As a Canadian small business owner, the day you hire your first employee is an exciting milestone. But it also means you've taken on a new set of responsibilities: running payroll. The process of calculating wages, withholding deductions, and remitting them to the government can seem daunting, but it's a critical part of being a compliant employer. At Nunniyer Business, we're here to guide you through the basics of Canadian payroll so you can pay your team accurately and on time, without the stress.
Step 1: Open a Payroll Program Account (RP)
Before you pay your first employee, you must have a payroll account with the Canada Revenue Agency (CRA). This account is free and can be opened easily online through the Business Registration Online (BRO) service or by calling the CRA’s business inquiries line. This account is essential for remitting the deductions you withhold from employee wages.
Step 2: Collect Employee Information
Once you have your payroll account, you need to gather specific documents from each new hire. This includes:
Social Insurance Number (SIN): You are legally required to ask for your employee’s SIN within three days of their start date.
Form TD1: Every employee must fill out a federal and, if applicable, a provincial or territorial Form TD1. These forms tell you how much income tax to withhold based on the employee’s personal tax credits.
Step 3: Understand and Calculate Deductions
Every time you run payroll, you must deduct certain amounts from your employees’ pay and contribute your employer’s share. These deductions are:
Canada Pension Plan (CPP) contributions: This is a mandatory retirement savings plan. Both you and your employee contribute to it.
Employment Insurance (EI) premiums: This program provides temporary income support. Both you and your employee contribute to this as well.
Federal and Provincial/Territorial Income Tax: The amount you withhold is based on the employee’s TD1 forms and the CRA’s payroll deduction tables.
Step 4: Remit Your Deductions to the CRA
You must send the deductions you collected from your employees, along with your employer’s contributions, to the CRA on a regular schedule. Your remittance frequency (e.g., monthly, quarterly, or more often) is determined by the CRA and is based on your total average monthly withholding amount.
Tip: Mark your remittance dates on your calendar! Missing a deadline can result in penalties and interest. The CRA will send you a Statement of Account (Form PD7A) to help you track your remittances.
Step 5: Prepare for Year-End Reporting
At the end of the calendar year, you have to provide each employee with a T4 slip. This form reports the employee’s total income and the amounts you deducted throughout the year. You must file these T4 slips and a T4 Summary with the CRA by the last day of February of the following year.
Payroll is a detailed process, but it’s a cornerstone of running a successful and compliant business. By following these steps and staying organized, you can ensure your employees are paid correctly and your business meets its legal obligations.
If you’re finding payroll overwhelming or want to ensure you’re doing it correctly from the start, the team at Nunniyer Business can help. We offer services to manage your payroll, so you can focus on growing your business with confidence.