Payroll deductions

Under the law, an employer must make certain regular deductions from an employee’s pay. The deductions that are required by law are income tax for most employees, Employment Insurance premiums, and Canada Pension Plan contributions. If an employer is going to deduct an amount not required by law, the employee must authorize the deduction in writing ahead of time.

If an employer must pay severance pay to an employee, pursuant to judgment or settlement for wrongful dismissal, then only income tax, and in some cases, Employment Insurance, can be deducted.

Wage and vacation statements

Under the law, employers must give employees pay statements showing regular wages and vacation pay. Pay statements should be given to an employee every time they are paid and should include:

• the employee’s wage rate;
• the pay period for which the wages are being paid;
• the total (gross) amount earned;
• any deductions from the employee’s gross amount; and
• the net amount paid to the employee.

The wage statement must be in writing, or provided by email if the employee is able to make a paper copy. Employers must keep a copy of each employee’s wage statement for three years from the time it was given. For vacation pay, the statement will also need to show how the vacation pay was calculated. For assistance in making deductions or submitting remittances, you should contact an accountant.

Temporary help agencies and their clients

Recent law has also made it necessary for temporary help agencies and their clients to record the number of hours worked by each assignment employee. These records must be kept for three years and be available for inspection.

Get help

For additional information about pay statements and deductions, visit the Employment Standards website at the Ministry of Labour at labour.gov.on.ca, or visit Canada Revenue Agency. For assistance in making deductions or submitting remittances, you should contact an accountant

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