to $85,000, both sides pay a further 4%. It does not apply to employees earning $74,600 or less a year.

EI: premiums are 1.63% of insurable earnings up to the annual maximum, and the employer pays 1.4 times the employee's premium.

Québec: employees in Québec contribute to the Québec Pension Plan (QPP) instead of the CPP, pay a reduced EI rate because the Québec Parental Insurance Plan (QPIP) covers parental benefits, and pay QPIP premiums. The QPP rate of 6.30% includes a 5.30% base rate, and QPP2 uses the same 4% second additional rate as CPP2.

Changes announced for 2027: the CRA has published the 2027 EI figures, 1.64% up to $70,800 of insurable earnings (1.29% in Québec). Check the CRA's CPP page for the 2027 CPP figures before the first payroll of the year.

Income tax on salaries

Each new employee fills in a federal Form TD1 and, where applicable, a provincial or territorial TD1 with their personal tax credits. The employer then calculates federal and provincial tax for each pay with the CRA's payroll deductions formulas (guide T4127) or tables, and remits it with CPP and EI.

Federal rates for 2026:

Credits: the federal basic personal amount is $16,452 for net income up to $181,440, falling gradually to $14,829 at $258,482 and above. The Canada employment amount is $1,501. These credits, and the base CPP contributions and EI premiums, reduce tax at the lowest rate of 14%. The enhanced part of CPP (1% of the 5.95%) and CPP2 contributions are deducted from taxable income instead.

Provincial and territorial tax comes on top of federal tax, with each province's own brackets and credits. The lowest 2026 rates are, for example, 5.05% in Ontario, 5.6% in British Columbia, 8% in Alberta and 10.8% in Manitoba. In Québec, provincial income tax is set and collected by Revenu Québec.

Minimum wage, working time and mandatory pay

Minimum wage: each province and territory sets its own minimum wage. Employers in federally regulated private sectors pay the federal minimum wage of $18.15 an hour since 1 April 2026, or the provincial or territorial minimum where it is higher. The federal rate is adjusted every 1 April to the previous year's average consumer price index.

Overtime (federal standard): standard hours are 8 a day and 40 a week; overtime is paid at at least 1.5 times the regular hourly wage, or taken as paid time off at 1.5 hours for each hour worked. Provinces set their own overtime rules for other employers.

Vacation pay: Canada has no 13th salary. Under federal labour standards, employees get 2 weeks of vacation with 4% of earnings as vacation pay after one year, 3 weeks and 6% after five consecutive years, and 4 weeks and 8% after ten years, plus 10 paid general holidays. Provinces and territories set their own vacation and holiday rules.

Remittances, filings and records

Before the first pay: register for a payroll program account with the CRA (part of your business number) before your first remittance is due, ask each employee for their social insurance number (SIN) within three days of starting, and have them complete the TD1 forms.

Remittance deadlines:

Late remittances carry penalties of 3% (one to three days late), 5% (four or five days), 7% (six or seven days) and 10% (more than seven days, or nothing remitted).

T4 slips: give each employee a T4 slip and file the T4 return by the last day of February of the following year. When the date falls on a weekend the return is on time the next business day, so the 2026 T4s are due by 1 March 2027. Employees must consent to receive slips by email; a secure employer portal needs no consent, but you must offer paper copies.

Records: keep payroll records for at least six years after the year they relate to.

Worked example: $4,500 a month in 2026

An employee outside Québec, paid monthly, with only the basic federal TD1 claim, earns $4,500.00 a month ($54,000 a year). Federal tax follows the CRA's T4127 formula: annual taxable income is $54,000 less the enhanced CPP part of $504.96, so $53,495.04, taxed at 14% = $7,489.31. The 14% credits are $2,303.28 for the basic personal amount, $210.14 for the Canada employment amount and $473.20 for the base CPP and EI, leaving $4,502.69 a year, or $375.22 a month.

Provincial income tax is deducted on top according to the employee's province, and provincial employer charges such as workers' compensation are not included.

Common mistakes

1. 1Applying CPP to the full salary. The basic exemption of $3,500 a year applies, and contributions stop at the annual maximum.
2. 2Forgetting CPP2 for employees earning more than $74,600 a year, on both the employee and the employer side.
3. 3Paying only the employee's EI rate. The employer's premium is 1.4 times the employee's.
4. 4Using CPP and the federal EI rate for a Québec employee, instead of QPP, the Québec EI rate and QPIP.
5. 5Remitting on the 15th when you are an accelerated remitter, which triggers penalties from 3% to 10%.
6. 6Applying the wrong minimum wage. Federally regulated private-sector employers pay at least $18.15 an hour, or the provincial rate if higher; other employers follow their province or territory.

For a smooth month-end, see our month-end close checklist.

How Clientlly helps

Clientlly ships a built-in payroll profile for Canada: the 2026 federal income-tax bands and credits modelled as an allowance, CPP, CPP2 and EI rates with their ceilings and the basic exemption, and the federal minimum wage, checked against official sources on 1 October 2026. It calculates gross to net and the employer contributions, produces payslips, supports recurring payroll adjustments, and imports employees and payroll data; an administrator can adjust the rates in the payroll tax settings. The profile models one employee in a primary job, single, without dependants, at federal level, so provincial tax, the Québec plans, TD1 claims and personal circumstances must be checked.

The Clientlly HR module also handles leave requests and approvals with a leave calendar and keeps HR documents in one place, and attendance and time tracking records hours and overtime for you to review before payroll.