Payroll for Small Business Canada 2026 — Complete Guide & Calculator

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Payroll Deduction Estimator — Canada 2026

Estimate employee CPP, EI, and federal income tax deductions for a given gross pay.

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Canadian Payroll 101 — What Every Small Business Must Deduct

When you hire your first employee in Canada, you become responsible for calculating and remitting three types of payroll deductions to CRA on every pay period:

1. Canada Pension Plan (CPP) Contributions

Both employee and employer contribute to CPP. For 2026, the employee and employer each contribute 5.95% on insurable earnings between $3,500 (basic exemption) and approximately $73,200 (Year's Maximum Pensionable Earnings). As an employer, you match the employee contribution dollar for dollar — effectively doubling the CPP cost from a business perspective.

2. Employment Insurance (EI) Premiums

Employees contribute approximately 1.66% of insurable earnings up to ~$65,700. Employers pay 1.4 times the employee EI premium — so for every $1.66 an employee pays, you pay $2.32 as the employer.

3. Income Tax

Employers must deduct federal and provincial income tax from employee pay based on the employee's TD1 personal tax credits return. Use CRA's Payroll Deductions Online Calculator (PDOC) or payroll software to calculate exact withholdings.

Remittance deadlines: Most new small employers remit deductions monthly by the 15th of the following month. Failure to remit on time results in penalties of 3–10% plus interest — one of CRA's most aggressively enforced compliance areas.

Setting Up Payroll in Canada — Step by Step

Step 1: Register for a CRA Payroll deductions account (RP number) via My Business Account at canada.ca
Step 2: Have each new employee complete a TD1 (federal) and provincial TD1 form to determine personal tax credit amounts
Step 3: Set up payroll software (QuickBooks Payroll, ADP, Ceridian, Wagepoint, or Humi) linked to your business bank account
Step 4: Run payroll on your chosen schedule (weekly, bi-weekly, semi-monthly, or monthly)
Step 5: Remit source deductions (CPP + EI + income tax) to CRA by the 15th of the following month
Step 6: Issue T4 slips to employees by the last day of February each year
Step 7: File the T4 Summary with CRA by February 28

Best Payroll Software for Canadian Small Businesses

Software	Starting Price	Best For
Wagepoint	$20+/mo	Small Canadian businesses (1–100 employees)
Humi	$6/employee/mo	HR + payroll combined for growing teams
QuickBooks Payroll	$20+/mo	Businesses already using QuickBooks accounting
ADP Run	Quote-based	Businesses wanting full-service payroll processing
Ceridian Dayforce	Quote-based	Mid-size businesses with complex HR needs

Frequently Asked Questions

When does a small business need to start doing payroll in Canada?

The moment you hire your first employee. Register for a CRA payroll account (RP number) before issuing your first paycheque. Penalties for late registration and missed remittances are significant.

What is the payroll remittance deadline for small businesses in Canada?

Most new employers are "regular remitters" — meaning deductions must be remitted to CRA by the 15th of the month following each pay period. Very large employers remit more frequently (twice-monthly or accelerated).

Does a sole proprietor need to set up payroll to pay themselves?

No. Sole proprietors are not employees of their own business — they simply withdraw money as the owner. No payroll deductions apply to owner drawings for sole proprietors. However, if the sole proprietor hires employees, normal payroll rules apply for those employees.

What is the Ontario Employer Health Tax (EHT)?

Ontario businesses with total Ontario payroll exceeding $1 million must pay EHT — a provincial payroll tax of 0.98%–1.95% of Ontario payroll. Businesses with payroll under $1M are exempt. EHT is filed and paid annually to the Ontario government.