Employer Health Tax in Ontario: what it is and when it actually costs you money

The short answer

Employer Health Tax (EHT) is a payroll tax that Ontario employers pay on remuneration paid to employees — it comes out of the business's pocket, not the employee's paycheque. Ontario employers become liable once payroll for employees who report to, are attached to, or are paid from an Ontario permanent establishment exceeds the employer's allowable exemption amount. For most small businesses, that exemption is generous enough that EHT is a non-event for years — right up until payroll crosses a specific line.

Who actually pays it

EHT applies to Ontario employers on remuneration paid to employees who physically report to work at, are attached to, or are paid from or through the employer's permanent establishment in Ontario, once that Ontario payroll exceeds the employer's allowable exemption. It's calculated on total Ontario remuneration across the business — not per employee, not per pay period. If you have one employee or fifty, the mechanics are the same: add up the Ontario payroll, compare it to your exemption, and whatever's left over is taxable.

The exemption — why most small employers pay nothing

Here's the part that matters most for a small or growing business: eligible private-sector employers with Ontario payroll (including any associated employers) under $5 million, or registered charities regardless of payroll size, can claim an EHT exemption on the first $1,000,000 of total Ontario remuneration each year. That exemption amount is scheduled for its next inflation adjustment on January 1, 2029 — so it's not indefinitely fixed, but it's stable for the foreseeable future.

Practically, that means a business with a handful of employees and a reasonable payroll is very likely paying $0 in EHT. This is why so many small-business owners have never heard of it — it exists, it applies to them, and it costs them nothing. The tax only starts to bite once total Ontario remuneration climbs past the million-dollar mark, which for most small teams means real headcount growth, not an early-stage hiring decision.

When it starts to bite

Once your Ontario payroll exceeds your allowable exemption, EHT applies to the amount above the exemption at graduated rates. Rates are set based on total Ontario remuneration before the exemption is deducted, and range from 0.98% at the low end (payroll up to $200,000) up to 1.95% at the high end (payroll over $400,000) — with the exemption reducing the taxable base regardless of which rate bracket the total payroll falls into. In other words, the rate you pay depends on your total payroll size, but you only pay it on the portion above your exemption.

For exact current-year rate tables and how they interact with the exemption at your specific payroll level, the Ontario Ministry of Finance's EHT page is the authoritative source — this is one of those calculations worth confirming directly against the government page or with us rather than eyeballing a rate bracket.

Registration mechanics

You need to register for an EHT account with the Ontario Ministry of Finance if either of two things is true: you're not eligible for the exemption at all, or you're eligible but your Ontario payroll has grown past your allowable exemption amount. There's no grey area to sit in — once you cross the line, registration follows.

Employers with total Ontario remuneration over $1.2 million face an added wrinkle: they must pay EHT in monthly instalments rather than settling up once a year. Regardless of instalment status, every registered employer files an annual return, due by March 15 of the following year. That deadline is worth putting on the same calendar as your other year-end obligations — it's easy to treat EHT as a one-time registration task and forget the annual filing that follows.

Where EHT sits in the payroll stack

EHT is one piece of a bigger set of employer obligations that start the moment you hire in Ontario — alongside CPP and EI remittances (deducted from employee pay), WSIB registration and premiums (employer-paid, separate from EHT), and Employment Standards Act requirements like vacation pay and public holidays. None of these live in isolation: they all get set up around the same first-hire moment, and they all need to keep running correctly in every pay cycle after that. If you haven't been through that setup yet, our payroll setup guide for a first Ontario employee walks through the full stack in order.

The honest comparison between handling this in-house versus outsourcing isn't about who's smarter — it's about cost structure. In-house means someone on your team tracking exemption thresholds, rate brackets, registration triggers, and filing deadlines across EHT, WSIB, CPP, and EI, on top of whatever software that requires. Outsourced means it's folded into a flat monthly fee, running correctly by people who track these mechanics for every client, not just yours. Our monthly bookkeeping starts at $200/month with HST filings included, and payroll-adjacent obligations like this are exactly the kind of detail that shouldn't depend on you remembering a threshold from a government page you read once.

Curious what a specific hire actually costs once EHT, WSIB, and the rest are factored in? Run it through our free employer cost calculator before you commit to the number on the offer letter.