What employer payroll tax means, how it differs from employee withholding, and where it appears in payroll workflow.
Employer payroll tax is the payroll tax or employer-paid contribution the employer owes on employee wages in addition to the amounts withheld from employee pay.
That makes it different from employee withholding. Withholding comes out of the employee’s pay. Employer payroll tax is the employer’s own payroll obligation and is part of the employer’s payroll cost.
Employer payroll tax matters because it affects:
It also explains why payroll cannot be understood only from the employee’s pay stub. The employee sees what was withheld from pay, but the employer still has separate payroll tax obligations that do not appear as reductions from the employee’s net pay.
After payroll has calculated the employee earnings and the relevant tax bases, the employer’s payroll-tax obligations are calculated and recorded. In practice, payroll teams use those figures to:
The exact taxes depend on jurisdiction. In a U.S. payroll context, employer-side payroll taxes can include items such as employer Social Security, employer Medicare, or unemployment taxes. In a Canadian payroll context, employer obligations may include employer CPP or EI contributions. The concept is the same even when the labels differ.
| Question | Employer payroll tax | Employee withholding |
|---|---|---|
| Who pays it? | Employer | Employee through reduced wages |
| Does it reduce employee net pay directly? | No | Yes |
| Does it increase employer payroll cost? | Yes | Not in the same way |
| Does payroll remit it? | Yes | Yes |
An employer runs payroll with total employee gross pay of $18,000 for the period.
The employee withholding amounts come out of employee pay, but the employer may also owe separate employer payroll taxes based on the relevant wage rules. Those employer amounts increase the employer’s payroll cost even though employees do not see them as deductions on their own pay stubs.