Your business us growing and you’re ready to take the plung and hire an employee. Congratulations. There are a number of things that you need to think about, especially as you get started. Please also note that lows vary by Province – based on where the employment takes place (so if you are in Ontario but your employee will be in B.C. then you need to comply with B.C. rules; if you have staff in multiple provinces then you need to be aware of the rules in each province).
Payroll can be a complicated process. There are lots of small issues that can catch you out and penalties abound. We recommend using a professional accounting firm (like us) or an HR management firm to help ensure that you are doing the right things. This document is an introduction only and not intended to cover all aspects or issues in a normal payroll process.
Getting set up
1. Register as an employer with CRA
You need a Payroll Account attached to your Business Number with CRA (usually “RP0001”) to allow you to send in remittances and file payroll-related forms (like T4s). You can create your Payroll account online or by calling 1-800-959-5525 Monday to Friday (except holidays) from 9 am to 6 pm.
2. Register with your local Workers’ Compensation Board
This varies by Province. In Ontario is it WSIB, in BC it is WorkSafe BC. Most employers need to register and pay premiums. This is a mandatory insurance programme, not a tax. You should contact your local Board and determine if you need to be registered, and if so, register. You should also find out what your reporting requirements are. Some require annual reporting for smaller employers, and some require quarterly reporting or instalments.
3. Register for EHT (BC and ON)
Larger business in British Columbia (annual payroll over $500K) and Ontario ($490K) must pay an Employee Health Tax (essentially a tax on remuneration but paid by the employer) of up to 1.95%. Special rules apply to Charities and Non-Profits. You must include all associated employers in a group when calculating the total annual payroll.
4. Setup Payroll software
While you don’t need to use payroll software, it will certainly make like easier for you, especially if you have hourly employees, more than 5 employees or would like to Direct Deposit pay to your staff. We recommend Payment Evolution because of it’s simplicity and cost and use this internally.
5. Register with Service Canada
While not an immediate issue, being registered with Service Canada will help when an employee terminates – so good to get this underway early.
6. Learn about taxable payments to employees
Start with the assumption that any amount you pay to or on behalf of an employee is taxable and should have tax deducted. Exemptions exist for reimbursement of business expenses and employee health plans but payments for provincial health premiums, cell phones, bonuses, pension/RRSP contributions etc. are usually taxable. Taxable benefits should be included in the payroll system so that the employee taxes and CPP/EI contributions can be properly calculated.
7. Understand your local employment obligations
Every Province has different rules. You should look up your Provinces Department of Labour or equivalent to learn about:
- Statutory Holidays and paying staff for Stat holidays
- Holiday Pay, Annual Leave and payments for annual leave
- Severance Pay
- Requirements for sending pay slips and timing of payments to staff
Hiring an employee
1. Use a written contract
It’s good practice you have a written employment agreement that spells out the basics.
2. Gather the right information
There’s lots of data required when you bring on a new employee. You should use a checklist and a standard form to ensure that you have everything you need. You can steal ours from our Common Forms page.
3. Set them up in the payroll system
Don’t wait until the day before their pay is due to set them up in Payroll. Doing this early verifies that you have all the information that you need to ensure that they can be paid. There’s nothing worse than holding up pay for other employees because the new guy’s bank account number doesn’t work!
During the year
In addition to ensuring that the employee gets paid on time there are a few other things that you need to ensure happen.
1. Make your “remittance” payment to CRA
Each pay run you will deduct amounts from your employees for Federal/Provincial income tax, CPP and EI. These usually need to be paid to the CRA on the 15th day of the month following the day they are paid to the employee (if the employee receives their pay on Feb 2, even though this is for the period ending Jan 31). If you have perfect filing compliance you may be able to go down to quarterly if you are a small employer.
2. Report and Pay your Workers’ Comp Premiums & EHT
Varies by Province. You will have at least an annual reporting requirement (December cycle – usually due by end of January or Feb) as well as possibly quarterly reports and/or instalments/payments.
3. If an employee terminates file an ROE with Service Canada
If an employee ceases to be employed, or has a break in remuneration of more than 2 weeks, you need to file a Record of Employment (ROE) with Service Canada. Most payroll systems can generate this and send it direct to Service Canada, or prepare a file that you can upload to Service Canada. These forms are required to be filed within 5 calendar days of the end of your pay period (other rules apply here as well).
4. Prepare T4s at the end of the year
The T4 form is an annual reporting form telling CRA how much each employee earned and what taxes were deducted from each employee. They need to be filed with CRA and sent to each employee no later than Feb 28 each year (for the prior calendar year). Most payroll systems can prepare these with a click of a button.