Payroll in Ontario: The 2026 Guide for Small Business Employers

Hiring your first employee is a milestone. It also turns you into a tax collector. From the first paycheque, your business becomes responsible for withholding income tax, CPP, and EI from employees’ pay, adding your own employer contributions, remitting everything to the CRA on a strict schedule, and reporting it all accurately at year-end.

Payroll errors are among the most expensive mistakes a small business can make. Penalties for late or missed remittances apply quickly, directors can be held personally liable for unremitted amounts, and employees notice immediately when something’s wrong with their pay.

This guide explains how payroll works for Ontario employers in 2026, including the current rates, remittance schedules, year-end filings, and provincial obligations.

Key takeaways

• Employers must withhold income tax, CPP (including CPP2), and EI from employees’ pay and remit them with the employer’s share of CPP and EI.
• For 2026, CPP is 5.95% each for employee and employer up to $74,600 of pensionable earnings, with CPP2 at 4% each between $74,600 and $85,000. EI is 1.63% for employees and 2.28% for employers on insurable earnings up to $68,900.
• Most new small employers remit by the 15th of the month following the month of pay. Late remittances attract penalties starting at 3%.
• T4 slips and the T4 summary are due by the last day of February.
• Ontario employers also need to consider Employer Health Tax, WSIB, and Employment Standards Act requirements.

Employee or contractor? Get this right first

Before setting up payroll, make sure the worker is actually an employee. Misclassifying an employee as an independent contractor is one of the most common and costly payroll mistakes.

The CRA looks at the overall working relationship, considering factors such as:

• Control: who decides how, when, and where the work is done?
• Tools and equipment: who provides and pays for them?
• Subcontracting and hiring helpers: can the worker send someone else?
• Financial risk: does the worker have fixed costs, invest in the business, or face a risk of loss?
• Opportunity for profit: can the worker increase profit through how they manage the work?
• Intention: what did both parties intend, and does the actual relationship match?

Calling someone a contractor in a contract doesn’t make them one. If the CRA later decides a worker was an employee, the business can be assessed for the CPP and EI that should have been deducted, both the employee and employer portions, plus penalties and interest. If you’re unsure, you can request a ruling from the CRA.

Setting up payroll

1. Open a payroll program account

Your business needs a payroll (RP) program account with the CRA, added to your business number. You must open it before your first remittance is due.

2. Collect employee information

For each new employee:

• Social Insurance Number (SIN): employees must provide it within three days of starting work.
• Form TD1 (federal) and TD1ON (Ontario): personal tax credits returns that determine how much income tax to withhold. If an employee doesn’t complete them, withhold using the basic personal amounts.
• Banking details for direct deposit.
• Employment agreement setting out pay, hours, duties, and other terms.

3. Decide pay frequency

Weekly, biweekly, semi-monthly, or monthly. Ontario’s Employment Standards Act requires employers to establish a recurring pay period and pay day. Biweekly is common.

4. Choose payroll software or a provider

Payroll calculations are complex and change every year. Most small businesses use payroll software or a payroll provider that handles calculations, direct deposits, pay stubs, remittance amounts, and T4 preparation.

2026 rates and maximums

Canada Pension Plan (CPP and CPP2)

CPP applies to employees aged 18 to 69, with some exceptions for those receiving CPP retirement pensions who elect to stop contributing.

Employment Insurance (outside Quebec)

Income tax

Federal and Ontario income tax are withheld based on the employee’s pay, pay frequency, and TD1 claim amounts, using the CRA’s payroll deduction tables or its online calculator. For 2026, the lowest federal tax rate is 14% on the first $58,523 of taxable income, and the federal basic personal amount is $16,452 for most taxpayers.

Taxable benefits

Payroll isn’t just about salary. Many benefits provided to employees are taxable and must be included in their pay for withholding purposes. Common examples:

• Personal use of a company vehicle (standby charge and operating benefit).
• Group term life insurance premiums paid by the employer.
• Gifts and awards above the CRA’s non-cash gift limits, and all cash or near-cash gifts.
• Parking in many situations.
• Employer-paid premiums for certain health plans, depending on the plan type.
• Cell phones and internet where personal use is more than incidental.

Some benefits are taxable for income tax but not subject to EI, or vice versa. Getting the treatment right avoids reassessments for both you and your employees.

Remitting source deductions

Remitting on time is non-negotiable. Amounts withheld from employees are held in trust for the government.

Remitter types

The CRA assigns a remitter type based on your average monthly withholding amount (AMWA) from two years prior:

New employers generally start as regular remitters.

Penalties for late remittances

The CRA applies a penalty for late remittances based on how late they are:

• 3% if one to three days late
• 5% if four or five days late
• 7% if six or seven days late
• 10% if more than seven days late, or if no amount is remitted

Generally, the penalty applies only to amounts over $500, unless the failure is knowing or grossly negligent. A second or later failure in the same calendar year that’s made knowingly or with gross negligence can attract a 20% penalty. A 10% penalty also applies for failing to withhold. Interest is charged on penalties and unpaid amounts.

Director liability

Directors of a corporation can be held personally liable for unremitted source deductions, plus interest and penalties, unless they exercised the degree of care, diligence, and skill that a reasonably prudent person would have exercised. Using a payroll provider doesn’t remove this responsibility.

Year-end: T4 slips and the T4 summary

At the end of each calendar year, employers must:

• Prepare a T4 slip for each employee showing employment income, deductions withheld, and taxable benefits.
• File the T4 summary with the CRA, reconciling total income, deductions, and remittances.
• Distribute T4 slips to employees.

Deadline: the last day of February following the calendar year. For the 2026 tax year, that’s February 28, 2027.

Electronic filing requirement

If you file more than five T4 slips for a calendar year, you must file electronically. Most payroll software and providers handle this automatically.

Reconciliation

The T4 summary must agree with your remittances. If there’s a difference, the CRA will issue a PIER (Pensionable and Insurable Earnings Review) or an assessment for amounts it believes are under-remitted. Reconciling payroll quarterly avoids year-end surprises.

Records of Employment (ROEs)

When an employee has an interruption of earnings, such as leaving the job, being laid off, or going on maternity, parental, or sick leave, you must issue a Record of Employment (ROE) to Service Canada, generally within five calendar days after the end of the pay period in which the interruption occurs, when filing electronically. Late or inaccurate ROEs can delay employees’ EI benefits.

Ontario-specific obligations

Employer Health Tax (EHT)

Ontario’s Employer Health Tax applies to remuneration paid to employees who report to an Ontario workplace. Eligible private-sector employers have an annual exemption of $1 million of Ontario payroll (shared among associated employers). Above the exemption, rates range up to 1.95%. Most small businesses fall under the exemption, but you should still track total Ontario payroll and confirm whether any filing is required.

WSIB

Many Ontario employers must register with the Workplace Safety and Insurance Board (WSIB) within 10 days of hiring their first worker, depending on industry. Coverage is mandatory for most industries, and premiums are based on insurable earnings and industry rate groups. Some industries, such as many office-based businesses, may be exempt, but you should confirm your status.

Employment Standards Act (ESA)

The ESA sets minimum standards, including:

• Minimum wage, which in Ontario is adjusted each October based on inflation.
• Vacation pay: at least 4% of wages (6% after five years of employment), plus vacation time.
• Public holiday pay for Ontario’s nine statutory holidays.
• Overtime pay at 1.5 times regular pay after 44 hours a week, for most employees.
• Wage statements with each pay, showing gross pay, deductions, and net pay.
• Record keeping of hours, wages, and deductions.

Failing to meet ESA requirements can lead to employee claims and Ministry of Labour orders.

Common payroll mistakes

• Misclassifying employees as contractors.
• Missing the remittance due date, especially when the 15th falls on a weekend (payments must be received by the due date).
• Not withholding on bonuses, commissions, or vacation pay, all of which are subject to withholding.
• Ignoring taxable benefits such as vehicles or gift cards.
• Stopping CPP or EI too early when an employee changes jobs mid-year. The maximums apply per employer, so a new employer must continue deducting even if the employee hit the maximum with a previous employer.
• Not reconciling payroll to the general ledger throughout the year.
• Late T4s and ROEs.
• Treating owner draws as payroll (or vice versa) without a clear plan.

Payroll for owner-managers

If you own your corporation and pay yourself a salary, payroll rules apply to you too. Key differences:

• If you control more than 40% of voting shares, your employment is generally not insurable for EI, so no EI premiums are deducted.
• You still need to deduct and remit income tax and CPP.
• Your corporation issues you a T4 like any other employee.

Many owners choose a combination of salary and dividends. Our guide to salary versus dividends explains the trade-offs.

Frequently asked questions

How Solstice Partners can help

Solstice Partners provides payroll services for small businesses across Toronto and the GTA: setting up payroll accounts, running pay, calculating and remitting source deductions on time, handling taxable benefits, issuing ROEs, preparing T4s and T5s, and reconciling payroll with your books every month. We also help businesses fix payroll problems, including missed remittances and PIER assessments.

If you’re hiring your first employee, or your current payroll isn’t running smoothly, book a consultation with Solstice Partners.

This article provides general information about payroll obligations for Ontario employers using published 2026 figures, current as of October 2026. It isn’t legal, tax, or employment advice for your situation. Payroll and employment standards rules change regularly; consult a qualified professional and check the latest CRA and Ontario government guidance.