Understanding how wages and deductions work in Canada

As a newcomer to Canada, it is important to know how the Canadian laws regarding wages and deductions. Before you start working, you should keep in mind that the salary or wage that you negotiate is not what is going to be in your bank account at the end of each pay period. Your employer has to make certain deductions from your gross income, so the amount you receive may be lower than you expect.

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Wages

Your employer must pay your wages on the regular payday established. It is most common to be paid twice a month, which may differ from your home country.

If you are an employee working in a federally regulated business or industry, you have certain protections related to the payment of wages. In particular, you are entitled to receive at least the minimum wage. If the minimum wage set by the province or territory you are employed in is higher than the federal minimum wage, that provincial or territorial rate will apply to you. If you are not paid on an hourly basis, you must receive at least the equivalent of the minimum wage as a salary.

A pay stub, also called a salary slip, is a record of what you have earned from your employment. For every salary payment you receive, you will get a pay stub that will show you how that amount was calculated, including any deductions. The stub may be in paper or digital format and can be given to you in person, sent over email or stored in a system employees have access to.

While paystubs from different employers may look different, they typically all include the same information. Your pay stub will include:

Your name (and employee identification number, if applicable)
Pay date, or the date on which you receive your salary or wages for the period
Pay period, which is the period for which you are being paid (usually two weeks)
Gross earnings, or your income for that pay period before taxes and deductions
Deductions for the pay period, such as income tax
Net pay for the pay period, which will be your salary after tax and deductions
Year to date gross pay and deductions

A pay stub differs from a paycheque, which is the actual payment of wages in the form of a physical cheque. Many Canadian employers ask their employees to sign up for direct deposit, which means that your salary is transferred directly into your bank account instead of being given to you by cheque.

Deductions

Your employer may take certain deductions from your salary before giving it you. These deductions can go towards funding public systems, while others are used to provide you with assistance at certain stages of life, such as periods of unemployment, parental leave or retirement.

As an employee, your employer can make certain deductions from your pay, including deductions:

Required by federal or provincial law such as taxes and employment insurance premiums
Authorized by a court order, such as child support payments
Authorized by a collective agreement, such as union dues
Intended to collect any overpaid wages

As an employee, you can also authorize your employer to make other deductions, including deductions for:

Charitable donations
Savings plan contributions
Medical and dental premiums
Life insurance and long-term disability premiums
Pension plan or RRSP contributions

For your authorization to be valid, it must be in writing and set out the specific amounts, purpose, and frequency of the deductions. This ensures that you fully understand what you are signing and how and when it will affect your pay. It is important to know that your employer cannot force you to sign an authorization. You must voluntarily consent.

Common deductions in Canada

The most common payroll deductions in Canada include the Canada Pension Plan (CPP) or Quebec Pension Plan (QPP), Employment Insurance (EI) premiums and income tax deductions.

The Canada Pension Plan (CPP) is a government run plan that provides a taxable pension to replace part of your income after you retire. Quebec has their own pension plan, and employers and workers in Quebec must contribute to the QPP instead of the CPP.

The maximum pensionable earning under the CPP for 2023 is $66,000, with a basic exemption amount of $3,500 and the employee and employer contribution rates for 2023 will be 5.95%.

This means, if your annual income is over $66,000, your annual CPP contribution will be equal to ($66,000 – $3,500) x 5.95/100 = $3,718.75. On the other hand, if your income is below $66,000, your CPP contribution will be (your income – $3,500) x 5.95/100.

Employment Insurance insures your employment earnings and provides temporary financial assistance to individuals who are eligible and have their jobs or are unable to work.

The maximum insurable earnings for 2023 is 1.63 per cent and the maximum insurable earnings are $61,500.

This means that if your annual insurable income is $61,500 or more, you will need to pay $61,500 x 1.63/100 = $1,002.45 in EI premiums annually.

Income Tax deduction are paid to the government by your employer. Individuals and businesses are legally required to pay taxes to fund the operation and improvement of publicly funded services.

The amount of income tax deducted from your salary will depend on your income. The federal government and provincial governments have separate tax rates, so your total income tax liability will depend on how much you make annually and the province you live in.

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