The true cost of hiring your first employee in Ontario

An employee on a $60,000 salary in Ontario costs the employer roughly $65,500 a year in cash before benefits, equipment or a single hour of your own time, and the gap widens with each thing you add. The statutory pieces are fixed by formula, so they can be budgeted to the dollar; the rest comes down to choices. This post itemises both, works through an illustrative hire, and sets out the registration steps and remittance dates so that the first payroll does not become the first penalty.

The statutory costs every Ontario employer pays

Canada Pension Plan, including CPP2

You match the employee's CPP contribution dollar for dollar: 5.95% of pensionable earnings between the $3,500 basic exemption and the year's maximum pensionable earnings. Since 2024 there is a second tier, CPP2, at 4% on earnings between the first ceiling and a higher second ceiling, also matched. As at the time of writing the 2026 ceilings are $74,600 and $85,000; confirm the current year's figures on the CRA's CPP rates page before you build a budget, because they move every January. Our answer on how CPP2 affects payroll explains the second tier.

Employment Insurance at 1.4 times

The employer's EI premium is 1.4 times whatever the employee pays. The employee rate is set each autumn for the following year and has sat in the $1.60s per $100 of insurable earnings in recent years, up to an annual insurable earnings maximum; for 2025 it was 1.64% on earnings to $65,700, which made the employer share 2.296%. Owner-managers who control more than 40% of a corporation's voting shares are not insurable on their own salary, but every arm's-length employee is.

Vacation pay and public holidays

The Employment Standards Act requires vacation pay of at least 4% of gross wages, rising to 6% once the employee has five years of service, with two or three weeks of time off to go with it. For an hourly employee it is a visible 4% on top; for a salaried employee it is two weeks of pay with no work in return. Ontario also has nine public holidays, each paid at the employee's average daily earnings over the previous four work weeks. Together that is close to four weeks a year of paid non-working time, or about 7% of the wage bill. See how vacation pay works in Ontario and how public holiday pay is calculated.

WSIB, by industry class

Workplace Safety and Insurance Board coverage is compulsory in the industries listed in Schedule 1 of the Act, which include construction, manufacturing, transportation, retail, restaurants and most health care, and optional in many office-based businesses. Premiums are a rate per $100 of insurable earnings that depends on your NAICS class, from well under a dollar in low-risk classes to several dollars in roofing or long-haul trucking; the provincial average rate has been in the range of $1.25 to $1.30 in recent years. If coverage is compulsory you must register within 10 days of the first hire. Our answer on whether you need WSIB coverage covers the optional cases.

Employer Health Tax, usually zero

Ontario's Employer Health Tax is charged on payroll at rates up to 1.95%, but as at the time of writing private-sector employers are exempt on their first $1 million of annual Ontario remuneration, shared among associated companies. A first hire will not come near it, and you only need to register once payroll exceeds the exemption. Details are in who pays the Ontario Employer Health Tax.

An illustrative first hire at $60,000

Illustrative example. The arithmetic uses 2025 CPP and EI rates; the current year's ceilings are a little higher. Assume a full-time salaried employee at $60,000 in a business where WSIB applies at a class rate of $1.25 per $100. The equipment and software lines are assumptions we have chosen for the example, not survey figures.

Add a group health plan and the number climbs again. Small-group premiums are priced per employee per month and vary too widely by age and plan design for a useful average, so get a quote, and note that the employer-paid portion of a health and dental plan is generally not a taxable benefit to the employee while employer-paid life insurance premiums are; see which employee benefits are taxable. The item no spreadsheet captures is your own time: recruiting, onboarding and supervising through the first quarter. Expect a productivity dip before the gain. Our answer on what an employee really costs an Ontario employer runs the same arithmetic at other salary levels.

Set-up steps before the first pay run

1. Open a payroll program account. Add an RP account to your business number through CRA My Business Account. A sole proprietor can do this as easily as a corporation; see can a sole proprietor hire employees.
2. Collect the employee's forms. Social insurance number, a federal TD1 and an Ontario TD1ON. A SIN beginning with 9 belongs to a temporary resident, so check the work permit and its expiry date.
3. Sign a written employment agreement. Salary, hours, vacation and a termination clause that complies with the ESA. Ontario courts have struck down a great many termination clauses, so have an employment lawyer draft this one; it is the cheapest insurance in the whole process.
4. Register with WSIB within 10 days if your industry is covered, or decide on optional coverage if it is not.
5. Choose payroll software that calculates deductions, files remittances and produces T4s and Records of Employment. We compare the Canadian options in which payroll software a Canadian small business should use, and the CRA's Payroll Deductions Online Calculator is a sound check on any of them.
6. Give the employee the Employment Standards poster within 30 days of hire, and open a file for hours, vacation accrual and pay statements, which the ESA requires you to keep.

The full sequence is in how to set up payroll for your first employee in Ontario.

The remittance and reporting calendar

Each pay run you withhold income tax, CPP and EI from the employee and add your employer share. A new employer is a regular remitter: the total is due to the CRA by the 15th of the month after the month you paid the wages. New employers whose average monthly withholding is under $1,000 can apply to remit quarterly, on the 15th of April, July, October and January. Late remittances are penalised at 3% if one to three days late, 5% at four or five days, 7% at six or seven, and 10% beyond that, with 20% for repeat failures in the same year. By the last day of February you file the T4 slips and summary for the prior year, and within five calendar days after the end of a pay period in which earnings are interrupted you file a Record of Employment electronically. WSIB premiums are reported and paid on the schedule the Board assigns by payroll size. See when payroll remittances are due and how and when to issue T4 slips.

The contractor alternative and what it risks

Paying the same person $60,000 as a contractor saves the $5,500 of CPP, EI and WSIB, the vacation pay and the administration, which is why the idea is so tempting for a first hire. It works only if the person is genuinely in business for themselves: setting their own hours, using their own equipment, free to work for others and to send a substitute, and carrying the risk of a job that goes wrong. Someone who works your schedule, at your desk, on your tools, only for you, is an employee whatever the invoice says. If the CRA rules that way, you owe both shares of CPP and EI for the open years plus penalties and interest, and the worker can claim ESA vacation pay, holiday pay and termination entitlements on top. We set out the test and the exposure in contractor or employee: the misclassification risk Ontario businesses underestimate and the CRA's factors in how the CRA decides.

What we tell owners making the first hire

• Budget the salary plus 10% for the statutory pieces, plus whatever equipment and benefits you choose. That is the number to compare against the revenue the hire will generate.
• Start payroll software from day one. Manual calculations are where first-year employers make their expensive mistakes.
• Put the remittance date in the calendar with a reminder a week ahead.
• Open a separate savings account and move the withholdings there on each pay day, so trust money never becomes working capital.

Our payroll service runs the calculations, the remittances, the WSIB reporting and the year-end slips for a fixed monthly fee quoted after a discovery call, so the first hire's paperwork is in place before their first day.

Sources: CRA — Payroll · CRA — CPP contribution rates, maximums and exemptions · CRA — EI premium rates and maximums.