If you’re about to set up payroll for your business, congratulations, this is an important milestone! It may seem a little overwhelming at first, but it’s fairly straightforward and can be done online fairly easily.
This post will guide you through setting up a payroll account with the CRA and includes helpful links you will need to check yearly so bookmark this page and use it as a reference. If you have any questions about payroll, taxes or growing your business, reach out to a firm that specializes in small business accounting.
The first step in setting up your payroll is getting registered with the CRA.
Register With the CRA
To register your payroll with the CRA, you start by opening a payroll program account. You will need to have a Business Number (BN) registered with the CRA already. If you do, simply add a payroll deductions account to your current existing program account.
If not, you can:
- Register online via the Business Registration Online B(BRO) service
- Call the CRA directly at 1-800-959-5525.
- Mail or fax Form RC1, Request for a Business Number, to the nearest Tax Service Office (TSO) or Tax Center.
With your BN, you can access the BRO’s online service and add a payroll program account. You then enter information regarding your business to complete the setup process. This includes the:
- Date your employees received their first wages. You’re required to register for a payroll program account before the first remittance due date, which is the 15th day of the month following the month in which you began withholding deductions from your employee paycheques (unless told differently by the CRA). You can leave this field blank if you haven’t reached this stage yet.
- Months covered.
- Type of payroll period. (weekly b-weekly, monthly, etc.)
- Number of employees in your organization
- Name of the payroll services you are using. (if applicable)
- Country of the parent company if your business has foreign ownership.
- Name of the franchisor. (if applicable)
- Country of origin of the franchisor (if any)
With this is completed, you are now ready to register your employees into your payroll account.
Adding Employees to Your Payroll Account
When onboarding new employees, have them:
- Provide you with their social insurance numbers (SIN).
- Complete a Form TD1, Personal Tax Credits Return. They must complete federal and provincial Form TD1s. This form is used to calculate the amount of tax to be deducted from an employee’s income and revenue.
Your employees are required to fill out a new Form TD1 within seven days of any change that may cause a change to their personal tax credits for the year (e.g. a pay raise.) You will also need your employees to provide you with:
- Mailing addresses.
- Date of birth.
- Phone number.
Now that your employees are registered to your payroll account, you need to enter the applicable deductions and deduction amounts. This requires organizing your business finances and calculating your employees’ gross wages.
Employee Gross Wages and Payroll Deductions
Gross wages are an employee’s total earnings from all sources before payroll deductions and includes taxable benefits and allowances. Remember to include overtime pay for hourly employees who work over 40 hours in a workweek or over eight hours in a day.
With an employee’s gross wages calculated, you can then visit CRA’s Payroll Deductions Online Calculator, which will walk you through calculating an employee’s deductions.
You will be withholding amounts from your employees’ earnings (and then remitting them to the CRA) for:
- Federal income tax
- Provincial or territorial income tax
- Canada Pension Program (CPP) or Quebec Pension Program (QPP) contributions
- Employment Insurance (EI) premiums
CPP/QPP contributions apply to employees aged 18 to 69 with a pensionable job and who are not disabled. Both the employee and employer pay into it based on a percentage of the employee’s earnings until they have reached the employee’s maximum contribution amount. These amounts change yearly and can be found here.
EI premiums apply to employees of all ages, but the contribution amounts are also based on the employee’s earnings. A percentage of every dollar an employee earns is held back and sent to EI until the employee pays their maximum annual premium limit. Employers also contribute to EI by paying 1.4 times the amount held back from the employee until they’ve reached the maximum annual employer premium for that employee. The EI premium and rate maximum page is here.
Paying Your Employees and Remitting Deductions to the CRA
Before you finish processing payroll by sending out paycheques, conduct a payroll reconciliation to check for errors. You can do this by comparing the current pay period’s total payroll with the amount in the payroll ledger to ensure they match. A payroll ledger will include a list of employees, hours worked, gross pay, taxes, withholdings, and net pay. This is a key step in the payroll process as mistakes with payroll can land you into hot water with the CRA and is one of the business mistakes to avoid.
The CRA allows you to either remit your deductions electronically or via paper vouchers and receive your account statements via mail. As a new employer, the CRA classifies you as a regular remitter, which means you are required to remit deductions on or before the 15th of the month following the one in which they were made.
The longer you remit deductions you build a payroll history, and at a certain point, the CRA will change your classification, allowing you to remit quarterly or as an accelerated remitter, which cuts down on the amount of paperwork you have to do.
By the end of February of every year, you will have to fill out a Form T4 for each employee, send a copy to the CRA and make them available to your employees.
Keep All of Your ‘Paperwork’
Canadian businesses are required to keep and secure their business records, and payroll is no different. Whether you keep electronic records, paper records or both, ensure they are backed up and that the backups are stored in a separate, secure location.