What are Paycheques and How to Read Them

We all love payday, but may not have a solid grasp of all the specifics listed on the paycheque. At first glance there seems to be a lot of different numbers and titles; which can be confusing when you aren’t sure about what they mean.

Errors during the payroll process can occur, and if one of the sections on the paycheque are wrong (like overpaying an employee or the taxes could be added incorrectly, etc.), this can cost your business money. Therefore, understanding every part of a paycheque is important because it will save your business from critical losses. Knowing how to read the paycheque will also come in handy every tax season so you can ensure everything is according to standard.

What is a Paycheque?

A paycheque is issued by an employer and given as payment to an employee for services rendered. An employee’s paycheque might be delivered on paper, as with traditional cheques, or it could be received through direct deposit. Once the employee receives a physical cheque, they then cash it with their bank to get the funds.

If the employee chooses to have the paycheque directly deposited into their bank account, their pay shows up automatically on pay day. A paycheque is typically issued every two weeks, although some employers issue paycheques weekly or monthly.

When processing payroll it is important to understand what each number means on the paycheque. Not only is it important for remittance reasons, but for taxes as well. An average paycheque will take into account the following:

  • Pay period
  • Pay date
  • SIN
  • Pay rate
  • No. of hours
  • Gross pay
  • Year to date
  • Deductions:
  • Federal income tax
  • Provincial income tax
  • Canadian Pension Plan
  • Employment Insurance
  • Net pay

How to Read a Pay Stub Canada

When an employer issues a paper/physical paycheque, the pay stub is attached to it – so they are contained within the same envelope. If a small business owner decides to issue the paycheque electronically, the pay stub will typically be sent in an email. The pay stub outlines the details of the paycheque for that pay period. It shows the breakdown of how the net pay was calculated; explaining why your employee got the exact amount they received.

This breakdown is calculated during the small business’ payroll process. Here are the 13 steps that will help you understand what each section on the pay stub means so you can ensure you are issuing the correct amount on your employees paycheques.

Pay period

This is the date range your employees are being paid for. It is usually biweekly (every two weeks). It could also be semi-monthly – that is, always on the 15th and 30th of the month. Sometimes the pay period is monthly.

Pay date

This is the date that you can officially cash the cheque. The cheque is no longer valid (stale-dated) six months from that date.


This is your employees’ Social Insurance Number. It is the nine digit number that you need to work in Canada or to have access to government benefits and programs. Every SIN is unique to each individual it is given to and can not be legally used by anyone else.

You must keep it private, to protect your employees from identity theft. Be sure to store any payroll or employee personal information on a secure server.

Pay rate

Pay rate is the compensation paid to your workers for their labour. If the employee makes an hourly income, the pay rate will show how much that person made per hour.

For example if a cashier makes $15 an hour, the pay rate section of the pay stub will show $15. However, some people make a salary that does not depend on their hours worked. On their pay stubs, they will only see the amount of pay in the pay period, not an hourly rate of pay.

For example, if an employee makes a salary of $50,000 a year, and receives paycheques monthly, they will see $4,166 in the pay rate section.

Pay rate refers to the basic wage, which includes all the regularly paid or guaranteed allowances, but excludes gratuities, bonuses, overtime, family allowances, and other payments in cash or that are supplementary to the basic wage.

Number of hours

Number of hours refers to the total number of hours in the specific pay period the cheque was issued. Make sure it is correct, by double-checking your employee timesheets, and taking any employee complaints seriously. Learn more about the benefits of time tracking here.

Gross pay

Gross pay is the total amount of money an employee receives before taxes and deductions are taken out. For example, when an employer pays you an annual salary of $70,000 per year, this means you have earned $70,000 in gross pay.

Year to date

YTD is an acronym that stands for “Year-to-Date”. It is used on pay stubs to keep track of the amount of something since the first day of the year or the first day the employee started working in the year. Many pay stubs will keep a running total of your employees’ earnings and deductions for the year. For example, if an employee’s YTD earning on March 1st is $9,000, that means from January 1st to March 1st, they have earned a total of $9,000.


Understanding pay stub deductions is not so hard. Deductions on your paycheque are the amounts that an employee pays to cover mandatory and non-mandatory employment expenses. Since there are a number of these types of deductions, we’ve compiled a comprehensive list of deduction types that are commonly used in payroll (please note there could be more deductions added, the ones in this list are mandated by the government):

Federal Income Tax: Calculate the amount of federal income tax to deduct from your earnings. The tax system in Canada is ‘progressive’. This means that the more income earned, the higher percentage of income will go toward taxes. The following are the federal tax rates for 2021, according to the Canada Revenue Agency (CRA):

-15% on the first $49,020 of taxable income, and

-20.5% on the portion of taxable income over $49,020 up to $98,040 and

-26% on the portion of taxable income over $98,040 up to $151,978 and

-29% on the portion of taxable income over $151,978 up to $216,511 and

-33% of taxable income over $216,511

Provincial Income Tax: You will also calculate the amount of provincial income tax to deduct from employee earnings. This amount will be lower than the federal tax and is different in each province.

Canada Pension Plan (CPP): For those 18 years old and over, it is mandatory for a . 4.95% deduction from gross earnings over $3,500 until the maximum annual pensionable earnings is reached. The 2021 maximum is $61,600.

Employment Insurance (EI): 1.78% is deducted from gross earnings until the maximum contribution is reached. The maximum annual insurable earning for 2021 is $56,300.

Unsure of how much you have to deduct from your employees paycheque? Try our payroll calculator for an accurate result every time.

Net pay

The net pay is gross pay minus the deductions – it is the amount the employee actually takes home.

QuickBooks Online streamlines the payroll process by letting you pay your employees right from the QuickBooks app. It also automates payroll tasks so you save time and can focus more attention on running your business. Try QuickBook Online today.

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