Understanding Payroll Taxes in Canada: A Guide for Businesses
At Bookkeeping Bizz Inc., we know that navigating payroll taxes can be complex. Here’s a comprehensive guide to help you understand how payroll taxes work in Canada and what they might cost your business.
What Are Payroll Taxes?
Payroll taxes are amounts deducted from employees’ wages and salaries by employers and remitted to the government. These taxes fund various social programs and benefits, such as the Canada Pension Plan (CPP), Employment Insurance (EI), and provincial health care systems.
Key Components of Payroll Taxes in Canada
- Canada Pension Plan (CPP) Contributions
- Employee Contribution: 5.95% of gross earnings up to a maximum annual contribution.
- Employer Contribution: 5.95% of gross earnings up to the same maximum.
- Maximum Contribution for 2024: $3,754.58.
- Employment Insurance (EI) Premiums
- Employee Contribution: 1.58% of gross earnings up to a maximum annual contribution.
- Employer Contribution: 1.4 times the employee contribution.
- Maximum Contribution for 2024: $1,439.58.
- Provincial Health Care Premiums (varies by province)
- Some provinces, like Ontario, have a Health Premium that employers must pay.
- Rates and thresholds vary by province.
- Workers Compensation Insurance
- Rates: Vary by province and industry, typically around 0.31% of insurable earnings.
- Purpose: Provides compensation to employees who are injured on the job.
- Employer Health Tax (EHT)
- Rates: Ranges from 0.98% to 1.95% of total payroll, depending on the province.
- Purpose: Funds the public health care system in certain provinces.
How Much Do Payroll Taxes Cost Businesses?
The cost of payroll taxes can vary significantly depending on the size of the business, the number of employees, and the province in which the business operates. Here’s a rough estimate of the costs:
- CPP Contributions: Up to 5.95% of gross payroll.
- EI Premiums: Up to 1.58% of gross payroll.
- EHT: Up to 1.95% of total payroll in applicable provinces.
- Workers Compensation Insurance: Around 0.31% of insurable earnings.
Examples to Illustrate Payroll Taxes
Example 1: Small Business with 1 Employee at Minimum Wage in Ontario
- Total Annual Payroll: $17.20/hour * 40 hours/week * 52 weeks = $35,776
Employee Contributions:
- CPP: 5.95% of $35,776 = $2,128.67
- EI: 1.58% of $35,776 = $565.27
Employer Contributions:
- CPP: 5.95% of $35,776 = $2,128.67
- EI: 1.4 times employee contribution, 1.4 * $565.27 = $791.38
- EHT (if applicable): 1.95% of $35,776 = $697.63
- Workers Compensation Insurance: 0.31% of $35,776 = $110.91
Example 2: Small Business with 1-5 Employees at Minimum Wage in Ontario
- Total Annual Payroll for 5 Employees: $35,776 * 5 = $178,880
Employee Contributions:
- CPP: 5.95% of $35,776 = $2,128.67 per employee, total for 5 employees = $10,643.35
- EI: 1.58% of $35,776 = $565.27 per employee, total for 5 employees = $2,826.35
Employer Contributions:
- CPP: 5.95% of $35,776 = $2,128.67 per employee, total for 5 employees = $10,643.35
- EI: 1.4 times employee contribution, 1.4 * $565.27 = $791.38 per employee, total for 5 employees = $3,956.90
- EHT (if applicable): 1.95% of $178,880 = $3,487.52
- Workers Compensation Insurance: 0.31% of $178,880 = $554.53
Example 3: Medium-Sized Business with 1-10 Employees at Minimum Wage in Ontario
- Total Annual Payroll for 10 Employees: $35,776 * 10 = $357,760
Employee Contributions:
- CPP: 5.95% of $35,776 = $2,128.67 per employee, total for 10 employees = $21,286.70
- EI: 1.58% of $35,776 = $565.27 per employee, total for 10 employees = $5,652.70
Employer Contributions:
- CPP: 5.95% of $35,776 = $2,128.67 per employee, total for 10 employees = $21,286.70
- EI: 1.4 times employee contribution, 1.4 * $565.27 = $791.38 per employee, total for 10 employees = $7,913.80
- EHT (if applicable): 1.95% of $357,760 = $6,977.32
- Workers Compensation Insurance: 0.31% of $357,760 = $1,109.06
Important Considerations
- Record Keeping: Maintain accurate records of all payroll deductions and remittances.
- Remittance Deadlines: Ensure timely remittance of payroll deductions to avoid penalties and interest.
- Compliance: Stay updated on legislative changes and ensure compliance with provincial and federal regulations.
Conclusion
Understanding payroll taxes is crucial for managing your business finances effectively. By staying informed and compliant, you can avoid penalties and ensure that your employees are contributing to the social programs that support them.
