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By law, an employer must deduct certain items from your employment earnings each time you are paid.
For most of us, our main source of income is our job. Most people get paid through a bi-weekly or semi-monthly paycheque. But you may get paid irregularly if you do contract, consulting or seasonal work, or odd jobs.
By law, an employer must deduct the following amounts from your employment earnings:
Income tax
Employee contributions to Employment Insurance (EI)
Employee contributions to the Canada Pension Plan (CPP)
Income tax: In Canada, we pay income tax at graduated rates. This means that the tax rate goes up as your income goes up. The table below shows the federal tax rates that apply in 2022. In addition to federal tax, you must also pay provincial tax, which varies by province.
Income level |
$1 to $50,197 |
$50,197 to $100,392 |
$100,392 to $155,625 |
$155,625 to $221,708 |
Over $221,708 |
The tax rate that applies (2021) |
15 per cent |
20.5 per cent |
26 per cent |
29 per cent |
33 per cent |
Canada Pension Plan (CPP) and Employment Insurance (EI): These programs are run by the federal government and participation is mandatory. You may benefit in the future by receiving payments from these programs. For example, EI protects workers who become unemployed by paying out benefits to those who apply and qualify. If you retire after age 60, the CPP pays benefits to seniors who qualify.
In addition to the amounts that are deducted and withheld from your pay, your employer also makes contributions to EI and CPP on your behalf. The amount depends on how much you contribute.
These deductions mean that the amount on your paycheque will be less than the total you earned. Your employer must withhold and remit these amounts directly to the Canada Revenue Agency (CRA). However, you do get credit for having paid these amounts, which are reported on your T4, when you file your annual tax return.
Depending on how you get paid, your pay stub will either be attached to your cheque or to a direct deposit statement. This sample pay stub illustrates the following common terms:
- Gross pay – Your “gross” pay is the amount you make every week, every month or every hour before your employer deducts any income taxes, payroll taxes (EI and CPP) or other items.
- Net pay – Your “net” or “take home” pay is your gross pay, less all amounts deducted and remitted to CRA on your behalf by your employer.
Other deductions on your pay stub
- Group insurance: Many employers offer group insurance to help pay for certain expenses. Coverage can include dental care, vision care, prescription drugs, disability insurance, and more. If you’re enrolled in a group insurance plan, a certain amount will be deducted from each of your paycheques.
- Group SIPP, DPSP, DBP, DCP, VRSP, or RRSP: These acronyms stand for the various types of retirement plans that your employer can offer. There are several advantages to these plans, such as helping workers save for retirement. Your employer may choose to contribute to the employee pension plan, allowing you to save even more money for your golden years. If you have access to an employer-sponsored retirement plan, you should take advantage of it.
- Other deductions: Your employer may also deduct amounts for union dues, professional association fees, transfers to your individual registered savings plans, and charitable donations.
A word of advice: Errors can always happen, even with deductions. For example, if you agree with your employer to join the group insurance plan when you start working (and not after three months as is usually the case), make sure there’s a deduction on your first paycheque. Payroll may not have received the information. It’s always a good idea to check your pay stub for errors.
Tags: Income, Tax, Taxes, Finances, Canada, Revenue, Government
