What Deductions Are Taken From a Paycheck in Ontario

After calculating what you earned in a pay period, it can be a bit of a surprise when you finally get your paycheque. Your pay may be less than the total amount you earned because of payroll deductions. Some of these deductions are required by law, while others depend on your particular career or employer's benefit programs.

It's easy to think of deductions as money that you 'lost': after all, you earned the money, but you don't get to spend it. However, payroll deductions almost always benefit you directly.

Consider

Make a list of the payroll deductions you know about. Beside each deduction, describe how you think the deduction benefits, or could benefit you.

Gross Pay, Net Pay and Deductions

In Activity 1, you calculated the total amount that an employee earns in a pay period. This is referred to as gross pay.

Example of Gross Pay Calculation

If you work 40 hours and earn $11.25 per hour, then your gross pay would be $450.00

This was calculated by multiplying the hours worked by the dollars earned per hour.

40 hours x $11.25 / hour = $450.00

You can calculate your take-home pay by subtracting your deductions from your gross pay.

However, you don't receive all of that money. A portion of your earnings is used to pay for government programs, taxes and employee benefit programs set up by your employer. These are referred to as deductions.

What's left, after deductions, the amount that you receive, is referred to as your net pay. This is also called your take-home pay.

Calculating Gross Pay, Net Pay and Deductions

Using the pay stub below, try to determine the three missing components:

• Gross Pay
• Deductions
• Net Pay

Question

What would the gross pay be on this pay stub?

Answer

Question

What are the total deductions on this pay stub?

Answer

$65.03 + $28.62 + $305.90 + $10.84 + $4.94 + $7.01= $422.34

Question

What would the net pay be on this pay stub?

Answer

$1900 - $422.34 = $1477.66

Types of Deductions

Although you may have seen deductions listed on your pay stub, you may not know what they mean or why they are deducted from your pay.

Explore the pay stub below by clicking on the various parts to read more.

You can open the above activity on a separate screen and you can also access the long description.

Calculating Deductions

Pay stub deductions will vary depending on your type of employment and your employer. Common government deductions that may appear on your pay stub are income tax, employment insurance, and Canada Pension Plan. For these deductions, your employer collects and pays these amounts to the government.

Estimating Income Tax Deductions

There are two types of income tax: federal tax and provincial tax. Tax rates tell you what percentage of your income you pay for both federal and provincial tax. The tax rates are determined by your annual income, so the more money you earn, the higher the tax rate that you pay. To see rates for different income levels you can check out the Canadian income tax rates for individuals site.

Once you know your tax rate, you can use it to get a rough estimate of the tax you will pay. This will not be exact, because the actual calculation of income tax is more complicated than a straight percentage.

Question

If you make an annual salary of $30,004.00, you will pay 15% in federal tax and 5.05% in Ontario tax. If you are paid bi-weekly, your gross pay will be $1154.00 every two weeks. What will your federal and provincial tax deduction be on every paycheque?

Answer

To calculate Federal income tax:
Federal income tax = gross pay x tax rate/100
Federal income tax = $1154 x 15/100
Federal income tax = $173.10

To calculate provincial income tax:
Provincial income tax = gross pay x tax rate/100
Provincial income tax = $1154 x 5.05/100
Provincial income tax = $58.28

Therefore you would pay $173.10 in federal tax and $58.28 in provincial tax

Estimating Employment Insurance and Canada Pension Plan Deductions

Both the Employment Insurance and Canada Pension Plan deductions are calculated as a percentage of your gross pay. The 2016 rates for these deductions are:
Employment Insurance (EI) = 1.88%
Canada Pension Plan (CPP) = 4.95%

Like income tax, you can get a rough estimate of the EI and CPP deductions by calculating the percentage of your gross pay.

Question

Imagine your gross pay is $1154.00 every two weeks. What will your EI and CPP deduction be on every pay cheque?

Answer

To calculate Canada Pension Plan deductions:
Federal income tax = gross pay x CPP rate/100
Federal income tax = $1154 x 4.95/100
Federal income tax = $57.12

To calculate Employment Insurance deducations:
Provincial income tax = gross pay x EI rate/100
Provincial income tax = $1154 x 1.88/100
Provincial income tax = $21.70

Therefore your CPP deduction would be $57.12 and your EI deduction would be $21.70.

Payroll Deduction Tables

The most accurate way to find your government deductions is to use the payroll deduction tables provided by the Canada Revenue Agency. These tables are more accurate because they take into account all of the factors used to calculate the deductions. You can go the Canadian Revenue Agency website to find the tables for federal tax, provincial tax, employment insurance and the Canadian Pension Plan.

To use the tables, find your gross pay for a pay period and read across the table to find the amount of the deduction.

Did You Know?

There are maximum annual contributions that you can make to Unemployment Insurance ($955.04) and the Canada Pension Plan ($2,544.30) in 2016. After you've paid the maximum, these deductions are no longer taken off your paycheque.

In this activity, we looked at the amount that you earn and how it is affected by the different types of deductions that can be applied to your earnings. Try completing the following pay stub to ensure that you know how to calculate deductions and net pay.

Filling Out a Pay Stub

Imagine you earned a salary of $40,000.00. If you're paid bi-weekly, you would receive a gross pay of $1538.46 on each paycheque.

1. Using the payroll deduction tables, determine the government deductions (federal tax, provincial tax, employment insurance, Canada Pension Fund) for this salary amount.
2. Calculate the total deductions and net pay

Use this pay stub file to complete your work.

What Deductions Are Taken From a Paycheck in Ontario

Source: https://lah.elearningontario.ca/CMS/public/exported_courses/MEL3E/exported/MEL3EU01/MEL3EU01/MEL3EU01A03/_content.html

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