How to Do Payroll in Canada: A Step-By Step Guide

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Doing payroll for your small business doesn ’ thymine have to be hard : Employers in Canada can follow these seven simpleton steps to set up and run payroll. payroll can feel like a marathon : It doesn ’ t sound appealing to run, but once it ’ second over, you ‘re sweaty and happy you did. Employers in Canada can follow these seven steps for a sweat-free payroll march.

1. Register with federal agencies

To run payroll in Canada, you need a Business Number ( BN ) and payroll broadcast account through the Canada Revenue Agency ( CRA ). A BN identifies your business to the federal politics. It ’ s the business interpretation of a Social Insurance Number ( SIN ). A payroll plan account is a 15-digit number that contains your nine-digit BN. It ’ s your business ’ second alone identifier to the CRA. New businesses can register for a BN and payroll broadcast account simultaneously on the CRA web site. The registration process requires the pursue data :

  • Pay schedule, whether it’s weekly, bi-weekly, or semi-monthly
  • Number of employees
  • Payroll software or service you intend to use

You may besides need to set up accounts with the Ontario Workplace and Safety Board and the Ontario Ministry of Finance to remit workplace policy and health tax payments .

2. Gather employee information

following, collect the follow information from your employees :

  • Name
  • Address
  • Phone number
  • Social Insurance Number (SIN)
  • Date of birth
  • Bank account information for direct deposit

Employees must submit union and provincial TD1 forms. The information they provide determines some payroll deductions. You can download TD1 forms on the CRA web site. Enter this information into your payroll software. Employers who do payroll manually should create a plug records management system to store medium employee information .

2. Calculate gross wages

Gross wages are an employee ’ south earnings before payroll deductions, such as taxes and retirement contributions. An employee ’ south gross wages are the sum you put on his or her propose letter. Gross wages can be expressed per hour, pay menstruation, or year. Include taxable bang benefits in the gross wages calculation. If you reimburse your employees for their cell call or parking costs, add those benefits to gross wages. Check the CRA web site for the taxability of benefits and allowances. hourly employees who work over 40 hours in a workweek or over eight hours in a day might be subject to time and a half overtime pay. Consider Olivia, who works at a bloom shop class in British Columbia. She makes CA $ 60,000 per year and is paid doubly monthly. Her annual gross wage is CA $ 60,000. She doesn ’ t receive any fringe benefits. She besides brings a fantastic bouquet whenever she ’ mho invited to a dinner party. Olivia ’ s gross wages for the wage period are CA $ 2,500 ( CA $ 60,000 / 24 pay up periods per class ) .

3. Calculate and deduct taxes and contributions

Both employees and employers buck up for Canadian payroll taxes and contributions. As an employer, you ’ re creditworthy for withholding and remitting a fortune of employees ’ wages for taxes and contributions. CRA payroll deductions include :

  • Federal income tax
  • Provincial or territorial income tax
  • Canada Pension Program (CPP) or Quebec Pension Program (QPP) contributions
  • Employment Insurance (EI) premiums
  • Registered Retirement Savings Plan (RRSP) contributions

All but RRSP are required CRA deductions. CPP/QPP contributions apply to employees ages 18 to 69, and EI premiums lend oneself to employees of all ages. Both employees and employers pay into CPP/QPP and EI, based on employee earnings. Contributions stop once they ’ ve reached their annual utmost. All provinces but Quebec follow the same contribution rates and limits. 2020 CPP/QPP limits are :

Rate of eligible wages

Annual employee limit

Annual employer limit

Federal (CPP)




Quebec (QPP)




2020 EI limits are :

Employee rate of eligible wages

Employer rate of eligible wages

Annual employee limit

Annual employer limit











In some provinces, employers with annual payroll expenses around CA $ 500,000 or more pay the Employer Health Tax ( EHT ), which helps fund the area ’ s universal healthcare system. Employees don ’ t put up to EHT. Your payroll software mechanically calculates tax and contribution amounts according to tax law, your employees ’ Forms TD1, and early information you enter. business owners who do their own payroll can use the CRA Payroll Deduction Calculator to calculate their employee paychecks. I calculated Olivia ’ s paycheck dated April 1, 2020 using the CRA on-line tool .Olivia’s salary calculation from the CRA website Olivia ’ mho paycheck is CA $ 1,933.97 .

5. Reconcile and issue paychecks

Let ’ s get your employees paid. Before you finish processing payroll, complete a payroll reconciliation to check for errors. Compare your payroll cash register — a tilt of payroll transactions — to your tax records and general ledger. once you clear up any errors, you ’ re ready to send out employee paychecks through your payroll software. Most payroll software packages offer portals where employees can see their pay up stub. Employers doing payroll manually should still provide a give stub for employees to prove income when applying for loans and leases, get a condition update on accrue vacation and brainsick time, and catch payroll errors. ultimately, record a payroll daybook submission in your account software. You can integrate your payroll and account software to complete this step .

6. Remit deductions and taxes to the CRA

now it ’ south time to send the deductions and employer taxes calculated in measure four where they need to go. By default, businesses must remit payroll deductions by composition or electronically by the 15th of the month following the pay menstruation. But if that pay schedule doesn ’ deoxythymidine monophosphate oeuvre for you, you ’ ve got options — honestly, more than you need. Established businesses can change to a quarterly, twice-monthly, or four-times-monthly payroll tax remittance meter. Send federal taxes, provincial taxes, CPP deductions, and EI deductions to the CRA. Send QPP deductions to Quebec ’ s tax income means, Revenu Quebec .

7. Generate and share Forms T4

By the last day in February of the follow class, you must share a Form T4 with each employee and the CRA. Form T4 summarizes the employees ’ earnings and deductions from the former calendar class. In the mailboat of Forms T4 submitted to the CRA, you must include a summary form that sums all employee earnings and deductions.

Get some (payroll) help

If you made it to the end and you didn ’ deoxythymidine monophosphate shed a tear at step four, praise. While it ’ randomness significant to know how payroll works, you can feel comfortable letting payroll software take care of payroll tax and contribution calculations. When set up correctly, payroll software reduces errors ( read : headaches ) and increases efficiency .

source :
Category : Finance

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