Have you been wondering if you can manually calculate Canadian pay stubs? The short answer is yes.
Plenty of excellent pay stub generators and in-house software programs streamline the process of paying your employees. All you need to know is their paystub formulas and what goes into a paystub calculation, and you can create your own pay stub in no time.
In this article, we’ll cover the following:
- What Are Pay Stubs?
- What Information to Include on a Pay Stub
- What Are Payroll Deductions?
- How to Create Paystubs That Meet All Legal Requirements
What Are Pay Stubs?
A pay stub is a written summary issued by the employer that contains information about the employee’s gross and net pay for a specific pay period.
Gross pay is the total salary an employee has earned before deductions. Net pay is the salary an employee actually receives, either as a check or a direct deposit. The pay period depends on the company and its pay frequency but typically includes a weekly, bi-weekly, or monthly payment.
If employees get paid with a check, the wage slip should be attached. If they choose a deposit, you can mail them a digital copy of their pay stub to their email address.
What Information to Include on a Canadian Pay Stub
There are 3 payroll obligations each employer has to fulfill. These include:
Paying employees each pay period
Ensuring compliance with the Canada Revenue Agency (CRA)
Under these obligations, a pay stub should contain these details:
Taxable earnings, including the number of hours, worked and the hourly rate
Total gross income
A deduction for the income tax
A deduction for Employment Insurance (EI)
A deduction for the Canada Pension Plan (CPP) or the Québec Pension Plan (QPP)
Other deductions, such as union dues, vacation pay, and health insurance premiums
Year to date (The total amount of net pay from the beginning of the calendar year until the current pay period)
What Are Payroll Deductions?
Payroll deductions are wages remitted from the employee’s total earnings to pay taxes, benefits, and garnishments. Essentially, a payroll deduction constitutes the difference between gross and net pay. In Canada, deduction amounts vary year-to-year and depend on the employee’s primary place of residence.
By law, the employer must deduct the following from the total amount of money the employee has earned:
Employee contribution to EI
Employee contribution to the CPP or the QPP
How to Deduct the Income Tax
In Canada, the federal income tax is paid at the same rate up to a specific income level. As the taxable income increases, so does the tax.
For 2024, Canadian Tax Rates - Federal go as follows:
$1 to $55,867: 15%
$55,867 to $111,733: 20.5%
$111,733 to $173,205: 26%
$173,205to $246,752: 29.32%
Over $246,752: 33%
You can keep up with the yearly changes on the Canada Revenue Agency’s page on the Government of Canada website. This way, you'll know what amount to deduct from your pay stubs.
Besides paying the federal income tax, employers must pay provincial tax, which differs based on the province or territory. All provinces and territories calculate their tax similarly to the federal tax, except Québec. The CRA publishes all these tax rates in handy payroll deduction tables for your convenience.
Suppose an employee works or lives in a city in a different province from where you operate your business. In that case, the CRA advises using the employee’s provincial tax bracket for the deductions.
How to Deduct Employment Insurance
Employment Insurance is a federal government program that provides temporary income support for people out of a job. It also provides benefits to workers who temporarily leave their job due to specific life events like pregnancy or illness.
The government posts a list of EI premium rates and maximums each year. To calculate the EI deduction on the pay stub, you should multiply the employee’s pay for the given pay period by the EI rate for the current year.
Keep in mind that the EI also includes an employer contribution. Multiply the deducted amount by 1.4, and you’ll get the contribution amount you need to supply. The abovementioned list also contains employee and employer maximum contribution amounts per year. Once you reach this amount, you no longer need to deduct EI for that calendar year.
How to Deduct the Pension Plan
The Canada Pension Plan is a monthly, taxable benefit that replaces part of the employee’s income when they retire. The contribution rate is paid by you and the employee in equal amounts. The employees' contribution is deducted from their pay stubs.
As with the EI, you can access a list of CPP contribution rates, maximums, and exemptions to receive the necessary information. To calculate the pay slip pension deduction, you need to multiply the employee’s pay by the stated contribution rate. Then, you should deduct the calculated amount from the employee’s gross pay and pay the same amount yourself.
The government sets the maximum annual amount you can contribute to the CPP, which is also stated in the table, both for companies and self-employed people. Once your reach the maximum amount, you can stop deducting CPP on the pay stub and paying employer contributions.
The Québec Pension Plan follows similar rules, with a slight difference. The stated contribution rate represents the total rate to be paid for the program. This rate is split equally between employees and employers.
What Are Workplace-Specific Deductions?
Other deductions present on a pay stub depending on the specific benefits a workplace offers. Employees can choose whether to take advantage of these benefits. If they do, you’ll need to include them in the pay stub as a deduction.
The most common workplace-specific benefits include the following:
Group health insurance plan
Group savings plan
Share ownership plan
Company vehicle fees
Fitness centre fees
Besides these benefits, you might need to include the employee’s vacation pay, union dues, and other deductions specific to them.
How to Create Paystubs That Meet All Legal Requirements
Business success significantly depends on having a reliable team that you pay accurately and on time. Knowing how to calculate your own pay stub can help you meet payroll expectations, keep your employees happy, and comply with CRA guidelines.
CRA also offers numerous resources and tools to help you navigate the seemingly daunting task of managing payroll. You can use the Agency’s online deduction calculator to confirm the amount of income tax, EI, and CCP deductions you need to remit when you create pay stubs.
If this process still scares you, you can rely on a pay stub generator to produce professional-looking pay stubs. If you live in Canada, you can use Shopify Pay Stub Generator, a free pay stub generator that allows instant access to high-quality pay stubs. Once you enter all the necessary details, the platform will mail you the pay stub to download, sign, and use immediately.
If you’re in the U.S., you can read more about the pay stub requirements by state. Armed with the necessary information, you can use the best pay stub generator, Real Check Stubs, to create pay stubs and ensure long-term business success.