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How to Make Sense of Your First Paycheque

A man is using calculator and looking at cheque.

You got your first job and now you’re about to receive your first paycheque. While your first question might be how much money is headed to your bank account, there’s a lot more information on a paycheque than you might expect.

Why do you need to understand what’s on your cheque? For starters, it’s your money and being clear can be crucial to creating your budget. Reviewing your cheque can also help you gauge whether you’re paying enough in taxes. Finally, it’s important for making sure that you’re being paid the right amount.

Ready to get started on the right foot financially with your new job? Here’s everything you need to know about reading your first paycheque.

Gross pay vs. net pay

The two big numbers you may focus on are: gross pay and net pay.

  • Gross pay is the amount you earned before withholdings are deducted.

  • Net pay is your take-home pay, after taxes and other deductions are taken out.

You may also see an (H) or an (S) next to your earnings on your paycheque. The “H” stands for hourly pay; the “S” for salaried wages.

One thing to note: your gross and net pay may not be limited to your hourly or annual salary. Here are some other types of income your paycheque might include, with the abbreviations that might be used for each one:

  • Vacation pay (VAC)

  • Sick pay (SIC)

  • Holiday pay (HOL)

  • Overtime (OT)

  • Employer reimbursements for work-related expenses, like travel

Remember, these would only show up on your cheque for the pay period in which you earn them.

What’s automatically deducted from your paycheque?

Your net pay total reflects your earnings after certain items are subtracted from your gross pay. That includes:

  • Canada Pension Plan (CPP) deductions.

  • Employment Insurance (EI).

  • Federal and provincial taxes.

Contributions to the Canada Pension Plan are mandatory, unless you live in Quebec. Then, you’d have a deduction for the Quebec Pension Plan. For 2018, the max you can contribute as an employee to either plan is 4.95 per cent.

Employment Insurance (EI) pays benefits to you if you become unemployed through no fault of your own, or if you can’t work because of an illness or injury. For 2018, the contribution rate is 1.66 percent of pay for non-Quebec employees and 1.30 per cent if you work in Quebec.

In Canada, you’ll pay federal taxes based on what you earn. For 2018, personal income tax rates range from 15 per cent to 33 per cent. You’ll also pay taxes at the provincial level, again, based on what you make.

What else can be taken out of your paycheque?

CPP deductions, EI and taxes are the big three deductions to consider with your first paycheque. You could, however, also see deductions for things like:

  • Health, life and disability insurance if your employer offers these benefits (the individual abbreviations or codes for these would depend on which plan your company uses).

  • RRSP contributions.

  • Company pension plan contributions, if such a plan is available.

  • Union dues, if you’re a union member.

  • Voluntary charitable contributions.

Some of these may be optional. For example, your employer may not require you to contribute to a Registered Retirement Savings Plan if you’re already saving through the CPP and saving in another type of company pension account. The same is true for health, life and disability insurance coverage if you decide not to enroll.

Get to know the numbers

Reading your paycheques is a good habit to get into if you want to track what you’re earning, and how much of your income is going towards retirement and taxes. It can also help you create a plan for saving, so you don’t end up as one of the 47 per cent of working Canadians who live paycheque to paycheque. And if a payroll error results in you being paid less than you should, you’ll be able to spot it right away and get it corrected so there’s no damage to your bottom line.