Payroll in Canada: CPP, EI and T4 Filing Guide for Small Businesses (2026)

Running payroll in Canada isn’t just about cutting cheques. Between CPP, CPP2, EI, income tax withholding, provincial payroll taxes, and a strict remittance schedule, there are a lot of moving parts — and CRA penalties for getting them wrong are swift and unforgiving.

This guide covers everything a Canadian small business needs to know about payroll in 2026: what to deduct, how much, when to remit, and what to file at year-end.

Source Deductions: The Three Pillars

Every time you pay an employee, you must withhold three types of deductions from their pay and remit them to the Canada Revenue Agency (CRA):

1. Canada Pension Plan (CPP) — Including CPP2

CPP is a mandatory retirement contribution shared between employer and employee.

CPP (first ceiling):

• Employee contribution rate for 2026: 5.95%
• Employer matches the employee contribution dollar-for-dollar
• First maximum pensionable earnings (YMPE): approximately $71,300 (adjusted annually)
• Basic exemption: $3,500 per year
• Maximum annual employee contribution: approximately $4,034

CPP2 (second ceiling): CPP2 was introduced in 2024 as a second, higher earnings ceiling. It applies to earnings between the first and second maximum pensionable earnings.

• CPP2 rate for 2026: 4% (employee and employer each)
• Second maximum pensionable earnings (YAMPE): approximately $81,200
• No basic exemption applies to the CPP2 portion
• Maximum annual CPP2 employee contribution: approximately $396

In practice, this means employees earning above the first ceiling contribute at two different rates on two different portions of their income. Your payroll system needs to track both ceilings and calculate accordingly.

Quebec exception: Employees working in Quebec contribute to the Quebec Pension Plan (QPP) instead of CPP, with slightly different rates. QPP2 follows the same second-ceiling structure.

2. Employment Insurance (EI)

EI premiums fund unemployment benefits, parental leave, and other income support programs.

• Employee premium rate for 2026: 1.64% of insurable earnings (1.32% in Quebec, where QPIP covers parental benefits separately)
• Maximum insurable earnings: approximately $65,700
• Employer premium: 1.4 times the employee premium (so approximately 2.30% outside Quebec)

Some employers can qualify for a premium reduction if they offer a short-term disability plan that meets CRA requirements. This can save meaningful amounts for businesses with larger payrolls.

3. Income Tax Withholding

You must withhold federal and provincial/territorial income tax from each employee’s pay based on:

• Their TD1 form (federal) and TD1 provincial form, which declare personal tax credits
• The CRA’s payroll deduction tables or formulas for the applicable province
• Pay frequency (weekly, bi-weekly, semi-monthly, monthly)
• Additional deductions like RRSP contributions, union dues, or amounts requested by the employee on their TD1

The CRA publishes payroll deduction tables annually, and also offers the Payroll Deductions Online Calculator (PDOC) for verification. Your software should calculate these automatically based on the employee’s province of employment (not residence — this matters for remote workers).

Remittance Schedules

How often you remit source deductions to CRA depends on your average monthly withholding amount (AMWA):

New employers typically start as regular remitters. CRA will notify you if your AMWA moves you into an accelerated category.

Late remittance penalties are steep:

• 3% if 1–3 days late
• 5% if 4–5 days late
• 7% if 6–7 days late
• 10% if more than 7 days late or if no remittance at all
• 20% for repeat offenders (second or subsequent failure in the same calendar year)

These penalties apply to the full amount that’s late, not just the overdue portion. And CRA charges compound daily interest on top.

T4 and T4A Filing

At year-end, you must prepare and file information returns summarizing what you paid each employee and what was deducted.

T4 — Statement of Remuneration Paid

Every employee who received employment income must get a T4 slip. The T4 reports:

• Employment income (Box 14)
• CPP contributions (employee portion — Box 16)
• CPP2 contributions (Box 16A)
• EI premiums (employee portion — Box 18)
• Income tax deducted (Box 22)
• Employer’s CPP contributions (Box 16 of the T4 Summary)
• Pensionable and insurable earnings
• Various codes for taxable benefits, housing, travel in prescribed zones, etc.

Filing deadline: The last day of February following the calendar year. For 2025 T4s, the deadline is February 28, 2026. If February 28 falls on a weekend or holiday, the deadline moves to the next business day.

T4s must be filed electronically if you have more than 5 slips. In practice, electronic filing is easier regardless of volume.

T4A — Statement of Pension, Retirement, Annuity, and Other Income

T4A slips are used for payments that aren’t regular employment income, including:

• Subcontractor payments (if tax was withheld)
• Commissions paid to self-employed individuals
• Fees for services
• Pension and retirement allowances
• Research grants

The same February deadline applies. Getting T4As wrong — or not issuing them when required — is a common audit trigger.

Record of Employment (ROE)

Whenever an employee has an interruption of earnings (termination, layoff, leave of absence, reduction in hours below 60% of normal), you must issue a Record of Employment within 5 calendar days. ROEs are filed electronically through Service Canada’s ROE Web system.

Late or inaccurate ROEs delay your employees’ EI claims and can result in penalties for the employer. This is one of those obligations that needs to happen immediately — you can’t batch it with your monthly filing.

Provincial Payroll Taxes

Several provinces impose their own payroll taxes on employers, separate from federal requirements:

Ontario Employer Health Tax (EHT)

• Applies to total Ontario payroll
• Exemption: first $1 million of payroll is exempt for eligible employers (those with total payroll under $5 million worldwide)
• Rates range from 0.98% to 1.95%, graduated based on total Ontario payroll
• Filed annually with the Ontario Ministry of Finance

Quebec: QPIP, HSF, CNT, WSDRF

Quebec has the most complex provincial payroll obligations:

• QPIP (Quebec Parental Insurance Plan): employee 0.494%, employer 0.692% (2026 rates, adjusted annually)
• HSF (Health Services Fund): employer contribution, 1.25% to 4.26% depending on total payroll
• CNT (Labour Standards Commission): 0.07% of eligible payroll
• WSDRF (Workforce Skills Development): 1% of total payroll for employers with payroll over $2 million (or invest equivalent amount in training)

Other Provinces

• Manitoba: Health and Post-Secondary Education Tax (2.15% on payroll over $2.25 million)
• Newfoundland and Labrador: Health and Post-Secondary Education Tax (2% on payroll over $2 million)
• British Columbia: Employer Health Tax (up to 1.95% on payroll over $1.5 million)

These provincial obligations are easy to overlook, especially if your payroll is close to the exemption thresholds. They’re also a common area where CRA and provincial audits find discrepancies.

How Odiverse Handles Canadian Payroll

Canadian payroll has more variables than most business owners expect — two CPP ceilings, province-specific tax calculations, graduated EI premiums, and a remittance schedule that varies by employer size. Handling all of this manually, or with software that wasn’t built for Canada, is an invitation for errors.

Odiverse manages the full Canadian payroll cycle:

• CPP and CPP2 calculation: Automatic tracking of both earnings ceilings, with correct rates applied to each portion. QPP handling for Quebec employees
• EI premiums: Calculated per employee with proper maximum insurable earnings tracking. Quebec QPIP rates applied where applicable
• Federal and provincial tax: Withholding calculated using CRA-current formulas for the employee’s province of employment. TD1 credits applied automatically
• Remittance tracking: Odiverse knows your remitter type and alerts you before each deadline — whether that’s monthly, twice-monthly, or within 3 business days
• T4 and T4A generation: Year-end slips prepared automatically from your payroll data, formatted for electronic filing
• ROE preparation: Generate ROEs immediately when an employee’s earnings are interrupted
• Provincial payroll taxes: Ontario EHT, Quebec contributions, and other provincial obligations calculated and tracked alongside federal deductions

Payroll compliance in Canada doesn’t have to consume your week. With the right system, it runs in the background — accurate, on time, and ready for any audit.

Try Odiverse for Canada