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If you’re not quite sure what the acronyms on your pay stub (also known as a paycheque stub, wage statement or payslip) – mean, you’re not alone. A pay stub is something your employer is legally obligated to give you every time you get paid, either electronically or on paper, so read on to get a better understanding of where your pay is going.
A pay stub is provided to you by your employer and provides a record of your employment earnings and deductions for a specific pay period. For example, it could be for a weekly or biweekly period, along with your year-to-date earnings.
➢ Earnings
This section shows the amount of money you earned for the period you worked, including overtime earnings and (if applicable to your job) tips or commissions, incentives, bonuses, and/or allowances. Together these various items comprise what is called your Gross pay.
The section also includes the amount of money you actually take home, which is called your Net pay.
- Gross pay = your total earnings for a pay period before your employer deducts income taxes and other applicable items
- Net pay = the amount of money you receive after all applicable deductions are made from your gross pay (also referred to as Take-home pay)
This section may also include the vacation pay for either the number of hours or the amount accrued for your next vacation, as well as statutory holidays for which you will be paid.
➢ Mandatory deductions
There are a number of deductions that your employer must take from your earnings and send directly to the Canada Revenue Agency (CRA). However, you do get credit for having paid these amounts when you file your annual tax return, as these amounts can be claimed as deductions. These deductions are reported on your T4.1
Here are the mandatory deductions taken by your employer:
Income Tax
Federal and provincial taxes: These deductions are calculated based on your gross income and a progressive tax rate. The more money you make, the more you pay in taxes.
Income tax brackets
In Canada we have a graduated personal tax system, which means everyone pays the same tax rate up to a certain level of income. There are currently five federal income tax brackets.
The table below shows the federal tax rates that apply for 2024. Keep in mind that in addition to federal tax, you must also pay provincial tax, which varies by province.
| Income level | Tax rate |
|---|---|
$1 to $55,867 |
15% |
$55,867 to $111,733 |
20.5% |
$111,733 to $173,205 |
26% |
$173,205 to $246,752 |
29% |
Over $246,752 |
33% |
What is the Basic Personal Amount (BPA) tax credit?
The purpose of the BPA is to provide individuals with taxable income below the BPA, which is $15,705 for 2024, with a full reduction from federal income tax. In other words, if your annual income is $15,705 or less for 2024, you don’t pay federal tax. The BPA also provides a partial reduction to taxpayers with taxable income above the BPA. See the CRA website for more information.
Employment Insurance (EI)
This contribution helps provide temporary income to unemployed workers while they look for employment or upgrade their skills. Workers who take time off due to specific life events, such as pregnancy or illness, can also take advantage of this benefit.
Canada Pension Plan (CPP)
The CPP is a retirement pension fund run by the federal government that pays a monthly benefit to those who qualify when they retire. You’ll contribute to the CPP for as long as you’re employed. Please note that an enhanced CPP benefit was introduced effective January 1, 2024. Please visit the government of Canada website for complete details on the CPP benefit.
In addition to the amounts that are deducted and withheld from your pay, your employer also makes contributions to EI and CPP on your behalf. The amount depends on how much you contribute.
Employment Insurance Maternity and Parental Benefits
Your contributions help to supplement new parents’ income when they take parental leave. In Quebec, the benefit is called the Quebec Parental Insurance Plan (QPIP).
Six key terms to know
Gross pay |
Your total earnings for a pay period before your employer makes the applicable deductions |
|---|---|
Net pay |
The amount of money you receive after all applicable deductions have been taken from your gross pay. Also, called your take-home pay |
Pay period |
The dates you were paid for – for example, a weekly or biweekly period |
CPP EI
|
Canada Pension Plan Employment Insurance Mandatory deductions from your pay that your employer sends directly to the Canada Revenue Agency (CRA) |
CRA
|
Canada Revenue Agency The revenue service of the Canadian federal government (and for most provinces and territories), the CRA is responsible for administering tax, benefits and related benefits that contribute to the ongoing economic and social well-being of Canadians. |
➢ Additional deductions from your pay
There are other deductions that, depending on your personal circumstances, might reduce your net pay. For example, if you participate in an employer-sponsored retirement plan or group health insurance, you will see additional deductions on your pay stub.
Pension plan
Your employer may choose to contribute to the employee pension plan and provide you with the option to do so as well, allowing you to save even more money for your retirement. If you have access to an employer-sponsored retirement plan with the employer potentially matching your contribution, you should take advantage of this benefit.
Group insurance plan
Many employers offer group insurance to help pay for health expenses, such as dental care, vision care, prescription drugs, disability insurance and more. If you choose to enroll in the group insurance plan, a certain amount of money will be deducted from your paycheque to help cover or minimize these expenses.
Registered Retirement Savings Plan (RRSP)
You can choose to have deductions made from your pay and automatically deposited into an RRSP. While this deduction will decrease your take-home pay, you will be building up your retirement savings and reducing your taxable income now, while your money in the RRSP is growing on a tax-deferred basis.
Employee Stock Purchase Plan (ESPP) or Employee Stock Ownership Plan (ESOP)
If you work for a publicly traded company that allows its employees to purchase company stock, this is something you should take advantage of, especially if your employer matches your contributions.
What you may need to use your pay stub for
- You may need a pay stub(s) when you’re applying for a loan to confirm your income.
- If you are planning to rent a property, a landlord will likely ask you to provide documentation showing that you’re financially able to pay rent. This could include your pay stub for the last two to three months to provide proof of regular employment and income.
- You can use your last pay stub which shows your year-to-date income, or the total amount of income you received for the previous 12 months, to confirm the figures on your T4. A T4 summarizes all the money you received from your employer during a calendar year and is usually provided to you each February by your employer. For example, the T4 you received in February 2024 outlines your income for the 2023 calendar year (Jan. 1 to Dec. 31).
Sources:
1 Government of Canada, Tax slips: https://www.canada.ca/en/revenue-agency/services/tax/individuals/topics/about-your-tax-return/tax-return/completing-a-tax-return/tax-slips.html
