Understanding Payroll Deductions as an Employee in Canada

When you receive your paycheck, you might notice that the amount deposited into your bank account is less than your gross earnings. This is because of payroll deductions, which are amounts your employer withholds from your pay for various purposes. Here’s a quick guide to understanding the key payroll deductions you’ll see as an employee in Canada.

1. Income Tax

One of the most significant deductions is income tax, which your employer withholds based on your earnings and the information you provided on your TD1 form. This deduction helps cover your federal and provincial/territorial tax obligations.

2. Canada Pension Plan (CPP) Contributions

If you’re between 18 and 70 years old and not receiving a CPP retirement pension, you’ll have CPP contributions deducted from your paycheck. These contributions go towards your future retirement benefits. In Quebec, employees contribute to the Quebec Pension Plan (QPP) instead.

3. Employment Insurance (EI) Premiums

EI premiums are deducted to provide financial assistance if you lose your job, go on maternity or parental leave, or need to take time off work due to illness or caregiving responsibilities. These contributions are mandatory for most employees.

4. Additional Deductions

Depending on your employer and your employment agreement, you might see additional deductions for items such as:

Health and Dental Insurance: Contributions towards employer-sponsored health and dental plans.

Pension Plans: Deductions for contributions to a company pension plan or other retirement savings programs.

Union Dues: If you’re part of a union, dues may be deducted from your paycheck.

Other Benefits: Contributions to programs like group life insurance, disability insurance, or employee stock purchase plans.

5. Net Pay

After all deductions are made, the remaining amount is your net pay—the money that goes into your bank account. It’s important to review your pay stubs regularly to understand your deductions and ensure everything is accurate.

Understanding payroll deductions helps you manage your finances better and ensures you’re aware of where your earnings are going. If you have questions or concerns about your deductions, don’t hesitate to reach out to your employer’s payroll department for clarification.

For more information, visit: Canada Revenue Agency: Employer's Guide to Payroll Deductions and Remittances