Before you start your first job in Canada as a newcomer, it’s important to keep in mind that the salary you negotiate is not what you get in your bank account at the end of each pay period. Your employer is required to make certain deductions from your gross income, so the amount you receive may be 25 to 35 per cent lower than what you expect.
As a newcomer, understanding payroll deductions will empower you to negotiate a suitable salary and make better financial decisions.
In this article:
- What is a pay stub or salary slip?
- What does your pay stub include?
- Types of payroll deductions in Canada
- Canada Pension Plan (CPP) or Quebec Pension Plan (QPP)
- Employment Insurance (EI)
- Income Tax deduction
- Other deductions
What are payroll deductions?
In Canada, your employer makes certain deductions from your salary before giving it to you. Some of these payroll deductions, such as income taxes, go towards funding public systems, while others may be used to provide you with financial assistance at certain stages of life, such as during periods of unemployment, parental leave, or retirement. Your pay stub or salary slip should include details of the payroll deductions that have been made by your employer.
What is a pay stub or salary slip?
A pay stub, also known as a salary slip, is a record of your employment earnings. In Canada, permanent employees receive a pay stub for each payment period, whether you get paid weekly, bi-weekly, fortnightly, or monthly.
For every salary payment you receive, the accompanying pay stub will show you how that amount was calculated, including payroll deductions made by your employer. Your pay stub may be in paper or digital format, and may be handed to you in person, sent to you over email, or stored in a centralized system employees can access.
A pay stub is different from a paycheque, which is the actual payment of wages in the form of a physical cheque. Many Canadian employers also ask employees to sign up for direct deposit, in which case you’ll receive your salary transferred directly into your bank account instead of via cheque.
Every year before your taxes come due, your employer will provide you with a T4 Statement of Remuneration Paid, which summarises the details of all the pay stubs you received from them during the prior year.
What does your pay stub include?
As a newcomer in Canada, it’s important to know what your pay stub includes and how to read it. While pay stubs from different companies may look slightly different, they typically include the same information. Here’s an overview of the information your pay stub provides:
- Your name.
- Employee identification number, if applicable.
- Pay date, or the date on which you receive your salary or wages for the period.
- Pay period, which is the period for which you’re being paid (usually two weeks, 15 days, or a month).
- Gross earnings, or your income for that pay period before taxes and deductions.
- Deductions for the pay period, such as income tax deducted at source, etc.
- Net pay for the pay period, which will be your take-home salary after tax and deductions.
- Year-to-date gross pay and deductions.
Types of payroll deductions in Canada
Payroll deductions can come as a surprise to some newcomers, especially those who come from countries where there’s no income tax or where taxes are not automatically deducted from your salary upfront.
Knowing about payroll deductions and anticipating how much you’ll receive when you start a new job in Canada can help you be better prepared financially. The most common payroll deductions in Canada include Canada Pension Plan (CPP) or Quebec Pension Plan (QPP) contributions, Employment Insurance (EI) premiums, and income tax deductions. In some cases, your pay stub may also include payroll deductions like group pension plan or group retirement plan contributions, union dues, or premiums for add-on benefits.
Canada Pension Plan (CPP) or Quebec Pension Plan (QPP)
What is the Canada Pension Plan (CPP)?
The Canada Pension Plan is a government-run plan that provides a taxable pension to replace part of your income after you retire. It is funded through contributions made by eligible employees, employers, and self-employed individuals. Quebec has its own pension plan known as the Quebec Pension Plan (QPP), and employers and workers there must contribute to the QPP instead of the CPP.
Who needs to make CPP or QPP contributions?
Employers are required by law to deduct CPP contributions (QPP if you’re in Quebec) from your salary if you meet the following conditions:
- You are in pensionable employment for all or part of the year.
- You are between 18 and 69 years old, even if you’ve already started receiving CPP or QPP pension. You can, however, elect to stop contributing when you reach 65 years of age.
- You are not considered disabled as defined by the CPP or QPP.
Your employer must match your contribution and remit the total amount to the government. Self-employed individuals with a net income (from their business and employment, if any) of over $3,500 are also required to contribute to the CPP or QPP.
How employers calculate your CPP contribution
Each year, the government sets a maximum annual pensionable earnings limit and contribution rate for both employees and employers. For 2022, the maximum annual pensionable earnings are $64,900, with a basic exemption amount of $3,500, and the contribution rate is 5.7 per cent. The employer will deduct your CPP contribution from your salary or wages throughout the year.
This means, if your annual income is over $64,900, your annual CPP contribution will be ($64,900 – $3,500) x 5.7/100 = $3,499.80. On the other hand, if your income is below $64,900, your CPP contribution will be (Your income – $3,500) x 5.7/100.
| Note: The QPP contribution limit and contribution rate are typically higher than CPP.
When do you start getting CPP benefits?
The standard age to start receiving the CPP retirement pension is 65, but you can choose to start it as early as age 60 or as late as 70. The sooner you opt to start receiving your pension, the smaller the monthly amount will be. The maximum monthly amount you can receive peaks at age 70, so there’s no benefit to waiting beyond that.
In addition to a retirement pension, the CPP also provides several other benefits, such as the post-retirement benefit, disability pension, children’s benefit, survivor’s pension, and death benefit.
How much can you get from your CPP retirement pension?
The CPP retirement pension you receive will depend upon the age at which you start receiving your pension, the number of years you contributed to the plan, and your average pensionable earnings throughout your working life.
For 2022, the maximum monthly amount a new recipient starting to receive pension at 65 can get is $1,253.59. However, the amount you’re entitled to may be less than the maximum depending on your specific situation, such as if you join the workforce late, move to Canada mid-way through your career, or choose to retire early.
Employment Insurance (EI)
What is Employment Insurance?
EI insures all or part of your employment earnings and provides temporary financial assistance to eligible individuals who’ve lost their jobs or are unable to work, provided they meet certain pre-defined criteria.
Who needs to make EI contributions?
Your employer will deduct EI premiums from your pay if your employment is insurable. There is no age limit for EI contributions. Your employer is required to pay 1.4 times your contribution and remit the total amount to the government. Self-employed individuals can also register for the EI program to qualify for special EI benefits.
Quebec has a separate Québec Parental Insurance Plan (QPIP), so employers there will deduct QPIP premiums from your pay separately and your EI premiums will be reduced accordingly.
What does EI cover?
Regular EI benefits can provide temporary financial assistance if:
- You lose your job through no fault of your own, such as due to layoffs or seasonality in worker demand.
- You can demonstrate you are able and willing to work.
- You’re actively looking for a job, but are unable to find work.
- You’ve been without work and pay for at least seven consecutive days during the year.
- You’ve accrued the required number of insurable employment hours in the last year or since the start of your last EI claim, whichever is shorter.
You will not be eligible for EI benefits if you leave your job voluntarily without cause, are dismissed for misconduct or for participating in a labour dispute, or if you’re on leave to compensate for extra hours you’ve already worked.
Other EI benefits include:
- EI sickness benefits, if you’re unable to work temporarily for medical reasons.
- EI maternity and parental benefits for people who are away from work because they’re pregnant, have recently given birth, or are caring for their newborn or adopted child.
- EI caregiving benefits, if you’re away from work to care for an injured or critically ill person or someone requiring end-of-life care.
How employers calculate your EI premium
The government sets EI premium rates and limits for maximum insurable earnings each year. For 2022, the EI premium rate is set at 1.58 per cent and the maximum insurable earnings are $60,300.
This means that if your annual insurable income is $60,300 or more, you will need to pay $60,300 x 1.58/100 = $952.74 in EI premiums annually. In addition, your employer will contribute 1.4 x $952.74 = $1,333.84 towards your employment insurance premiums.
How much can you get from Employment Insurance?
The amount you can expect to receive from EI varies based on your insurable earnings and the unemployment rate in your region. In most cases, EI benefits are calculated at 55 per cent of your average weekly insurable earnings, up to a maximum limit. As of January 1, 2022, the maximum amount you can receive is $638 per week.
The unemployment rate in your region also determines how long you can receive EI. Typically, this duration ranges from 14 to 45 weeks.
Income Tax deduction
|Filing taxes for the first time as a newcomer?
Download our guide to filing taxes in Canada for answers to commonly asked tax questions.
Another payroll deduction you’ll find on your pay stub is income tax. In Canada, your employer is responsible for deducting income tax at source (directly from your salary) and remitting it to the government.
Why do I need to pay income tax in Canada?
Individuals and businesses are legally required to pay taxes to fund the ongoing operation and improvement of publicly-funded services. The income taxes as well as indirect taxes (such as Goods and Services Tax or Harmonized Sales Tax) you pay fund most publicly run systems in Canada, including the healthcare system, school system, roads and highways, as well as newcomer settlement services.
How much income tax will be deducted from my salary?
The income tax deducted from your salary will depend on your income. The federal and provincial governments have separate tax rates for each year, and your total income tax liability will depend on the province you live in and your annual earnings.
If your annual earnings are less than the total amount on your Personal Tax Credits Return, or TD1 form, you can ask your employer to lower your deductions or get a tax refund when you file your income tax return (ITR). You can also reduce your tax liability by contributing to the Registered Retirement Savings Plan (RRSP).
Do I still need to pay income tax if my employer deducts tax?
Even if your employer deducts taxes from your salary at source and you have no outstanding tax liability, you’re still required to file an income tax return in Canada every year.
Employers typically take into account your employment income while calculating income tax deductions. If you have additional income sources, such as a side business or investments, you are responsible for calculating and paying taxes on those earnings.
In addition to the above payroll deductions, your employer may deduct other amounts from your salary. These deductions should appear in your paystub and your employer should be able to explain them to you. Additional deductions may include:
Retirement plan contributions
Your organization may have a group RRSP or company pension plan that you’re enrolled in, and you may see deductions for your contribution on your pay stub. Some employers match these contributions fully or partially.
Add-on insurance or other benefits
Some organizations offer group insurance plans, such as life insurance, extended health insurance, vision or dental insurance, and accident insurance. In such cases, employees may sometimes be required to share the premium costs for all or part of the benefits.
Union membership dues
If you’re in an occupation that is unionized and are required to pay union dues out of your wages, your employer may deduct these dues from your pay and remit them on your behalf.
When you start working in Canada, your monthly or bi-weekly paycheque may be lower than your calculated salary for the period. As a newcomer in Canada, it’s important that you review your pay stub closely and understand what deductions are made from your payroll and why. This will help you estimate your budget accurately and be better prepared for financial success.