Chapter 6 - Employer Payroll Expenses
Summary :What Employer Payroll Expenses Include
Calculating an employee's gross pay, deductions, and net pay is only half of payroll's job; payroll is equally responsible for calculating and remitting the amounts the employer itself owes because it has employees. Employer payroll expenses are the financial obligations that sit on top of, and separate from, whatever is deducted from an employee's own paycheque. In Canada these fall into four categories: employer CPP contributions, employer EI premiums, workers' compensation premiums paid to a provincial or territorial board, and, in certain provinces, an employer health or payroll tax. None of these come out of the employee's pay - they are additional costs the employer incurs and remits directly - and together they can add a meaningful percentage on top of an organization's total wage bill, which is why budgeting for them separately matters.
Employer CPP Contributions
Employers must match every employee's CPP contribution dollar for dollar: whatever amount is withheld from an employee's pay for CPP, the employer remits an identical amount on that employee's behalf. If an employee's CPP contribution for a pay period is calculated using the standard exemption and current-year rate, the employer's contribution for that same period is simply that same dollar figure. Where an employee's earnings are high enough to trigger the CPP2 additional contribution tier, the employer must match that CPP2 amount as well, using the same one-to-one ratio. Employers do not make CPP contributions on behalf of independent contractors, since contractors are not employees; a self-employed individual instead pays both the employee and employer portions of CPP directly, though certain self-employment income can be excluded from CPP contributions by filing the relevant CRA election form.
Employer EI Premiums and the Premium Reduction Program
Unlike CPP, employer EI premiums are not matched one to one - they are calculated as 1.4 times whatever the employee's EI premium was for the period, a ratio set because employers, as the party responsible for layoffs, are expected to shoulder a larger share of funding the EI system. An employer that offers an approved short-term disability plan can apply to Service Canada for a reduction to this 1.4 multiplier, lowering the employer's EI cost below the standard rate. The logic behind the reduction works both ways: the employer benefits from a lower EI expense, while the government benefits because employees covered by an employer's short-term disability plan draw on that plan instead of EI benefits during a short-term absence, reducing overall EI payouts. Once granted, a reduction stays in place unless the employer changes or cancels the underlying disability plan. The CRA's Payroll Deductions Online Calculator can generate a full employer remittance summary showing both the employer and employee portions of CPP and EI side by side, which is useful for verifying that manual and software calculations agree.
Workers' Compensation Premiums
Every Canadian province and territory (except the Northwest Territories and Nunavut, which share one board) operates a Workers' Compensation Board that administers a no-fault compensation scheme for employees injured or made ill by their work. No-fault means an injured employee does not need to prove the employer was negligent - they simply apply to the WCB, which investigates the claim and, if approved, provides medical treatment, wage replacement, and other supports such as vocational rehabilitation. Employers fund this system through mandatory WCB premiums, and most industries are covered unless specifically exempted by provincial or territorial law. Premium rates are not uniform: each jurisdiction sets rates by industry classification, reflecting that sector's historical volume of workplace injury claims, so a higher-risk industry such as construction pays a substantially higher rate per dollar of payroll than a lower-risk office-based industry, and rates for the same type of work can also differ meaningfully from one province to the next.
Calculating a WCB Premium - A Worked Example
Calculating a WCB premium follows three steps. First, calculate each employee's net assessable earnings (NEA), which is gross earnings capped at the jurisdiction's maximum assessable earnings threshold for the year - earnings above that threshold are simply excluded from the premium calculation. Second, determine the applicable premium rate for the employer's industry classification, usually expressed as a dollar amount per $100 of NEA. Third, multiply total NEA across all employees by that rate to find the total premium owed. Consider GreenLeaf Landscaping, an Alberta employer with three employees earning $72,000, $105,000, and $60,000 respectively, operating under a jurisdiction with a maximum assessable earnings threshold of $98,000 and a landscaping-industry premium rate of $1.10 per $100 of NEA. The first employee's NEA is their full $72,000, since it falls under the threshold; the second employee's NEA is capped at $98,000, since their actual earnings of $105,000 exceed the threshold; the third employee's NEA is their full $60,000. Total NEA across all three employees is $72,000 plus $98,000 plus $60,000, or $230,000. Dividing $230,000 by 100 gives 2,300 units of $100, and multiplying by the $1.10 rate produces a total WCB premium of $2,530.00 for the year.
Provincial Employer Health and Payroll Taxes
Several Canadian provinces levy a payroll-based tax directly on employers to help fund healthcare and, in some cases, post-secondary education systems - a cost distinct from CPP, EI, and WCB premiums. As of the most recent guidance, British Columbia, Manitoba, Newfoundland and Labrador, Ontario, and Quebec each impose such a tax, and each sets its own rate structure based on total payroll size. Most of these provinces also exempt smaller employers entirely: an employer is generally exempt if its total annual remuneration across all employees falls below a province-specific threshold, so a small business with modest total payroll may owe no employer health tax at all even though it operates in a province that levies one, while a larger employer in the same province is assessed based on how far its payroll exceeds that threshold.
Quick Revision Summary
Employer payroll expenses sit on top of employee deductions and include employer CPP contributions, employer EI premiums, WCB premiums, and, in some provinces, an employer health or payroll tax. Employer CPP contributions match the employee's CPP contribution one to one, including any CPP2 amount. Employer EI premiums equal 1.4 times the employee's EI premium, though an approved short-term disability plan can qualify an employer for a reduced multiplier. WCB premiums are calculated by capping each employee's earnings at the jurisdiction's maximum assessable earnings threshold to find net assessable earnings, then multiplying total NEA by an industry-specific rate per $100 of earnings - rates vary significantly by both industry risk and jurisdiction. Provincial employer health or payroll taxes apply only in certain provinces, generally exempt small employers below a payroll threshold, and are calculated independently of CPP, EI, and WCB.