When BC replaced MSP premiums with the Employer Health Tax, most small businesses looked at the threshold, saw they were under it, and stopped reading. Reasonable — but the tax has two features that catch growing Fraser Valley companies later: a steep notch just above the exemption, and an association rule that quietly combines related companies' payrolls. Here is the whole system in plain terms.
Quick answer: BC employers with $1,000,000 or less of BC payroll in a calendar year pay no Employer Health Tax. Between $1,000,000 and $1,500,000, EHT is 5.85% of payroll above the $1M line. Above $1,500,000, it is 1.95% of the entire payroll. Associated employers share one exemption. Registration is due December 31 of your first taxable year, the return and payment by March 31 following, with instalments (June 15 / September 15 / December 15) for larger payers.
How the math works
EHT is calculated on BC remuneration — broadly, the payroll amounts you report for employees at or reporting to a BC establishment: salary, wages, bonuses, most taxable benefits.
- $1,000,000 or less: exempt. No tax, and no return required if you are under the threshold.
- $1,000,000 to $1,500,000: tax is 5.85% × (payroll − $1,000,000). At $1.2M payroll that is 5.85% of $200,000 = $11,700.
- Above $1,500,000: tax is 1.95% × total payroll, from the first dollar. At $1.6M that is $31,200.
The 5.85% notch exists so the two formulas meet at $1.5M (5.85% of $500,000 = 1.95% of $1.5M = $29,250). The practical effect: in the notch, every additional payroll dollar costs an extra 5.85 cents of EHT — triple the headline rate. A raise, a new hire or a year-end bonus that nudges a $1.4M payroll upward is more expensive than it looks, and worth timing deliberately alongside the bonus-vs-dividend decision.
The association trap
Related employers — corporations under common control, and similar structures — must share a single $1,000,000 exemption, split however they agree. The parallel with the associated-corporation rules for the small business deduction is deliberate: you cannot multiply thresholds by multiplying companies. Two related companies with $700,000 of payroll each are $400,000 over the combined line; and if the combined payroll exceeds $1.5M, no exemption is available to any of them. Owners with an operating company and a second business — common in construction and farming families — should check this before assuming they are exempt twice.
Where EHT fits in your payroll stack
EHT sits alongside, not inside, your existing payroll obligations. A BC employer with staff typically carries: CRA source deductions (income tax, CPP, EI — remitted through your RP account), WorkSafeBC premiums (registration is generally required when you hire), T4 filing by the end of February, and — only above the threshold — EHT. It is employer-paid entirely: nothing is withheld from employees for it. For most small businesses hiring their first employees, the correct amount of EHT attention is simply confirming you are under $1M and moving on; the mistake is failing to re-check as payroll grows or a second company appears.
Deadlines that matter
- Registration: by December 31 of the first calendar year you owe EHT.
- Annual return and final payment: March 31 of the following year.
- Instalments: June 15, September 15 and December 15 for employers above the instalment threshold — missing them accrues interest just like CRA instalments.
Planning around the threshold honestly
There is legitimate planning here — timing a discretionary bonus across calendar years, weighing salary against dividends for owner pay (dividends are not remuneration for EHT), structuring genuinely separate businesses properly — and there is wishful thinking, like recharacterizing employees as contractors, which creates a worker-classification problem far more expensive than the tax it dodges. The right time to look at EHT is when payroll passes about $800,000 and is climbing: that is when the notch, the association rules and compensation design start interacting, and when a year of advance planning has real value.
This article is general information for Canadian business owners and is current as of July 2026. EHT thresholds, rates and filing rules are as published for 2024 onward and may change with provincial budgets. It is not tax advice; please speak with a CPA before acting on anything here.
Prepared and reviewed by a Chartered Professional Accountant at EverStone CPA, an Abbotsford CPA firm working with small businesses and incorporated contractors across the Fraser Valley and Canada. About the firm → · Book a free consult →
The employer health tax applies once your BC payroll crosses the threshold. We manage it for employers in small business accountant in Abbotsford, Chilliwack business owners, our Langley page, working with us from Mission, CPA for Maple Ridge owners and accounting in Surrey.
Frequently asked questions
Who pays BC Employer Health Tax?+
Is EHT the same as CPP and EI?+
What is the associated employer trap?+
When do I have to register and file?+
Do dividends paid to an owner count toward BC payroll for EHT?+
Do I have to file an EHT return if my payroll is below the exemption?+
Why does a small payroll increase cost so much just above the exemption?+
The employer health tax is not the only BC-specific payroll obligation. Employers hiring workers or unregistered subcontractors also need coverage — see WorkSafeBC registration for BC employers.