Every Canadian employer has to withhold the right amount of CPP, EI, and income tax from each paycheque and remit it to the CRA. Get it wrong and you face penalties, interest, and unhappy employees. This guide walks through exactly how to calculate payroll deductions for 2025 — step by step, with a worked example. If you'd rather skip the math, our free Canadian payroll deductions calculator does all of this instantly for every province.
For 2025, every regular employee paycheque in Canada is subject to three statutory deductions:
For 2025 the Year's Maximum Pensionable Earnings (YMPE) is $71,300, with a $3,500 basic exemption. Subtract the per-period exemption from gross pay, then apply 5.95%. A second tier, CPP2, applies 4% to earnings between $71,300 and the $81,200 second ceiling. The employer matches every dollar of CPP and CPP2.
EI has no exemption. For 2025, apply 1.64% to insurable earnings up to the maximum insurable earnings of $65,700 (a maximum employee premium of about $1,077). The employer pays 1.4× the employee premium.
Income tax withholding combines federal and provincial tax. It depends on the pay-period frequency, the employee's TD1 personal tax credits, and any extra requested withholding. Because the brackets are tiered and the basic personal amount (federal $16,129; Alberta $22,323 for 2025) reduces tax, this is the step most prone to manual error — the CRA's payroll formulas run several calculations per cheque.
| Deduction | Calculation | Amount |
|---|---|---|
| CPP | ($5,000 − $291.67 exemption) × 5.95% | ~$280.14 |
| EI | $5,000 × 1.64% | ~$82.00 |
| Income tax (fed + AB) | Per CRA formulas, TD1 basic | ~$760 |
| Total withheld | ~$1,122 | |
| Employer CPP + EI | $280.14 + ($82 × 1.4) | ~$394.94 |
So a $5,000 salary actually costs the corporation about $5,395, and the employee nets roughly $3,878 before any other deductions. Run your own numbers with the payroll calculator.
Withholding is only half the job — you must remit to the CRA on schedule (usually the 15th of the month after you pay). Miss it and penalties start at 3%. See our guide to CRA payroll remittance, and if payroll is becoming a chore, our Calgary payroll services handle the whole cycle.
Subtract the CPP basic exemption from gross pay and apply 5.95% for CPP, apply 1.64% to insurable earnings for EI (2025 rates), then calculate federal and provincial income tax based on the employee's TD1 and pay frequency. The employer matches CPP and pays 1.4 times the employee EI premium. A payroll calculator automates all three.
For 2025, CPP is 5.95% on pensionable earnings up to $71,300 (with a $3,500 exemption), plus CPP2 at 4% on earnings from $71,300 to $81,200. EI is 1.64% for employees on insurable earnings up to $65,700, and employers pay 1.4 times the employee premium.
Yes. The employer matches the employee's CPP dollar-for-dollar and pays 1.4 times the employee's EI premium. These employer portions are in addition to the amounts withheld from the employee's pay and must be remitted together to the CRA.
Most new and small employers are regular remitters, due by the 15th of the month following the month you paid wages. Larger employers remit more frequently. Late remittances trigger penalties starting at 3%.
Have questions about payroll? Swift Accounting Ltd. helps Calgary business owners get it right. Contact us for a free consultation.
