Payroll Requirements: Everything You Need to Know About Running Payroll in Canada

Paying off employees for their hard work and running a successful payroll is a heavy responsibility for any business employer. When you have just started your business in Canada, running a payroll often gets complex especially if you are unfamiliar with the payroll legislation.

The Canada Revenue Agency (CRA) has obligated employers with certain payroll requirements to fulfill in order to run a payroll in Canada. This article will provide you with an A to Z guide to running payroll in Canada.

And if you are willing to create your payroll by yourself, we have another thorough guide to help you do your payroll by yourself. Check it out.

Overview of Payroll Requirements in Canada

Running payroll in Canada involves a few obligatory steps for employees to follow:

1. Obtaining a Business Number (BN) and getting a payroll account via the CRA
2. Getting employees’ informational data and collecting completed federal and provincial TD1 forms from employees
3. Determining the payroll frequency and making appropriate Canadian payroll deductions from employees’ wages
4. Remitting the payroll deductions including Employment Insurance (EI) payments, Canada Pension Plans (CPP), and other income deductions to the CRA.
5. Stating employees' income and deductions in T4 slips at the end of the year and ensuring employees receive on-time.

How Can You Open a Payroll Program Account?

The business number is the unique identifier of your business. The first step to running a payroll in Canada is about opening a payroll account and getting a business number. If you have already got a business number from CRA, you just need to add a payroll account among other services.

You can request a business number and a payroll account online at the same time on the CRA website. You will need to provide the following information to proceed with the registration process:

• Number of employees
• Payroll frequency
• Payroll service or software you are going to use

What Information of Employees Fulfill Payroll Requirements?

Next, you need to collect the personal information of your employees which includes:

• Employee’s full name
• Phone number
• Current address in Canada
• Date of birth
• Bank account information for direct deposit
• Social Insurance Number (SIN)

CRA provides federal and provincial TD1 forms to be filled by employees. You need to collect these forms from employees which determine the amount of tax deducted from employees' income.

What is a Social Insurance Number (SIN)?

The Canadian government provides a unique and private 9-digit Social Insurance Number or SIN for those working in Canada to receive payment and get government benefits.

How to Determine the Payroll Frequency?

Once you have done with all provincial administrative payroll requirements, you next need to determine how often you are going to release a payroll for your employees.

• Weekly - at the end of each week
• Biweekly - a professional approach to pay once after a couple of weeks
• Semi-monthly - twice a month
• Monthly - once a month usually at the end of the month

You must manage your payroll frequency depending on your cash flow cycles that fit best to your business.

How To Do Payroll Deductions in Canada?

Taxable Benefits

Taxable benefits are given to employees other than their regular salary such as board and lodging, company car, rent-free housing, etc.

You must add these taxable benefits before making any payroll deduction.

And once you have added the wages and all taxable benefits, you are ready to make Canadian payroll deductions.

CRA payroll deductions typically include:

Income Tax

Income tax is a deduction amount that employers must deduct from every payment made to employees. The rate of income tax can be seen in the CRA payroll deduction table.

Canada Pension Plan (CPP) Contributions

CPP is a national pension program that offers Canadians income upon their retirement. When the employees are aged somewhere between 18 and 69, the employers deduct CPP contributions from their income. Canadians living in Quebec province contribute to the Quebec Pension Plan or QPP.

Employment Insurance (EI) Premiums

The government pays Employment Insurance premiums to eligible employees who have stopped working for known reasons. Without aging distinction, you need to deduct EI premiums until the deduction reaches the maximum yearly amount.

EI deduction can be calculated by multiplying the employees' salary as per the rate set by CRA.

Other deductions may include Registered Retirement Saving Plan (RRSP) contributions.

All the payroll deductions can be easily calculated by CRA online deduction calculator.

Similarly, when you move towards generating paystubs, a paystub generator can make it easy to go.

How Does a Business Remit Payroll Deductions in Canada?

Now when you have successfully deducted the appropriate proportion of your employee salary, you need to remit this deduction amount to CRA. You can either remit these deductions via paper vouchers or digitally.

Now when you have successfully deducted the appropriate proportion of your employee salary, you need to remit this deduction amount to CRA. You can either remit these deductions via paper vouchers or digitally.

If you have chosen a digital route, you can track your account and transactions via CRA’s My Business Account Portal.

You need to remit deductions by the 15th day of the month following the month you made deductions. But if this schedule doesn’t work for you, you would have more options to choose from. For QPP deductions, you need to send them to Quebec’s revenue agency.

Make sure to check for errors before you complete processing your payroll. Here we have the best ways to reduce your accounting errors.

How Can You Generate T4 slips?

Payroll requirements in Canada end up on generating and distributing T4 slips among employees. T4 is an information slip that includes all the money earned by employees and remitted for tax during the calendar year.

Being an employer, you have the responsibility to complete the T4 form and share the T4 slips with employees by the last day of February of the following year. You can fill out these slips digitally through CRA’s T4 web forms application.

Conclusion

Running a payroll in Canada is a straightforward approach that involves the understanding of payroll tax legislation. CRA instructs employers to keep every business record and document relating to payroll in a secure place at their business place or residence unless CRA permits them to keep it elsewhere.