If you’re a new company or a person in a position to start up a new payroll for a company, you may be wondering what is required to do payroll in Canada.
As a leading provider of Canadian payroll, payments, and HR software, we have some essential tips that you can follow to set up payroll in Canada quickly.
Opening a Payroll Account
Before getting started with your payroll, you must register with the necessary governmental agencies. To get going, you will need to do a few administrative things to ensure that you meet success.
Getting your Business Number from the CRA
First things first, you must go through the process of obtaining or updating your business number (BN) from the Canada Revenue Agency (CRA). Getting a business number is a necessary step that allows you to remit statutory deductions, including income tax, employment insurance, and the Canada Pension Plan (CPP).
Upon registering your BN, the CRA allows you to select the services you need, such as a “payroll account.” If you already have a BN, you can easily update the services you need and add the payroll account by contacting the CRA.
Employer Health Tax (EHT)
Depending on the province you’re in, you will need to set up the Employer Health Tax remittance. If you are in Ontario, you must register your business with your provincial finance ministry. Ontario Ministry of Finance. Depending on your province, there may be a cost associated with registering for this remittance. In Ontario, costs can run you from 0.98% to 1.98% of your payroll, based on the size of your payroll budget.
Find out the taxes associated with registering your business for the Employer Health Tax in B.C. by tapping into their employer health tax calculator. Just as with Ontario, B.C. businesses must register for the employer health tax if you must pay the tax. The EHT exists in Ontario, Manitoba, Quebec, and B.C.
Workplace Safety and Insurance Boards
Take the time to explore the Workplace Safety and Insurance Board for your province and register with the necessary bodies. In Ontario, your organization must register with this board within ten days of hiring your first employee. Depending on the industry, location, and work environment, requirements, and premiums will vary employer to employer.
Determining the Frequency of Payroll
Once you’ve assessed and completed all provincial administrative requirements, you can now go ahead and determine how often you are going to pay your employees.
Keeping a consistent schedule is in your best interest as an employer. In most professional environments, companies offer a biweekly (every two weeks) pay frequency to their employees.
While common, make sure you choose something that fits your business. Depending on your business and cash-flow cycles, you may select a different frequency to keep your payroll manageable. Another thing to consider is if your employees will be paid to date or a week in arrears.
There are many different payroll scheduling options, including:
- Weekly: mostly seen with smaller-sized enterprises with short-term, hourly workers
- Biweekly: this is the most common scheduling for most professional environments. This schedule is easier to maintain and manage and can work for either salaried or hourly workers.
- Semi-Monthly: this payment schedule pays employees on the 15th and the last day of the month and is preferable for salaried employees. We do not advise this method for hourly staff as the hours will depend on the actual number of workdays in a month.
- Monthly: rarely, if never, used. In older companies, this may be used to pay more senior employees or commissioned salespeople who have their performance calculated and paid out monthly.
As an employer, you have options. Payroll can either be processed in-house or through a third-party payroll provider such as Knit. Working with a payroll provider can help you avoid any errors, help you abide by provincial and federal laws, ensure that your people get paid on time, and also save a ton of overhead by going paperless.
Understanding what is available to you before you choose can be helpful.
Since administering your company’s payroll is such a vital accounting process, it should be taken seriously and managed by a trained individual. To ensure that your employees are paid accurately and promptly and that all necessary remittances and tax slips are appropriately submitted, it is in your best interest to have someone you trust to manage this entire process. This role is often filled by the company’s CFO or a part-time accountant.
These individuals are also responsible for your company’s record-keeping. Keeping accurate records of pay is critical to producing year-end tax documents and Records of Employment (ROEs) to submit to the CRA.
Third-party payroll processing
We live in a time of abundance. There exist several automated payroll services in Canada, and many are available entirely online. Companies like Knit are affordable, easy-to-use, and available to handle all your HR and payroll needs.
Startups and smaller companies mostly use this option. These companies often provide more than just payroll services; their systems can equip you with payroll journals, statistics, T4s, year-end reports, and ROEs - everything you need to handle your payroll accurately and efficiently.
What’s Needed to Process Your Payroll
Here is what is needed from your employees to process a company payroll accurately. Whichever route you choose to take for your payroll, in-house, or third-party provider, you can expect to provide them with the following information from your employees:
- Full name—matching the account where you will deposit employees pay
- Current address in Canada
- Social insurance number (SIN)
- Date of hire and date of birth
- Amounts to be paid (this includes salaries, wages, and bonuses)
- Pay type: salaried or hourly
Each employee should fill out the appropriate federal and provincial Form TD1. These forms determine how much tax is to be deducted from a person's employment income.
Depending on whether you use a third-party provider or go beyond just pay and offer your employees benefits and support direct deposit, you may also need to provide the following to the CRA:
Type of employee (for example, full-time or part-time)
Benefit eligibility date
Home phone number
Province of residence (for tax purposes)
Preferred language of communication
Banking information for direct deposit
Pension and registered retirement savings plans (RRSP) deductions
Internal department names and codes
Vacation accrual per pay period
Vacation allowable overdraw or carryover
Reduction of tax at source
Some of the above are considered taxable benefits. A taxable benefit is anything that your company provides an employee on top of their wages. This can include lodging, a car, or even a company cell phone. If this is the case, it must be considered and managed accordingly when managing a payroll in Canada.
If an employee's pay does involve any taxable benefits, these must be accounted for in each pay period before you take any payroll deductions. This is necessary as the total income determines the amount subject to EI premiums, Canadian Pension Plan contributions, and income tax deductions.
If you need help calculating the value of these benefits and understanding taxable benefits more, the CRA's Guide T4130 will help you navigate this.
Make the Appropriate Payroll Deductions
Once you have determined which deductions are necessary for your company, you can make the appropriate payroll deductions from your employees' pay each pay period. The CRA requires you, as an employer, to remit these Canadian payroll deductions, and contribute the employer's share of Canada Pension Plan (CPP) contributions and Employment Insurance (EI) premiums.
Beyond doing this for your business, it’s vital that you provide your employees with the necessary information to file with the CRA accurately. As an employer, you must appropriately report your employee's income and deductions for their T4 or T4A slips and file an information return to the CRA before the last day of February of the following calendar year.
Remitting Deductions to the CRA
The CRA allows you to either remit your deductions electronically or via paper vouchers and receive your account statements via mail. You can now view your account, transaction, and statements through the CRA’s My Business Account portal for those who choose the electronic route.
As a new employer, the CRA sees you as a regular remitter, meaning that you have to remit deductions so that the CRA receives them on or before the month's 15th day that follows the month you made your deductions.
As you establish a remittance history with the agency, you may move into a new classification as a quarterly or accelerated remitter, which means you have to file less paperwork.
To understand more about your duties and obligations with remittances, including how to correct any payroll remitting errors, check out this handy CRA page on remitting payroll deductions.
T4 Slips and Information Returns
Finally, one of the last steps in managing payroll in Canada is completing a T4 slip for each employee every year and completing the T4 summary form. You must file the T4 information return and distribute T4 slips to your employees.
These slips can be filled out electronically using the CRA's T4 web forms application, which allows you to file one to six original or amended T4 slips. You can also fill out an online PDF. Learn more about T4 slips here.
Keep Every Record
When it comes to starting a payroll in Canada, you must keep all of your business records and all your information in a secure, easy-to-access place. According to the CRA, anything relating to payroll must be kept at your business or home address in Canada unless you have explicit permission to keep them elsewhere.
Once you have all of these things in order, you are ready to answer “how to do payroll in Canada”! If you’re looking for a reliable payroll service provider that offers insight into all other areas of your business, from HR to payments, Knit is here for you! Contact us today.