Your first paycheque: gross pay, deductions and take-home pay

Your first job comes with a surprise on the first payday: the amount that lands in your account is less than your hours times your wage. That's normal. This lesson explains where the difference goes, and why some of it may come back.

Gross pay and net pay

Gross pay is what you earned before anything is taken off. Net pay, sometimes called take-home pay, is what's left after deductions.

Say you earn $18 an hour and work 15 hours a week, paid every two weeks. That's 30 hours a pay period, so your gross pay is $540.

What gets taken off

Your employer is required to take a few amounts off each paycheque and send them to the government for you.

Employment Insurance (EI) is about 1.6% of your pay, at any age. It funds benefits for people who lose their job, take parental leave or get sick.

Canada Pension Plan (CPP) contributions start once you turn 18. They're about 6% of your pay, after a small amount that's exempt. CPP is the government pension you'll receive when you retire, and the more you contribute over your working life, the more you'll get.

Income tax is withheld based on what your pay would add up to over a year. If you only work part-time, very little may be taken off, because everyone can earn a certain amount each year, around $16,000 federally, before owing federal income tax.

For the $540 paycheque, a 16-year-old would see roughly $9 for EI and little or no income tax, taking home about $530. At 18, about $24 for CPP is added, so take-home is closer to $505. These are estimates; your pay stub shows the real amounts.

Your first-day paperwork

You'll need a Social Insurance Number (SIN) to work in Canada. Your employer needs it, and so do your bank and the government, but almost nobody else does. Keep it private: a stolen SIN can be used to open accounts in your name, which the scams lesson covers.

You'll also fill in a TD1 form, which tells your employer how much tax to withhold.

Reading your pay stub

Each pay stub lists your hours, gross pay, each deduction and net pay, usually with year-to-date totals too. It's worth checking the first few: mistakes happen, and it's much easier to fix the hours from last week than from last summer.

Why filing a tax return is worth it

Even if you earn only a little, filing a tax return each spring is usually worthwhile. If more tax was withheld than you owe, you get the difference back as a refund. Filing also builds up RRSP contribution room for later, and from age 19 it's how you receive the GST/HST credit, a payment the government sends to people with lower incomes. Free tax software certified by the Canada Revenue Agency makes a simple return quick to do.

Paying yourself first

Once you know your real take-home pay, you can plan around it. One simple habit is to move a set amount to savings the day you're paid, before spending anything. Even a small amount adds up, and the next lesson shows how much faster it grows when you start young.