- For CPP and EI, employers don't just withhold the employee's share — they also contribute their own employer portion on top, and remit both amounts to the CRA together.
- Once an employer withholds income tax, CPP, or EI from an employee's pay, the law treats that money as belonging to the government, not to the business, even while it sits in the…
- Ontario also charges employers the Employer Health Tax, a payroll-based tax that helps fund the province's health system.
The moment you hire your first employee in Ontario, you take on a set of payroll obligations that have nothing to do with how much you decide to pay someone and everything to do with what the law requires you to withhold on the government's behalf. Payroll deductions aren't optional, and they aren't really the employer's money to manage freely — even for the short time they sit in the business's bank account before being remitted.
This guide explains what employers must withhold from employee pay, why the law treats those amounts differently from ordinary business funds, and what happens when remittances are missed.
The Three Deductions Withheld From Every Paycheque
| Deduction | What It Funds | Who It Applies To |
|---|---|---|
| Income tax | The employee's federal and Ontario income tax for the year | Employees, based on their income and personal tax credits |
| Canada Pension Plan (CPP) | The employee's CPP retirement and related benefits | Employees within the plan's contribution ages, with limited exceptions |
| Employment Insurance (EI) | The employee's EI benefits, including regular and special benefits | Employees in insurable employment |
For CPP and EI, employers don't just withhold the employee's share — they also contribute their own employer portion on top, and remit both amounts to the CRA together.
Why These Amounts Aren't Ordinary Business Funds
Once an employer withholds income tax, CPP, or EI from an employee's pay, the law treats that money as belonging to the government, not to the business, even while it sits in the business's account waiting for the next remittance date. This distinction matters: it's part of why the consequences of failing to remit are more serious than an ordinary unpaid business debt. The employer is treated as having failed to hand over money that was never really theirs to spend.
The Employer Health Tax: A Separate Obligation
Ontario also charges employers the Employer Health Tax, a payroll-based tax that helps fund the province's health system. Unlike income tax, CPP, and EI, the Employer Health Tax isn't deducted from employee pay — it's a cost the employer bears directly, calculated on the business's total Ontario payroll. Exemption thresholds and rates change from time to time, so confirm the current figures for your business rather than assuming a past year's numbers still apply.
What Happens If Remittances Are Missed or Late
- Interest starts accruing on the outstanding amount from when it was due. As of mid-2026, the CRA's prescribed interest rate on overdue amounts is 7% for the quarter — a figure set every three months that can change, so confirm the current rate before estimating your own exposure.
- Penalties can apply on top of the interest for late or missing remittances.
- Repeated or larger failures raise the CRA's attention and increase the likelihood of a closer review of the business's payroll practices.
- If the business is a corporation and can't pay, directors can become personally responsible for the unremitted amounts — director's liability exists specifically because these amounts are treated as belonging to the government, not the business.
A Common Way Employers End Up Here by Accident
Payroll obligations aren't limited to the people you've formally called employees. If your business treats someone as an independent contractor and the CRA later decides that worker was really an employee, the withholding and remittance obligations apply retroactively to that relationship — with penalties and interest layered on top of amounts that should have been withheld from the start. Getting worker classification right at the outset avoids inheriting a payroll problem you didn't know you had.
Frequently asked questions
Do I need to withhold payroll deductions for a part-time or casual employee?
Generally yes, based on the same rules that apply to any employee, though the amounts will reflect their actual income and hours. It's the employment relationship — not the number of hours worked — that triggers the withholding obligation.
What if I genuinely believed a worker was a contractor and it turns out they weren't?
The withholding obligation applies based on the true nature of the relationship, regardless of what the business believed at the time. Confirming a worker's status early is far less costly than sorting it out after a CRA reassessment.
Can I remit payroll deductions late if the business is short on cash?
You can remit late, but interest and penalties generally apply from the due date regardless of the reason for the delay. If cash flow is a recurring problem, talk to a professional before missed remittances become a pattern.
Is the Employer Health Tax the same thing as income tax withholding?
No. Income tax withholding comes out of the employee's pay; the Employer Health Tax is a separate cost the employer pays directly based on its total payroll, and it isn't deducted from anyone's paycheque.
This is a tax question
Start a file online — flat, published fees, reviewed by a licensed Ontario lawyer before a dollar is owed.