Running payroll in Canada involves more than simply paying your employees. Every paycheque triggers a set of mandatory withholdings that must be calculated accurately, remitted on time, and reported correctly to the Canada Revenue Agency. Whether you have one employee or one hundred, understanding payroll deductions in Canada for 2025 keeps your business compliant and your employees properly covered.
Canadian employment law requires three deductions from every employee's paycheque, without exception:
These are not optional. Even if an employee asks you to skip a deduction, you are legally required to withhold these amounts and remit them to CRA. Employers are also responsible for their own matching contributions on top of what is withheld from employees.
The Canada Pension Plan is funded jointly by employees and employers. For 2025, the employee contribution rate is 5.95% applied to pensionable earnings between the basic exemption of $3,500 and the Year's Maximum Pensionable Earnings (YMPE) of $71,300.
That means the maximum contributory earnings are $67,800 ($71,300 minus $3,500), and the maximum employee CPP contribution for 2025 is $4,034.10.
Employers must match the employee contribution dollar for dollar. So for each employee who reaches the annual maximum, you will remit $4,034.10 on the employee's behalf plus $4,034.10 as the employer share — a combined $8,068.20 per employee directed to CRA.
Introduced in 2024, the second tier of CPP (CPP2) applies an additional 4% rate on earnings that fall between the YMPE ($71,300) and the Year's Additional Maximum Pensionable Earnings (YAMPE) of $73,200 in 2025.
The maximum CPP2 contribution is $188 for the employee and $188 for the employer in 2025. When you combine both CPP tiers, the total maximum CPP-related contribution per employee is approximately $4,222 from the employee side, with a matching amount from the employer.
CPP2 contributions are tracked separately on T4 slips (Box 16A) and remitted alongside standard CPP amounts.
Employment Insurance premiums are calculated on insurable earnings up to the Maximum Insurable Earnings (MIE) of $65,700 for 2025. The employee premium rate is 1.66%, which produces a maximum employee EI premium of $1,049.12 for the year.
Employers pay a higher rate: 1.4 times the employee premium. For each employee who reaches maximum insurable earnings, that works out to approximately $1,468.77 in employer EI premiums. Unlike CPP, there is no employer-employee matching — the employer's share is calculated as a multiplier of the employee amount.
Note that Quebec has different EI rates because the province operates its own parental insurance program (QPIP). Quebec employees and employers pay reduced federal EI rates, and separate QPIP premiums apply. If you operate in Quebec, confirm current rates with CRA or your payroll administrator.
Unlike CPP and EI, income tax withholding is not a fixed percentage. The amount deducted from each paycheque depends on the employee's total expected annual income, their pay frequency, and the personal tax credits they have claimed.
Every new employee must complete two TD1 forms:
Employers use these forms alongside the CRA Payroll Deductions Online Calculator (PDOC) or the paper Payroll Deductions Tables (T4032) to determine the correct federal and provincial tax to withhold each pay period. The calculation accounts for the employee's gross pay, pay frequency (weekly, bi-weekly, semi-monthly, monthly), and the credits claimed on their TD1 forms.
If an employee's circumstances change mid-year — a second job, a significant raise, or a change in credits — they should submit updated TD1 forms so withholding can be adjusted accordingly. Under-withholding results in a tax bill for the employee at filing time; over-withholding creates a refund but reduces take-home pay unnecessarily.
Withholding deductions is only half of the obligation. You must remit CPP, EI, and income tax to CRA on a schedule that depends on your average monthly remittance amount from two years prior.
CRA will notify you if your remitter category changes. Missing a remittance or remitting less than required triggers penalties that add up quickly.
At year-end, employers must prepare T4 slips for each employee and file a T4 Summary with CRA. The deadline for both is February 28 of the following year (or the next business day if it falls on a weekend).
Key boxes on the T4 slip include:
The T4 Summary consolidates the totals across all employee slips and reconciles them against what you remitted throughout the year. Any discrepancy between remittances and the T4 Summary triggers CRA scrutiny, so it is worth reviewing carefully before filing.
CRA takes payroll remittances seriously. The penalties for late payment escalate based on how overdue the remittance is:
These penalties apply to the amount of the late remittance, and interest accrues on top of any unpaid balance. A single missed remittance on a $20,000 payroll run that is two weeks late could cost $2,000 in penalties alone — before interest. For businesses with multiple pay periods, errors compound fast.
Directors of corporations can be held personally liable for unremitted payroll deductions, so this is not an area where the "we'll catch up next month" approach works.
Payroll compliance requires staying current with rates that change each January, managing multiple remittance deadlines, and filing accurate year-end reports on time. Many Calgary business owners find that handling payroll in-house without dedicated support creates unnecessary exposure to penalties and errors.
At Swift Accounting Calgary, we manage full-cycle payroll for businesses of all sizes — from calculating deductions accurately each pay period to filing T4s and reconciling year-end remittances. If you would rather focus on running your business than tracking CRA payroll deadlines, we can help.
Contact Swift Accounting today to discuss payroll services or to have a payroll compliance review done for your business.
The maximum employee CPP1 contribution in 2025 is $4,034.10, based on a 5.95% rate applied to pensionable earnings between the $3,500 basic exemption and the $71,300 YMPE. Employees earning above $71,300 also contribute CPP2 at 4% on earnings up to $73,200, adding a maximum of $188. The combined CPP maximum per employee is approximately $4,222 for 2025. Employers match both CPP1 and CPP2 contributions in full.
It depends on your remitter category. Most small businesses are regular remitters and must remit by the 15th of the month following the payroll month. Businesses with average monthly remittances between $25,000 and $100,000 remit twice monthly. Those averaging over $100,000 per month must remit within three business days of each payroll. New employers begin as regular remitters. CRA assigns your category and will notify you if it changes.
Yes, you are required to withhold federal and provincial income tax from all employment income unless a specific exemption applies (such as certain employment types covered by a tax treaty). The amount withheld depends on each employee's TD1 forms, their pay frequency, and estimated annual income. Use the CRA Payroll Deductions Online Calculator to determine the correct withholding for each pay period. Failure to withhold the proper amounts makes the employer liable to CRA for the shortfall.
CRA charges late-filing penalties on T4 slips submitted after the February 28 deadline. The penalty is based on the number of information returns filed late: $100 for 1 to 5 slips, scaling up significantly for larger employers. Interest also applies to any balance owing that was not remitted during the year. Employees who need their T4 to file their personal returns by April 30 may also be affected, which creates additional complications. Filing on time is the simplest way to avoid these consequences.
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