Canadian Pay Stub Deductions Explained: CPP, CPP2, EI and Income Tax

If you run payroll in Canada, every paycheque has the same four main deductions: Canada Pension Plan (CPP) contributions, the newer CPP2 contributions, Employment Insurance (EI) premiums, and income tax, both federal and provincial. This guide explains each one and how they appear on a pay stub, also called a pay statement.

Gross pay first

Start with gross pay for the period: hours × hourly rate for hourly staff, or annual salary divided by the number of pay periods for salaried staff (52 for weekly, 26 for biweekly, 24 for semi-monthly, 12 for monthly). Add overtime, vacation pay, bonuses and taxable benefits.

Canada Pension Plan (CPP)

CPP is a contributory pension. Employees and employers each contribute the same percentage of the employee's pensionable earnings.

Contributions are charged on earnings above a basic exemption of $3,500 a year and up to the Year's Maximum Pensionable Earnings (YMPE).
The exemption is spread across the year, so each pay period gets its share.
Once an employee reaches the yearly maximum contribution, CPP stops for the rest of the year.

The CRA sets the rate and YMPE every year.

CPP2 (second additional CPP contributions)

Since 2024, employees who earn more than the YMPE also pay CPP2 on earnings between the YMPE and a higher ceiling called the Year's Additional Maximum Pensionable Earnings (YAMPE). The employer matches it. Most lower and middle earners never reach CPP2, so it only appears on stubs once earnings pass the YMPE.

Employment Insurance (EI)

EI premiums fund benefits such as job-loss, maternity and parental leave.

The employee pays a percentage of insurable earnings, up to the Maximum Insurable Earnings for the year.
The employer pays 1.4 times the employee's premium.
Like CPP, EI stops once the yearly maximum is reached.

Income tax: federal and provincial

Income tax is withheld based on the employee's TD1 forms, one federal and one provincial, which set their personal tax credits. Federal tax and provincial tax are calculated separately using each government's brackets. Ontario also has the Ontario Health Premium, which is withheld with provincial tax.

Quebec is different

Quebec has its own pension plan (QPP) instead of CPP, its own parental insurance plan (QPIP), a lower EI rate, and provincial tax that is reported separately to Revenu Québec. Quebec payroll has its own rules and forms.

What goes on a Canadian pay stub

A complete Canadian pay statement usually shows:

employer name and address, and the employee's name;
pay period and pay date;
hours and rates, or salary, and gross pay;
each deduction on its own line: CPP, CPP2 if any, EI, federal tax and provincial tax;
other deductions such as benefits or RRSP contributions;
net pay;
year-to-date totals, which show when CPP and EI maximums have been reached.

Employment standards in most provinces require employers to give a pay statement every payday.

Make a Canadian pay stub in minutes

Our Canadian pay stub generator calculates CPP, CPP2, EI, and federal and provincial tax for Ontario, British Columbia and Alberta, using the current year's rates. Choose one of seven templates, preview it free and download a PDF. Your first two pay stubs are free. For the abbreviations you will see on stubs, read our guide to pay stub abbreviations.

This article is general information, not tax or legal advice. Rates and maximums change every year; check the CRA's payroll deductions guides for the current figures.