What does an employee really cost an employer in Ontario?

The statutory costs that apply to almost every employer

Every employer pays a matching share of CPP contributions on an employee's pensionable earnings up to the year's maximum pensionable earnings, generally 5.95% as at the time of writing; confirm the current employer CPP rate and the year's maximum pensionable earnings with the CRA before budgeting a new hire, since both are adjusted annually. On top of base CPP, employers also contribute an additional amount known as CPP2 on earnings between the standard maximum and a second, higher ceiling, which our answer on what CPP2 is and how it affects payroll explains in detail.

EI premiums are not matched dollar for dollar; the employer pays 1.4 times whatever the employee's premium amount is, a multiplier set by legislation rather than left to negotiation. Combined, CPP, CPP2, and EI mean that for every dollar of insurable and pensionable earnings, an employer's actual cash outlay is noticeably higher than the gross wage alone, even before anything else is added.

Vacation pay and statutory holidays are not optional extras

Ontario's Employment Standards Act requires employers to pay vacation pay of at least 4% of gross wages for employees with under five years of service, rising to at least 6% once an employee passes five years with the same employer. This is not a benefit an employer can choose to skip; it is a statutory minimum, whether paid out on each cheque or accrued and paid when vacation is actually taken. Our answer on how vacation pay works in Ontario covers the accrual and payout mechanics in more depth.

Public holiday pay is calculated using a formula based on the employee's earnings in the weeks before the holiday, and it applies whether or not the employee actually works that day, with premium pay rules if they do work it. Our answer on how statutory holiday pay is calculated walks through the formula itself.

WSIB and EHT add cost for many, but not all, employers

If your business falls under a mandatory WSIB industry, you pay a premium calculated as a rate per $100 of insurable payroll, and that rate varies significantly by industry classification since it reflects the injury risk associated with that type of work. A low-risk office-based business and a higher-risk trade business can see meaningfully different WSIB rates even with identical payroll totals; see our answer on whether your business needs WSIB coverage to check your industry's status.

The Employer Health Tax only becomes a cost once total Ontario payroll crosses the exemption threshold, $1,000,000 for eligible private employers as at the time of writing, so a small employer with only a handful of staff may never owe it at all. Once payroll grows past that point, EHT applies at rates scaling up to 1.95%; see our answer on the Ontario Employer Health Tax for the full mechanics.

An illustrative example, not a quote

To make the add-on costs concrete, consider a hypothetical $50,000 salary at a small employer below the EHT threshold and outside a mandatory WSIB industry. Employer CPP contributions, EI at the 1.4 times multiplier, and 4% minimum vacation pay alone can push the real cost of that role somewhere in the range of roughly 8% to 12% above the base salary, before counting statutory holiday pay, any benefits offered, or WSIB and EHT where they apply. This range is illustrative only, built from the mandatory add-ons discussed above, not a quote or a guarantee for any specific business; actual figures depend on current CPP, CPP2, and EI rates, the employee's earnings level relative to the pensionable earnings ceilings, and whether WSIB or EHT apply to your business at all.

• A business in a mandatory WSIB industry adds a premium on top of the range above, sized to its specific classification rate.
• A business with payroll above the EHT exemption adds up to 1.95% of Ontario remuneration on top as well.
• Extended health and dental benefits, where offered, are a separate cost layered on top of all of the statutory add-ons.

Overtime and eventual termination costs belong in the picture too

Ontario's Employment Standards Act generally requires overtime pay at 1.5 times the regular rate once an employee works beyond 44 hours in a week, unless a specific exemption or averaging agreement applies to that role. A business that expects a role to regularly run long hours should budget overtime into the true cost of that position rather than assuming the base salary or hourly rate covers every hour actually worked.

Termination entitlements are a contingent cost rather than a certain one, but they are still a real part of the total picture: the ESA sets minimum notice or pay in lieu of notice, and in some cases statutory severance pay, based on length of service, and many employment contracts or common law obligations require more than the statutory minimum. This does not need to change a hiring decision, but it is worth knowing that the cost of an employee does not end cleanly the day the employment relationship does.

Why this matters before making an offer

Budgeting only the salary line for a new hire, without building in the mandatory employer-side costs, is one of the more common planning mistakes first-time employers make. A business deciding between two salary offers, or between hiring an employee and engaging a contractor instead, should compare the fully loaded employer cost, not just the headline number, since the gap between the two can meaningfully change which option makes financial sense. Our true cost of hiring your first employee guide walks through this comparison for a first hire specifically.

How we help clients budget for hiring

We build out the fully loaded cost of a new hire, including CPP, CPP2, EI, vacation pay, and any WSIB or EHT exposure specific to the client's industry and payroll size, before an offer goes out rather than after payroll surprises show up. Our payroll services and CFO services work together to turn a hiring decision into a real cost forecast rather than a guess based on salary alone.

Source: CRA — Payroll.