What is Gross Pay?

Gross pay is your hourly, weekly, monthly, or annual income prior to any deductions like income tax, employment insurance (EI), and CPP (Canadian Pension Plan) or QPP (Quebec Pension Plan). There may also be other deductions for benefits such as life insurance, healthcare, etc., or towards company pension or RRSP, and union expenses or other types of professional liabilities. Gross pay can include additional income such as bonuses, commissions, overtime pay, etc.

A typical payslip will show gross pay, deductions and the resulting net pay. Based on the structure of the pay slip, it can be confusing to differentiate between to understand between the gross and net pay. Usually, it is the highest amount on the payslip.

Example of Gross Pay:

Let's try to illustrate this through an example. A store manager has an annual salary or gross pay of $45,000. Out of this, roughly $9,000 is deducted for federal taxes, provincial taxes, CPP contributions, EI, etc. So his annual gross pay will be $45,000 and annual net pay will be $36,000. This amount of $36,000 will be issued as a cheque or deposited in a bank account. Suppose in a given month this employee earns commissions of $500. In that month his gross pay will be $3750 ($45,000/12) + $500 = $4250.

Typical deductions:

Usually, the largest deduction from gross pay is for federal and provincial income taxes. Except Quebec, which shows provincial tax as a separate item, a combined amount of federal and provincial taxes is deducted from the gross pay. Another important deduction is for EI or Employment Insurance premiums. In the case of a job loss, this premium makes you eligible to get financial help for a particular period.

Then there is a mandatory deduction of Canada Pension Plan (CPP), a retirement program run by the federal government. You can also make RRSP (Registered Retirement Savings Plan) contribution via your employer. Other optional deductions include a pension fund sponsored by your employer, which is separate from the federal fund. In case you are a member of a union, you may have to pay membership fees, which is also reduced from gross pay.

Useful tip:

Whether you're taking up a new job or negotiating compensation with your existing employer, it is always good to know the difference between your gross pay and your actual take-home or net pay.

How does gross pay affect your tax?

Gross pay is the amount on the payslip that excludes any deductions. Typically the gross pay is used for calculating federal and provincial taxes, excluding certain items such as CPP contribution or employment insurance premiums, which receive special treatment.

Canadian Tax and Finance Guides