Hiring your first employee is a big step. Payroll comes with legal obligations at both the federal and provincial level, and mistakes can be costly. Here's what Ontario employers need to know, with 2026 numbers.
Before you pay anyone
- Open a payroll program account with the CRA. It's attached to your business number.
- Collect TD1 forms (federal and Ontario) from each employee to set their income tax withholding.
- Get each employee's social insurance number.
- Register with the WSIB if your business is required to have workplace insurance.
What you deduct from each paycheque
- Income tax: based on the CRA's payroll deduction tables and the employee's TD1 forms.
- CPP: 5.95% of pensionable earnings between the $3,500 basic exemption and $74,600 (the 2026 YMPE).
- CPP2: 4% of earnings between $74,600 and $85,000.
- EI: 1.63% of insurable earnings up to $68,900.
The CRA's Payroll Deductions Online Calculator helps you check your numbers.
What you pay as the employer
- CPP and CPP2: you match the employee's contributions.
- EI: you pay 1.4 times the employee's premium.
- Ontario Employer Health Tax (EHT): eligible private-sector employers are exempt on their first $1 million of annual Ontario payroll.
Coming in 2027: the base CPP rate drops from 9.9% to 9.5% combined on January 1, 2027, so the employee CPP rate falls from 5.95% to 5.75%. Update your payroll settings for the new year.
Remitting deductions
The amounts you withhold, plus your share of CPP and EI, must be sent to the CRA on time. Most new employers are regular remitters, due by the 15th of the following month. Small employers with a good compliance record may qualify for quarterly remitting, and large employers remit more often. Late remittances bring penalties and interest, and directors can be held personally liable for unremitted source deductions.
Taxable benefits
Not everything you give employees is tax-free. Cash and near-cash gifts, like gift cards, are always taxable. Under the CRA's policy, non-cash gifts and awards can be tax-free up to $500 a year in total. Benefits like a company car for personal use, or a paid gym membership, may be taxable and have to be added to income.
Ontario employment standards
Ontario's Employment Standards Act sets the rules for minimum wage, overtime, public holidays, and vacation. Vacation pay is generally at least 4% of wages for employees with less than five years of service and 6% after five years.
Year-end: T4 slips
By the last day of February, you must give each employee a T4 slip and file the T4 information return with the CRA. If you file more than five slips of a type, you must file electronically. For the 2026 tax year, February 28, 2027 is a Sunday, so filings on Monday, March 1 are considered on time.
When an employee leaves
If an employee has an interruption of earnings, for example they quit, are laid off, or go on leave, you must issue a Record of Employment (ROE) to Service Canada.
Keep records
Keep payroll records, including timesheets, pay stubs, TD1s, and remittance confirmations, for at least six years.
Sources
- Payroll, Canada Revenue Agency
- CPP contribution rates, maximums and exemptions, Canada Revenue Agency
- EI premium rates and maximums, Canada Revenue Agency
- Remitting source deductions, Canada Revenue Agency
- Gifts, awards, and long-service awards, Canada Revenue Agency
- Completing and filing information returns, Canada Revenue Agency
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