2025 Payroll Year-End & 2026 New-Year Preparation Guide

Section I: Getting Ready for the First Payroll of the Year

This section outlines which statutory payroll updates are applied automatically by the system at the start of the year and which items must be reviewed, validated, or updated by the employer. Completing these steps before running the first payroll helps ensure accuracy and legislative compliance.

⚠️ Disclaimer

This guide is provided for informational purposes only and highlights common payroll compliance considerations. It does not constitute legal advice and should not replace professional guidance specific to your organization. While reasonable efforts are made to keep this information current, payroll legislation and regulatory requirements may change. In the event of any discrepancy, applicable government legislation and regulations take precedence.

Overview

The system automatically applies legislated statutory updates each year based on the payroll pay date. However, employer-specific settings do not update automatically and must be maintained by the employer before processing the first payroll.

System-Applied Statutory Payroll Updates

The following statutory payroll updates are applied automatically by the system at the start of the year, based on the payroll pay date. No employer action is required for these items.

Employer Responsibilities and Required Validations

The following payroll items are employer-maintained or require employer validation. While some values may be system-updated, the employer remains responsible for reviewing accuracy and updating settings where applicable.

Optional: Employee Communication

Some employers choose to send a payslip message on the first payroll of the year to communicate statutory resets, contribution changes, or general payroll reminders. Payslip messages can be configured at different levels depending on the scope required.

⚠️ set at the company configuration (mass) level will continue to apply to future payrolls unless they are manually changed. Employers may use this option for the first payroll of the year and then remove or update the message after the payroll is completed.

Additional Clarifications – Employer Responsibilities 

The following sections provide additional clarification on common employer responsibilities that require review, validation, or updates when preparing for the first payroll of the year. These areas are frequently misunderstood and should be reviewed carefully to ensure payroll accuracy and compliance.

Workers’ Compensation (WCB) Rate - Annual Task

Workers’ compensation rates and maximum assessable earnings are issued annually by each authority and do not automatically update based on legislation alone.

Employers are responsible for:

• Updating the new WCB rate for the year.

• Ensuring the correct jurisdiction is applied to each employee.

These updates must be completed before the first payroll of the year, as incorrect WCB settings can result in under- or over-remittances.

• Resource: How to update WCB rates. 

EI Employer Reduced Rate – Validation Requirement

If your organization participates in the EI Reduced Rate Program, the system may apply a specific rate based on your assigned category.

However, employers must:

• Validate the reduced EI rate and category on the first payroll of the year.

• Confirm the rate remains accurate, as eligibility or approval details may change annually.

• Note: Even though the rate is system-applied, the employer remains responsible for ensuring its accuracy.

• Resource:  How to Review and Validate your EI Employer Reduced Rate. 

TD1 Amounts and Basic Personal Amount (BPA)

Each year, the Federal Basic Personal Amount (BPA) is indexed and updated automatically in the system.

Important considerations:

• Only the basic amount is indexed automatically.

• Any additional TD1 amounts claimed by an employee (such as caregiver or tuition amounts) do not update automatically.

• Employees must submit a new TD1 if their personal tax situation changes.

Action Item: After January 1, review employee Canada Tax Profiles and update TD1 amounts beyond the basic personal amount where required.

• Resource: How to review and update TD1 forms. ***KB***

Statutory (Public) Holidays vs. Custom Holidays

Statutory (public) holidays are generally updated automatically based on jurisdiction.

However:

• Employers are responsible for reviewing statutory holidays for accuracy.

• Custom or organization-specific holidays (e.g., floating holidays, custom observed days) must be reviewed and updated manually for the new year.

• Resource: Update statutory and custom holidays. 

Why First Payroll Validation Matters

The first payroll of the year is your best opportunity to confirm that statutory deductions (CPP, EI, QPP, QPIP) have reset correctly and that all new employer rates are applied as expected.

Employers are encouraged to review payroll calculations carefully before finalizing the first payroll.

• NPI Rate Tables (Login Needed)

• CRA Payroll Deductions and Contributions

Section II: Legislative Limits & Contributions (2025 vs 2026)

This section supports your payroll year-end and new-year readiness. Use the 2025 values to validate your year-end balances and reconciliations. Apply the 2026 values effective with the first payroll issued in 2026.

Effective dates for rates and limits:

• 2025 rates and limits apply to payrolls with a 2025 pay date

• 2026 rates and limits apply to payrolls with a 2026 pay date

Pension Adjustment, RRSP& TFSA Limits

These limits are set by the Canada Revenue Agency (CRA) and are essential for calculating Pension Adjustments (PA) and managing retirement contribution room.

Source: CRA Website

Employer Health Tax & Levy / HAPSET

Rates for these employer-paid taxes remain consistent with 2025 levels but should be validated against your annual payroll thresholds.

Canada Pension Plan (CPP) & Quebec Pension Plan (QPP)

Both plans include a second tier of contributions (CPP2/QPP2) for earnings above the first maximum pensionable earnings ceiling.

Employment Insurance (EI) & Quebec Parental Insurance (QPIP)

EI rates have decreased slightly for 2026, while the maximum insurable earnings have increased.

Note: Employer EI rates are calculated as 1.4 times the employee rate ($1.63% x times 1.4 = 2.282%) unless your organization has been approved for a reduced EI rate

Workers’ Compensation – Maximum Assessable Earnings

Workers’ Compensation premiums are calculated based on the Maximum Assessable Earnings (MAE) set annually by each provincial board. The following table provides the updated limits to guide your payroll configuration for the new year.

Section III: Year-End Company & Employee Data Validation and Balancing (Pre-T4)

Content Status: Under Development

[!NOTE] This section is currently being enhanced and updated. 

3. Employee Data Validation (Pre-T4)

Before generating T4 slips, you must review and validate employee-level data to ensure accuracy and compliance with CRA reporting requirements. This validation applies to all active, inactive, and terminated employees who received employment income during the 2025 calendar year.

⚠️ Missing or incorrect employee information may result in rejected slips, incorrect reporting, or the requirement to issue amended T4 slips after the filing deadline.

📍 Where to Review Employee Data

The T4 EOY Summary: Data Review report is the primary tool for this audit. It consolidates mandatory employee fields into a single view.

To access the report (Payroll Administrator role): Navigate to: Payroll → Canada → T4 EOY : Summary Data Review

✅ Employee Data Validation Checklist

Use the table below to audit the report results. Ensure every field for every employee meets the "What to Confirm" criteria.

4. Company Information and Payroll Review (Pre-T4)

After completing employee data validation, you must review company-level information and payroll configurations. This ensures that the overall tax reporting structure is complete and accurate before generating final slips.

🏢 4.1 Company Information Review

Confirm that your company identifiers and legal details are up to date. Incorrect company information can lead to the rejection of the entire XML filing by the CRA.

• Resource: How to Update Company Information

4.2 Review Pay Component Attributes

Review the attributes assigned to your earnings and deductions to ensure they are reporting to the correct T4 boxes.

Navigation Path: Payroll → Payroll Setup → Pay Component Subtype → list: Subtype Attributes → Canada

Important

Changes to pay component attributes made after payroll processing may require manual payroll adjustments. Attribute updates do not automatically recalculate prior payrolls and may result in CPP, EI, or tax under- or over-payments.

Handling Earnings with Multiple T4 Boxes: For pay components that report to more than one T4 box (e.g., taxable benefits reported in Box 14 and Box 40), select only the secondary box (such as Box 40). The system is programmed to automatically include those amounts in Box 14.

4.3 Pension Plan Validation (If Applicable)

If your organization offers a Registered Pension Plan (RPP), additional validation is required at the company level to ensure compliance with CRA reporting standards.

🏦 Pension Registration

Before proceeding, confirm that your Pension Registration Number is correctly recorded in the system. This number must accurately reflect the active plan for the 2025 tax year to avoid filing rejections.

⚙️ Pension Deduction Configuration

Review all pension-related deduction and contribution codes. Ensure they are configured to report to the following mandatory T4 boxes:

• Box 50: RPP or DPSP registration number.

• Box 52: Pension Adjustment (PA) amount.

• Box 20: RPP employee contributions.

Pension Adjustment (PA) Review: > Before generating T4s, you must maintain a clear listing of pension adjustments by employee. Validate these amounts against both your payroll records and T4s. 

• Resource: How to Update RPP or DPSP Registration Number

 🔗 Additional Resources

For detailed CRA guidance on specific reporting requirements for earnings, deductions, and taxable benefits and T4 reporting, please refer to the official documentation:

• CRA Guide: CRA T4 Slip for Employers

• CRA Guide: Taxable Benefits Chart

• CRA Guide: Pension Adjustment Reporting [CRA Guidance]

📊5.1 High-Level Review – PIER Report

The PIER (Pensionable and Insurable Earnings Review) Report provides a consolidated, high-level view of payroll activity.

Navigation Path: Payroll → Canada → PIER Report (Beta)

This report supports the review of:

• Total taxable income

• Total insurable and pensionable earnings

• CPP, CPP-2, and EI deductions

Important – CPP Consideration: > The PIER Report is currently a beta report and is based on a rolling 12-month period rather than a strict calendar year. As a result, CPP variances shown in this report may not always represent true discrepancies.

🔍 5.2 Detailed Review – Employee Payment History

For a more granular analysis of individual transactions, use the detailed payment search. These report allows you to analyze every earning, deduction, and tax component paid to an employee during the 2025 tax year.

Navigation Path: Payroll → FAQ and Troubleshooting → PR-Classification Payslip Detail Search: Results

This detailed review allows you to:

• Validate Earnings: Review every earning type paid throughout the year to ensure correct categorization.

• Confirm Deductions: Verify that statutory and voluntary deductions were applied accurately on a per-payrun basis.

• Audit Accumulators: Ensure the proper accumulation of taxable, pensionable, and insurable earnings buckets for T4 reporting.

📈 5.2 (a) Excel Export & Pivot Table Reconciliation

Once you have exported your data from the PR-Classification Payslip Detail Search: Results page, use Excel Pivot Tables to summarize and validate your totals.

Pivot Table Configuration

To achieve a clear breakdown of earnings, deductions, and taxes, set up your Pivot Table Fields as follows:

• Rows: Drag Employee and Sub Type into this area.

• Values: Drag Amount into this area (ensure it is set to Sum of Amount).

Reviewing Company Totals

A key benefit of this layout is the ability to toggle between individual and global views:

• Individual Audit: Review the Sub Type (e.g., Base Salary, CPP, EI, Federal Tax) for each specific employee to ensure their individual YTD totals are correct.

• Company Summary: To review total company-wide liabilities and earnings, simply remove "Employee" from the Rows area. This will collapse the data into a single consolidated list of totals for your entire payroll.

5.3 T4 Validation – Employee Payslip Detail (PSD)

In addition to reviewing individual employee payment history, payroll administrators can validate T4 amounts using the PR-CA End of Year T4 PSD EE Validation saved search. This report summarizes all employee payslips and reflects how earnings, deductions, and taxes are currently configured to report on the T4.

Navigation Path

[!NOTE] Payroll Administrator role is required to access this path.

Payroll Administration → Payroll Setup → Saved Searches

Steps to Run the Validation

1. Ensure you are logged in with the Payroll Administrator role.

2. Navigate to Payroll Administration → Payroll Setup → Saved Searches.

3. Use Ctrl + F (or browser search) to locate the report: PR-CA End of Year T4 PSD EE Validation.

4. Click Run to generate the data.

What this report shows

• A consolidated total of all employee payslips for the year.

• Amounts based on the current pay component setup and how each component maps to T4 boxes.

• Employee-level totals that feed directly into the T4.

⚖️ 5.4 Why This Step Is Critical

Completing this validation before finalizing year-end filings ensures:

• Accurate T4 Reporting: Prevents "Box 14" mismatches.

• Statutory Compliance: Corrects CPP/EI deficiencies before the CRA issues a PIER assessment.

• Remittance Alignment: Ensures your company's actual payments to the CRA match the reported totals.

• Early Issue Detection: Identifies configuration errors or data migration gaps before they become legal filing errors.

6. Trial T4 Run & Final Validation (Pre-Submission)

At this stage, you are encouraged to run T4s in a trial capacity to support final validation and reconciliation. This is a "dry run" that allows you to see exactly what will be reported to the CRA without finalizing the records.

🎯 Purpose of the Trial Run

Trial T4s are intended solely as a validation tool and do not represent an official submission. Use this step to:

• Review Draft Values: Examine individual T4 boxes before they become official records.

• Perform Final Reconciliations: Compare the trial T4 totals against your year-to-date payroll reports and Excel pivot tables.

• Identify Discrepancies: Catch any lingering issues related to earnings, deductions, CPP, EI, or pension amounts.

🛠️ Handling Discrepancies

If your trial run reveals errors, you have the flexibility to make corrections before the final filing. You can:

• Update Configurations: Adjust company info or payroll pay component attributes.

• Correct Employee Data: Fix SINs, addresses, or birth dates in the employee profile.

• Post Adjustments: Apply necessary payroll adjustments where applicable.

• Regenerate: Delete the trial T4 run and regenerate it once your corrections are complete.

💡 This process can be repeated as many times as needed until all values have been reviewed and confirmed.

📘 Step-by-Step Instructions

For the specific technical steps on how to execute the T4 run in the system, please refer to our comprehensive guide:  End-of-Year / Year-End T4 Guide.