Your paycheque, decoded: how to read a pay stub

For this week’s Top Story, we’re featuring a skill every Canadian should have: read a pay stub and understand paycheque deductions.

Ever open your banking app on payday and think, “That’s it?” You know how much you earn, so why doesn’t the number in your account match what you expected? Between taxes, Canada Pension Plan (CPP) contributions, Employment Insurance (EI) premiums and workplace benefits, your paycheque goes through a lot before it reaches your bank account. Add the rising cost of groceries, gas and everyday essentials, and it’s easy to wonder where every dollar is going.

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Your paycheque can sometimes feel a little like Love Is Blind: you know what you signed up for, but the final reveal can still be a surprise. There are plenty of numbers, codes and moving parts, but unlike a reality show, there’s no mystery or drama (well that depends on you!) behind your deductions. Each one has a purpose.

Once you understand your pay stub, those seemingly mysterious numbers become a lot easier to navigate.

We spoke with payroll experts Steven Van Alstine, vice-president, professional standards and education at the professional association National Payroll Institute, and Raye Ann Comeau, instructor at McMaster University’s Payroll Compliance Practitioner Program, to break down what those deductions mean and why your pay stub deserves a second look.

What’s coming off your paycheque? Yes, check for errors

Most pay statements follow the same basic format. First, you’ll see your earnings—salary or hourly wages, plus any overtime, bonuses or shift premiums.

Then come your deductions. Some are required by law, including income tax, CPP contributions and EI premiums. Others may include health and dental benefits, pension contributions or union dues, depending on your workplace.

One of the biggest questions Van Alstine hears is simple: “What do all these codes mean?” His advice: Don’t ignore your pay stub.

Comeau agrees that reviewing your statement regularly can help you understand how your income is calculated and spot discrepancies. “If your hours vary, make sure your regular hours, overtime and shift premiums are accurate,” she says. “Check the pay period and make sure you’re being paid for all the hours you’ve worked.” But if something looks different from usual, don’t automatically assume there’s a mistake. You may have worked fewer hours, had a benefit deduction come off that pay period or earned less overtime. If you’re unsure about a change, simply ask your payroll department.

Van Alstine recommends not hesitating. “Contact your payroll professional immediately,” he says. Most issues are easier to resolve when they’re caught early.

Where does all that money go?

For most Canadians, income tax is one of the largest deductions. You’ll also see CPP contributions, which help fund Canada’s public pension system (including yours), and EI premiums, which support benefits if you become unemployed, ill or take parental leave. Your employer contributes too, with amounts set by federal rules. Curious how it all adds up? An online payroll calculator can show you. Also, if you ever wonder why you’re suddenly paying more—or less—taxes, it could be the time of the year too, as taxes are front-loaded in the year, and most Canadians reach their limits by midyear.

Why is my paycheque so much lower than I expected?

If you’ve recently started your first full-time job, the amount of money you were told you will be paid and what you actually receive in the bank can come as a surprise.

The salary listed in your offer letter is your gross pay—your earnings before deductions.

The amount deposited into your bank account is your net pay, after taxes and other deductions have been taken off.

That difference doesn’t mean money has disappeared. It’s simply how Canada’s payroll system works.

Does overtime really mean more taxes?

You’ve probably heard someone say they turned down overtime because the government will “take it all” in taxes. “It’s a myth,” says Van Alstine.

He regularly hears from employees who ask to have overtime paid on a separate cheque because they believe it will reduce the amount of tax they pay.

It won’t. Overtime can result in more tax being withheld from that particular paycheque, but your final income tax is based on your total annual income—not whether overtime appears on a separate cheque. So, if overtime is available, don’t turn it down because of this misconception. You’ll still take home more money than you would have without the extra hours. But you can check to see where you sit in your tax bracket and if more money moves you up a bracket.

Don’t skip your pay stub

Your pay statement is more than a receipt of payment; it’s a regular snapshot of your earnings, deductions and year-to-date totals.

“It’s one of the most important financial documents employees receive on a regular basis,” says Van Alstine. (In addition to your T4, of course!)

Those year-to-date figures can also explain why your take-home pay changes throughout the year. Once you reach the annual maximum contribution for CPP or EI, those deductions stop until the new calendar year, which can give your paycheque a small boost.

Taxable benefits can be easy to overlook, too. Employer-paid life insurance, for example, may appear as a taxable benefit. It counts toward your taxable income even though you don’t receive that amount as cash. (Did you know Botox can be covered by workplace benefits?)

Comeau recommends that you check your statements regularly, know where to find them through your employer’s payroll portal and ask questions when something doesn’t look right.

Why you should read your pay stub

Your pay stub may not be the most exciting document in your inbox, but it’s worth a quick look each payday.

A few minutes can help you catch errors, understand your deductions and get a clearer picture of where your money is going. And unlike watching the engagement episode of Love is Blind, there’s no need to wait for the dramatic reveal; the information you need is already there.

Read more from this issue of The Get:

1. What happens to your finances after a divorce in Canada
2. Interior Designer Tommy Smythe on buying a good home
3. The best apps for school that post-secondary students swear by
4. How to stretch your paycheque, improve credit and avoid payday loans