How to Run Payroll for Small Business in Canada

Once you've hired people to work for you, one of your responsibilities as an employer is to pay them properly and comply with CRA guidelines. That’s why we’ve created this detailed step-by-step guide on how to run payroll in Canada.

For business owners, there are six steps to running payroll:

1. Register your business for payroll with CRA

2. Gather required information from your employees

3. Decide on payroll frequency

4. Make the appropriate payroll deductions from employees' each pay period

5. Submit these payroll deductions to CRA

6. Issue and file T4s each year

Open a Payroll Account with CRA

Before you can open a payroll account, you will need to obtain a business number (BN). You can register for BN online using the Business Registration Online (BRO) service. Once you have a BN, you will need a CRA payroll deductions program account to remit your payroll deductions to the CRA. There are 2 ways to do this:

• Contact the CRA by phone at 1-800-959-5525 and ask to open a payroll account. To set you up for payroll account, the agent will ask you a few questions such as:

  • Number of employees

  • Approximate gross payroll

  • Payroll frequency

• Another way to register for a payroll account is by mail or fax RC1 form. Once this form is completed, you will send it to your nearest tax centre.

Collect Required Information from Your Employees

The next step is to gather the necessary information from your employee(s). As part of the hiring process, you should have examined each new employee's social insurance number (SIN) card and recorded the employee's name and SIN exactly shown on the card. You will need your employee’s:

• Mailing address

• Social Insurance Number

• Date of birth

• Bank account info if paying by direct deposit

• Contact info such as phone number, email, etc.

You should also have already had the new employee fill out the appropriate federal and provincial Form TD1, which determines how much tax is to be deducted from a person's employment income. Be aware to watch for social insurance numbers that start with the number "9" because this number indicates that they are not a Canadian citizen or permanent resident and therefore, you cannot hire them. These individuals are only authorized to work for a particular employer with a valid employment authorization issued by Immigration.

Deciding on Payroll Frequency

Before you register your business for payroll, you should've already determined the payroll frequency that you will be using. The two most common payroll frequencies are Bi-weekly (every two weeks) and Semi-monthly (twice per month). These two usually are quite similar, but one option can be better than the other depending on your circumstances.

Make the Appropriate Payroll Deductions

Employers are required to withhold source deductions (Income Tax, CPP, EI,) from employees’ pay and remit them to the (CRA) regularly. There can be stiff penalties if these deductions are not submitted on time or if errors are made during calculations.

Another important thing to remember is to add any taxable benefits to your employees' pay before making deductions. Now let's look at these deductions in detail:

• Income tax: When deduction income tax, use the provincial or territorial tables for the province or territory where the employee works. Only an employees' portion is deducted an remitted to CRA and there is no employers contribution.

• Canada Pension Plan: In most cases, CPP must be withheld from employees’ each pay except in some specific circumstances. There are two parts to CPP withholdings: an employee paid portion which is deducted from the employee's pay, and an employer portion which must be paid by the business.

• Employment Insurance: Similar to CPP, EI must also be withheld from employees’ each pay except in specific circumstances. Likewise, there is an employee portion which is deducted from the employee’s pay, and there is an employer portion that must be paid by the business.

Remit These Deductions to the CRA

In most cases, payroll deductions are due to be submitted to the CRA monthly. The due date would then be the 15th of the following month. For example, December source deductions would be due on or before January 15th. It's important to know what your remittance due dates are so do check out for more information on remittance frequency and due dates can be found here or contact your accountant.

You can either remit electronically or use paper remittance vouchers. If you remit electronically, you can view your statements and transactions via your online My Business Account. New employers are classed as regular remitters, which means you have to remit your deductions so the CRA receives them on or before the 15th day of the following month. Once remittance history is created, your business may be assigned as a quarterly or enhanced remitter, which mean that you may have to complete less paperwork.

Issue and File T4s each Year

As an employer, the last step is to complete a T4 slip for each employee along with the T4 summary form. Your business must file the T4 information return and submit to CRA and give the T4 slips to the employees on or before the last day of February following the calendar year.

Work With Accountant

With so many online resources, it is completely practical to set up and operate your own payroll, but you may not have the time or the skill set to do so. That’s where we shine.

Our accounting firm has helped many business owners with complete payroll setup and support services to avoid unnecessary stress and potential pitfalls. Get in touch and we’ll be happy to help you too!