How do I set up payroll for the first time in Canada?

Register for a payroll account

Before you can pay anyone, you need a payroll (RP) program account under your business number with the CRA. If you already have a business number for GST/HST or corporate tax, you simply add an RP account to it. If not, you register for the business number and the payroll account together.

This applies the moment you pay a salary to anyone, including yourself as an owner drawing a salary from your corporation. Paying wages without a payroll account and remittances is one of the most common early compliance failures.

Collect the right forms from each employee

Every employee completes a federal and provincial TD1 when they start. These declare their personal tax credits and tell you how much income tax to withhold. An employee who does not complete one is withheld at the basic amount.

You also need each employee's SIN and banking details for direct deposit. Keep these on file; they support the amounts you remit and the T4s you eventually issue.

Withhold the three amounts from every pay

On each pay you withhold and track three things:

• Income tax, based on the employee's TD1 and pay
• CPP contributions, on earnings above the annual basic exemption up to the yearly maximum
• EI premiums, up to the annual maximum insurable earnings

The employer also pays its own share: 100% of the employee's CPP amount is matched, and EI is matched at 1.4 times the employee's premium. The CRA's payroll deductions calculator, or payroll software, computes all of this per pay period.

Remit on time, every time

The tax, CPP and EI you withheld, plus the employer's share, must be remitted to the CRA. For a new or small employer, the deadline is generally the 15th of the month following the pay. Larger employers face accelerated schedules, remitting more frequently as their payroll grows.

These are trust funds, and the penalties for late remittance are among the harshest in the tax system: up to 10% for a single failure and 20% for a repeat, plus personal director liability. This is the single most important date to never miss.

Year-end: T4 slips and summary

After the calendar year ends, you prepare a T4 slip for each employee summarising their earnings and deductions, and a T4 Summary totalling them. Both are filed with the CRA and the slips given to employees by the last day of February.

The T4s must reconcile to what you actually remitted through the year. Discrepancies between remittances and T4s are a common trigger for CRA follow-up, which is why accurate per-pay records matter all year, not just at February.