How to make sense of your pay stub deductions

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. 

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.

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:

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.

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.

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.

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).

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. 

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.

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. 

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.

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.