The Hidden Side of Payroll

Most business owners think of payroll as “wages plus taxes.”
But in reality, payroll carries several employer-only costs — amounts you’re required to pay on top of an employee’s gross pay.

Ignoring them leads to cash flow surprises and underpricing your services.
Understanding them gives you control and foresight — two things every small business needs.

1. CPP Contributions (Your Half)

In Canada, both employers and employees contribute to the Canada Pension Plan (CPP).
For 2025, the rate is 5.95% of pensionable earnings, up to the annual maximum ($68,500).

Example:

• Employee earns $5,000 in a month.
• You withhold $297.50 for the employee’s CPP.
• You also contribute $297.50 as the employer.

That’s $595 total to remit to the CRA — half from them, half from you.

Important: once an employee reaches the annual maximum, CPP deductions stop automatically for the rest of the year.

2. EI Contributions (Your Share)

Employment Insurance (EI) provides income support to workers during unemployment, parental leave, or sickness.
The employee pays 1.66% of insurable earnings; the employer pays 1.4× that amount, or 2.324%.

Example:

• Employee EI deduction = $83.00
• Employer portion = $116.20

EI stops once the employee hits the annual insurable earnings maximum ($63,200 for 2025).

3. Vacation Pay Accrual

Even if you don’t pay out vacation every pay period, you’re accruing it as a future liability.
In Alberta, for example:

• Employees earn 4% of wages as vacation pay during their first 5 years.
• After 5 years, it increases to 6%.

If you pay $50,000 in wages this year, that’s $2,000–$3,000 you’ll eventually owe in vacation pay.
If you don’t track it, it’ll catch up with you later.

4. Workers’ Compensation (WCB or WSIB)

All provinces require employers to carry workers’ compensation coverage.
Rates vary by industry — typically between $0.20–$2.50 per $100 of payroll.

A light office role might cost $0.30 per $100; a construction role could be $2.00 or more.
You’ll pay these premiums directly to your provincial WCB/WSIB, not the CRA.

5. Statutory Holiday Pay

Depending on your province, you must pay employees for statutory holidays — often an extra day’s pay or premium rate if they work.
This effectively increases your labour cost by another few percentage points across the year.

For example, Alberta has 9 statutory holidays; if your business runs year-round, plan for roughly 3–4% extra payroll cost to cover them.

6. Employer Benefits and Perks

If you offer group health benefits, dental, RRSP matching, or allowances, these add to your total cost per employee.
Some are taxable benefits (the CRA treats them as income), and others are deductible business expenses.

Either way, they’re part of the true employment cost.

The Takeaway

If you only budget for hourly wages, you’re underestimating your labour costs — and probably underpricing your services.

Payroll isn’t just what you pay people; it’s what you pay to employ them.
When you understand that full picture, you can quote jobs, manage cash flow, and forecast growth with real accuracy.

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