How to Run Payroll in Canada: A Step-by-Step Guide for First-Time Employers
Payroll & HR
6 min read
Running payroll in Canada for the first time involves setting up a CRA payroll account, calculating mandatory deductions (CPP, EI, and Income Tax), remitting those funds to the government on a strict schedule, and issuing T4 slips at year-end.
Congratulations on your first hire! But as a Toronto business owner, you need to know that payroll is much more than just writing a cheque. Missing a CRA deadline can result in severe penalties. Here is your step-by-step guide to getting it right.
Step 1: Get Your Business Number (BN) and Payroll Account
Before you can run payroll, you must register for a payroll program account with the CRA. This is an "RP" account attached to your 9-digit Business Number. You can do this during your initial company incorporation or later via the CRA Business Registration Online service.
Step 2: Understand Canadian Payroll Deductions
Every time you pay an employee, you must deduct three things from their gross pay:
Canada Pension Plan (CPP): Contributions toward their retirement.
Employment Insurance (EI): Premiums for unemployment benefits.
Income Tax: Federal and provincial taxes based on their TD1 form. Note: As the employer, you must also match the CPP and EI contributions out of your own pocket.
Step 3: Choose a Payroll Schedule
The CRA assigns your remittance frequency based on your total payroll volume. You will remit either:
Monthly: By the 15th of the following month.
Quarterly: Only if your average monthly remittance is under $3,000.
Warning: Late remittances incur immediate penalties of 3% to 10%.
Step 4: Process Payroll and Remit to the CRA
Use a reliable payroll software or a professional service to calculate the exact net pay for your employee. Once paid, you must remit the deducted source deductions to the CRA by your assigned deadline.
Step 5: Issue T4 Slips at Year-End
By the end of February each year, you must prepare and distribute T4 slips to your employees and file the T4 Summary with the CRA.
Avoid Costly Payroll Mistakes
Payroll compliance is highly regulated and leaves zero room for error. Instead of risking CRA penalties, let Finvera handle your payroll processing, remittances, and T4s. Get a free payroll consultation and focus on managing your new team.
