Once you've hired people to work for you, one of your responsibilities as an employer is to pay them properly. In Canada, this means complying with the requirements of the Canada Revenue Agency and making and remitting the correct payroll deductions. This article will guide you through the process of how to do payroll in Canada.
How to Do Payroll in Canada
As a Canadian employer, there are five steps to running payroll:
1. Opening and operating a payroll account with the Canada Revenue Agency (CRA).
2. Collecting required information from employees, such as their social insurance number (SIN) and a completed federal and provincial TD1 form.
3. Making the appropriate Canadian payroll deductions from employees' pay each pay period.
4. Remitting these payroll deductions, along with the employer's share of Canada Pension Plan (CPP) contributions and Employment Insurance (EI) premiums, to the Canada Revenue Agency as required.
5. Reporting each employee's income and deductions on the appropriate T4 or T4A slip and filing an information return on or before the last day of February of the following calendar year.
Let's look at the details, then.
Step 1) Open and operate a payroll account with the Canada Revenue Agency ( CRA).
You will use the payroll account to remit your payroll deductions to the Canada Revenue Agency.
If you already have a Business Number, you will just be adding a Payroll account to your existing Canada Revenue Agency accounts.
If you don't have a Business Number already, you will have to get one first, which is easy to do; you can contact the Canada Revenue Agency by phone at 1-800-959-5525, mail or fax, or register for a Business Number online.
Step 2) Collect required information from employees, such as their social insurance number (SIN) and a completed federal and provincial TD1 form.
As part of the hiring process, you should have examined each new employee's SIN card and recorded the employee's name and SIN exactly as they appear on the card. (Remember to watch for Social Insurance Numbers that start with the number '9' when you do this, because this number signals a person you can't hire; he or she is not a Canadian citizen or permanent resident and is authorized to work only for a particular employer with a valid employment authorization issued by Citizenship and Immigration Canada.)
You should also have already had the new employee fill out the appropriate federal and provincial Form TD1, Personal Tax Credits Return, which determines how much tax is to be deducted from a person's employment income.
Step 3) Make the appropriate payroll deductions from employees' pay each pay period.
Add your employee’s taxable benefits first.
Do you provide an employee with board and lodging, the use of a company car, parking or a low-interest loan? Anything you provide an employee other than money may be considered to be a taxable benefit.
And if an employee's pay involves taxable benefits, these need to be added to an employee's income each pay period before you make any payroll deductions, because the total income determines the total amount that is subject to source deductions, and the taxable benefit may be subject to CPP contributions, EI premiums and income tax deductions just like any other income.
The Canada Revenue Agency's Guide T4130, Employers' Guide - Taxable Benefits and Allowances gives details on how to calculate the value of these benefits and which taxable benefits are subject to GST/HST.
Then you're ready to make your Canadian payroll deductions. Generally, employers need to deduct three things from employees' pay:
- Income tax
- Canada Pension Plan (CPP) contributions
- Employment Insurance (EI) premiums.
1) Deducting Income Tax
To find out how much income tax you need to deduct from employees' pay, you use the provincial or territorial tables for the province or territory where the employee reports to work. The easiest way to do this is to use the Canada Revenue Agency's Payroll Deductions Online Calculator, which will calculate all the other payroll deductions you need to make, too.
However, if you can't use the Payroll Deductions Online Calculator, all the payroll deductions tables that you need are available through the Canada Revenue Agency's Payroll page.
2) Deducting Canada Pension Plan (CPP) Contributions
Generally, you have to deduct CPP contributions if an employee is older than 18 and younger than 70 years of age, in pensionable employment, not disabled and not receiving a CPP or QPP (Quebec Pension Plan) pension.
You will find a link to the CPP contributions rates, maximums and exemptions chart and other useful information about CPP contributions on this Canada Pension Plan page from the Canada Revenue Agency.
If You Are an Employer in Quebec
Note that the province of Quebec has its own provincial pension plan, the Quebec Pension Plan (QPP), the Quebec Parental Insurance Plan (QPIP) and its own provincial income tax –
"Employers with employees in Quebec have to deduct contributions for the QPP instead of the CPP, if the employment is pensionable under the QPP. Employers have to take deductions for both the QPIP and EI, if the employment is insurable" T4001 Employers' Guide - Payroll Deductions and Remittances (Canada Revenue Agency).
Visit the Revenu Québec website for more information.
Continue on to the next page to learn about deducting Employment Insurance premiums from employees' pay, remitting your payroll deductions to the Canada Revenue Agency, and completing T4 slips.