Payroll in Canada: Employer costs, taxes & more in 2026

An Employer of Record is a third-party organization that legally employs workers on behalf of an organization and manages onboarding, contracts, payroll, taxes, and local labor law compliance, without setting up a local entity. 

In a country like Canada, where employers have to manage contributions like CPP (5.95%), EI (1.63% for employees and 2.282% for employers), and progressive income taxes, an EOR can help simplify operations significantly. 

To hire Canadian workers and effectively manage payroll in Canada, employers need to understand both federal and provincial labor laws, tax regulations, and Canadian T4 form requirements.

Using a payroll company in Canada or an Employer of Record (EOR) like Payoneer Workforce Management can help streamline the process. 

Payoneer Workforce Management offers support to handle payroll in Canada and 160+ countries without setting up a local entity.

Book a demo to learn how Payoneer Workforce Management simplifies cross-border payments, facilitating easy global hiring. 

Canada payroll: What are the wages and other payments?

Canadian payroll is more than just paying salaries. Employers have to manage pay cycles, minimum wage, sick leave, and severance rules. These rules change by province. Pay usually runs twice a month in CAD, often by direct deposit. 

The federal minimum wage is CAD 18.15 per hour, but where the provincial rates are higher, the higher rates are applied. Sick leave is 3–5 paid days for federally regulated jobs. Severance starts after 12 months on the job, and workers get the greater of 2 days’ pay per year worked, or 5 days’ pay.

When employers have a clear understanding of these components, it becomes easier for them to maintain compliance, avoid payroll errors, and make sure that employees are compensated accurately and consistently. 

1) Payroll cycle

In Canada, employees are typically paid in Canadian dollars (CAD). The standard payment cycle is bi-monthly (15th & last day), although this can vary across different industries. 

Employee wages are typically paid via direct deposit into a Canadian bank account (most common) or by a paycheck (becoming less common).

Canada spans 6 time zones, ranging from Pacific Time (UTC-8) to Newfoundland Time (UTC-3:30). 

Employers should take these time differences into account when processing employee payments. The payment documentation should be in either English or French, depending on the employee’s location. 

2) Minimum wage

The federal minimum wage in Canada is CAD 18.15 per hour.

However, if the minimum wage in their province is higher, employees should receive the higher wage. 

3) Sick pay

Canadian employees in federally regulated industries may be commonly entitled to 3 – 5 days of paid sick leave per year. 

Sick leave is paid at the normal wage for the usual working hours.

The rules are different on a provincial level, however. Most provinces do not mandate paid sick leave, though jobs are protected for up to 26 weeks of unpaid sick leave. 

4) Severance packages

If a terminated employee has completed 12 consecutive months of employment, their employer must provide severance pay. 

Federally governed severance pay is the greater of:

• 2 days’ regular wages for each full year of employment, or
• 5 days’ regular wages

Severance pay is not required when:

• The lay-off doesn’t result in termination of employment
• The employment contract reached a defined end date
• The contract is terminated for just cause
• The employee terminates the employment contract. 

Entitlements to severance pay can vary by province. We recommend checking local government websites.

What are the contributions and deductions made on an employee’s salary in the Canadian payroll?

Employee salaries in Canada are structured around certain statutory deductions and employer contributions. These influence the total employment costs and the employees’ take-home pay significantly. 

The deductions are governed by provincial and federal frameworks, which require employers to accurately calculate, withhold, and remit amounts across the payroll cycle. Having a clear understanding of these components makes it easier for businesses to navigate compliance, maintain financial accuracy, and transparency in the compensation process.

Have a look at the various components that govern the salary structure in Canada: 

1) Income tax

Employers must withhold income taxes for their Canadian employees. 

The federal tax rates are as follows: 

Income Slab	Tax Rate
0 CAD-58,523 CAD	14%
58,523.01 CAD-117,045 CAD	20.5%
117,045.01 CAD-181,440 CAD	26%
181,440.01 CAD-258,482 CAD	29%
258,482.01 onwards	33%

For provincial tax rates and income thresholds, see the Government of Canada Income tax rates and income thresholds. 

3) Employment insurance

Canada’s Employment Insurance (EI) program provides temporary income support to unemployed workers while they seek employment or upskill. It also provides benefits to employees taking time off work for illness, pregnancy, providing care to a newborn or newly adopted child, and more. 

Both employers and employees contribute to Employment Insurance.

Understanding the payment structure in Canada

Here is a worked example that can help you understand the payment structure in Canada better. The main statutory contributions on an employee’s payroll in Canada are as follows (rates according to 2026):

Deduction	Employee Pays	Employer Pays
CPP (Canada Pension Plan)	5.95%	5.95%
CPP2 (Second Additional CPP)	4%	4%
EI (Employment Insurance)	1.63%	2.282% (1.4X employee rate)
Income Tax	Based on tax tables	None

Let us understand the salary breakdown of an employee working in Ontario and earning 7,000 CAD per month. You can use our employee cost calculator for better understanding: 

If an employee earns 84,000 CAD annually, the cost breakdown is as follows: 

The amount the employer pays	The amount the employee gets
Gross monthly salary of employee: CAD 7,000 Employer cost: 514.89 CAD CPP (5.95%): CAD 352.54 CPP2 (4%): CAD 31.33 EI (2.282%): CAD 131.02 Total Monthly cost of employment: CAD 7,514.89	Gross monthly salary of employee: CAD 7,000 Taxes and contributions: CAD 2051.83 CPP (5.95%): CAD 352.54 CPP2 (4%): CAD 31.33 EI (1.63%): CAD 93.59 Federal Income Tax: CAD 1,118  Provincial/Territorial Income Tax: CAD 456.37  Total Monthly cost of employment: CAD 4,948.17

Payoneer Workforce Management EOR’s ability to handle cross-border multi-currency payments with ease makes it a suitable choice among businesses that are looking forward to scaling up.

How do employee payments work in Canada with and without an EOR in Canada?

An EOR works as a legal employer on behalf of an organization. It handles all the tax deductions, payslips, navigates compliance, and manages local-currency payments. When businesses hire without an EOR, they have to register as a Canadian employer and establish a local entity. 

They also have to manage CPP/EI/tax remittances directly, generate payslips by themselves, and handle cross-border payment complexities, thereby increasing the administrative burden. 

The table below shows the difference at a glance: 

Parameters	Payment using an EOR	Payment without an EOR
Statutory contributions	EOR is responsible for handling essential contributions like CPP, CPP2, EI, and federal/provincial income tax calculations, and remittances	Businesses have to calculate and remit CPP, CPP2, EI, and income tax themselves, which may lead to errors
Payslip and compliance record	EOR provides compliant payslips and maintains records, including T4 filings	Businesses are responsible for generating payslips, issuing T4s, and maintaining payroll records themselves
Payment timelines	EOR supports timely, compliant payment	There may be delays due to banking issues, manual errors, or compliance issues
Cross-border payments	EOR pays in local currency (CAD) without requiring a Canadian bank account	Requires a local entity/bank account or cross-border wires with FX costs and delays

What are some of the best practices of Canada’s payroll compliance?

The best practices for Canadian payroll compliance usually come down to four core practices: registering a payroll program account with the CRA, collecting accurate documents of employees, applying deductions accurately for every pay period, and filing complete year-end returns on time. 

To set up and manage your employee payroll information, you’ll need:

• The employee’s social insurance number
• To determine the province of employment
• To complete TD1 forms 
• To determine how to increase or reduce the income tax deducted at source

At the end of each year, employers need to file payroll information returns that declare all payroll payments made within the year, including salaries, taxes, contributions, deductions, etc. 

This is done by filling out a Canadian T4 form (also known as a summary form) for each payroll program account held by the business, as well as T4 slips for each employee. 

How does Payoneer Workforce Management help with Payroll management in Canada?

One of the major challenges of enabling cross-border payments while hiring without an EOR is getting the money into an employee’s local bank account while avoiding the risks of non-compliance. An EOR like Payoneer Workforce Management helps to solve this problem.

For companies hiring in Canada, the choice of payment method directly impacts the speed, compliance, and operational complexity. When businesses select the right approach, it can significantly reduce friction in managing a distributed workforce. 

Here are some ways to pay international employees:

1. Set up a legal entity: This is an expensive and time-consuming process that requires you to navigate the payroll and employment laws of Canada.
2. Using international payment platforms or wire transfers. 
3. Through an Employer of Record (EOR) or other payroll companies in Canada: Using an EOR like Payoneer Workforce Management helps streamline the process to hire and pay employees in Canada compliantly. 

Book a demo to learn how Payoneer Workforce Management can help.

Frequently asked questions (FAQs)

About the author

Martyna Krawczyk

HR and Immigration Lawyer, Global HR Operations 

Martyna Krawczyk is an HR and Immigration Lawyer and Associate within the Global HR Operations team at Payoneer Workforce Management (formerly Skuad). She holds an LPC LL.M. from the University of Law in the UK and an Associate CIPD certification. Martyna also serves as Vice President of the Labour Law Association of Poland and was recognized at the Wolters Legal Hackathon 2024. Her areas of focus include international employment law, cross-border workforce compliance, and global immigration, supporting organizations in managing international workforces.