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Key Components to Setting Up Payroll: Part 8 – Statutory Deductions

8 mins read

This article is written to provide you information on the statutory deductions that all businesses must deduct from their employee’s pay: Income Tax, CPP, and EI.

There are two things in life that you cannot escape: death and taxes. As an employer, you are responsible for deducting income tax, CPP (Canada Pension Plan), and EI (Employment Insurance) from the remuneration you pay to your employees.

Income Tax

Since there are many variables involved with how income tax is calculated, it would be difficult to provide you with straight percentage rates; however, what we can tell you is that the amount deducted will vary year to year.

Federal Tax Bracket Rates for 2021

    • 15.0% – up to $49,020 of taxable income +
    • 20.5% – on the next $49,020 up to $98,040 +
    • 26.0% – on the next $53,939 over $98,040 up to $151,978 +
    • 29.0% on the next $64,533 over $151,978 up to $216,511 +
    • 33.0% over $216,511

Depending on which province/territory your business operates in will determine how much income tax is deducted. Note: There is no age limit that exempts an employee from paying income tax. For Saskatchewan:

    • 10.5% on the first $45,677 of taxable income, +
    • 12.5% on the next $84,829, +
    • 14.5% on the amount over $130,506

CPP (Canada Pension Plan)

If you employ anyone between the ages of 18 to 65, they are in a pensionable employment, meaning that they are required to contribute to CPP with each pay. The only time an employee can opt-out of paying CPP is when they are 65 years or older and elect to stop contributions and begin receiving CPP retirement pension payments; if they do not elect in this, they will continue to pay into CPP. For more information on this, please see the CPP Retirement Pension website.

Note: The employer is required to make CPP contributions for each employee.

There is a maximum amount that an employee (EE) and employer (ER) contribute annually, once this maximum dollar amount has been reached, the ER is not required to deduct any CPP from the EE’s pay and is not required to make any CPP contributions.

The annual CPP maximum amount will vary. In 2021, the EE and ER contribution rate was 5.45% with a maximum dollar amount of $3,166.45. As of 2022, the EE and ER contribution rate will be 5.70% with a maximum dollar amount of $3,499.80. Once this amount has been reached, no further CPP contributions are required to be paid.

Note: The employer remits the EE’s CPP deductions to the CRA, along with their ER CPP contributions, through payroll remittances.

EI (Employment Insurance)

Employers are required to deduct EI premiums from an employee’s insurance earnings (the total amount they are being paid), there is no age limit for deducting EI and employees cannot opt-out of paying EI – regardless of their age. EI provides employees with temporary financial assistance while unemployed and actively looking for work, sick, pregnant, caring for a newborn or adopted child, or caring for a seriously ill family member for example. For more information on this please see the EI Premium website.

Note: The employer is required to make EI contributions for each employee.

There is a maximum amount that an employee (EE) and employer (ER) contribute annually, once this maximum dollar amount has been reached, the ER is not required to deduct any EI from the EE’s pay and not required to make any EI contributions.

The annual EI maximum amount will vary. As an employer, you may qualify for a reduction of the employer contribution if you offer employees a short-term disability plan or combination of paid time off for health-related matters.

In 2021, the EE and ER contribution rate was 1.58% with a maximum dollar amount of $889.54 and $1,245.36 respectfully. As of 2022, the contribution rates remain at 1.58%, however the maximum dollar amounts have increased to $952.74 and $1,333.84 respectfully. Once the maximum amount has been reached, no further EI contributions are required to be paid.

Note: The employer remits the EE’s EI deductions to the CRA, along with their ER EI contributions, through payroll remittances.

Now that you have been introduced to the Statutory Payroll Deductions (Income Tax, CPP, and EI); this brings us to the end of the Key Components to Setting Up Payroll series.

One of the many benefits of completing payroll in Canada are the various payroll regulations and resources made publicly available which makes processing payroll easier! So, as you work towards developing or revamping your payroll program, keep in mind that depending on your industry and geographical location, you might need to consider other standards to be made aware of. If you need any assistance regarding setting up your payroll policies, we recommend reaching out to a BIG Representative for assistance, or checking out the CRA website.

Download this resource Key Components to Setting Up Payroll: Part 8 – Statutory Deductions.

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Visit our Resource Library for all available downloads.

If you require assistance with any of the guides, forms or templates, please contact a BIG representative.

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