Table of Contents

• Understanding payroll
• Setting up your payroll system
• Registering for a payroll account
• Collecting essential employee information
• Choosing the right payroll frequency
• Processing payroll step-by-step
• Calculating employee earnings
• Determining and applying deductions
• Remitting deductions
• Issuing payments and pay stubs
• Year-end payroll responsibilities
• Preparing T4 slips for employees
• Filing T4 summaries
• Meeting deadlines
• Leveraging payroll tools and solutions
• Benefits of using payroll tools
• How payroll solutions can simplify the process
• Common payroll challenges and solutions
• Avoiding common payroll mistakes
• Tips for staying compliant with regulations
• Now you know how to do payroll effectively
• Frequently Asked Questions

Managing payroll can seem like a big task at first, especially if you’re just getting started. But with the right approach and tools, it’s easier than you think. From calculating deductions to filing forms, each step is entirely manageable once you have a clear plan in place.

Whether you’re hiring your first employee or looking for a better way to handle payments, this guide will walk you through how to do payroll step by step.

By the end, you’ll have the knowledge and confidence to manage payroll smoothly while staying compliant with government requirements.

Understanding payroll

Managing payroll is more than just paying employees—it’s a critical part of running a business. Payroll ensures your team is compensated fairly and that your business complies with tax and legal obligations. But what exactly does payroll involve?

At its core, payroll is the process of calculating employee earnings, deducting the required amounts for taxes and benefits, and ensuring employees receive their pay. This includes tracking hours worked, determining wages, and staying on top of regulatory requirements for deductions and remittances.

Accurate payroll matters because it keeps your business in good standing with the government and builds trust with your employees. Errors in payroll can lead to penalties, audits, or unhappy team members—which can affect your reputation and bottom line. By understanding the basics and setting up a reliable system, you can avoid these pitfalls and ensure a smooth payroll process.

In the next sections, we’ll break down how to do payroll step by step, making it easier to handle with confidence and precision.

Setting up your payroll system

Before you can run payroll, it’s important to set up a system that works efficiently for your business. This foundation ensures accuracy, compliance, and a smooth process for paying your employees.

Registering for a payroll account

To start, you’ll need to register for a payroll account with the Canada Revenue Agency (CRA). This account allows you to remit deductions like income tax, CPP contributions, and EI premiums.

If your business operates in industries or provinces with additional requirements, you may also need to register with your provincial workers’ compensation board.

If you don’t already have a business number, apply for one before setting up your payroll account.

Collecting essential employee information

Gathering employee details is a key step. At a minimum, you’ll need each employee’s Social Insurance Number (SIN) and completed TD1 forms, which are used to calculate tax deductions.

Having clear and organized records from the start helps prevent errors and ensures compliance.

Choosing the right payroll frequency

Next, decide how often you’ll run payroll—weekly, bi-weekly, semi-monthly, or monthly. While bi-weekly and semi-monthly schedules are common, choose a frequency that aligns with your business operations and cash flow. Keep in mind that the frequency you choose will determine how often you calculate and remit deductions to the CRA.

By setting up these foundational elements, you’ll be ready to move on to processing payroll efficiently. In the following section, we’ll walk you through the step-by-step process to ensure every payment is accurate and timely.

Processing payroll step-by-step

Once your payroll system is set up, the next step is running payroll accurately and on time. This involves calculating employee earnings, applying deductions, and ensuring payments are processed smoothly.

Calculating employee earnings

Start by determining each employee’s gross pay. For hourly employees, multiply their hours worked by their hourly rate, including any overtime pay if applicable. For salaried employees, divide their annual salary by the number of pay periods in your payroll frequency. Don’t forget to include additional earnings like bonuses or commissions when applicable.

Determining and applying deductions

Deductions are a critical part of payroll processing. These include:

• Canada Pension Plan (CPP) contributions
• Employment Insurance (EI) premiums
• Federal and provincial income tax

You can simplify this step by using the QuickBooks payroll deductions calculator. This free tool allows you to estimate gross pay, deductions, and net pay accurately. Just enter your employee’s details, and the calculator will handle the math for you, ensuring compliance with government requirements.

Remitting deductions

Once deductions are calculated, you must remit them to the CRA by the required deadline. The remittance schedule (monthly, quarterly, or accelerated) depends on your total payroll amount. Always ensure remittances are made on time to avoid penalties or interest charges.

Issuing payments and pay stubs

After deductions are applied, the remaining amount—net pay—is issued to employees. You must also provide detailed pay stubs showing gross pay, deductions, and net pay for transparency and record-keeping. Pay stubs can be issued electronically or on paper, depending on your system and employee preferences.

By following these steps, you’ll ensure that payroll is accurate and compliant every time. In the next section, we’ll cover your responsibilities at the end of the payroll year, including preparing and filing T4 slips.

Year-end payroll responsibilities

At the end of each payroll year, there are key tasks you’ll need to complete to stay compliant and keep your records in order. These responsibilities ensure your employees receive accurate information for their tax filings and that your business meets government requirements.

Preparing T4 slips for employees

A T4 slip summarizes an employee’s earnings and deductions for the year. You’ll need to complete a T4 for each employee, detailing their gross pay, deductions (like CPP, EI, and income tax), and net pay. Once prepared, provide a copy to each employee and file the information with the CRA.

Filing T4 summaries

In addition to individual T4 slips, you’ll need to submit a T4 summary to the CRA. This document consolidates the total earnings and deductions for all employees in your business. Ensure the totals on the T4 summary match the amounts you’ve remitted to the CRA throughout the year.

Meeting deadlines

It’s important to meet the CRA’s deadline for filing T4 slips and summaries, typically at the end of February following the payroll year. Missing these deadlines can result in penalties, so mark your calendar and plan ahead to avoid last-minute stress.

Completing these year-end responsibilities ensures your payroll records are accurate and compliant. With the year wrapped up, you’re ready to start fresh, confident in your payroll process.

Next, we’ll explore how payroll tools can make managing these tasks even easier.

Leveraging payroll tools and solutions

Managing payroll manually can be time-consuming and prone to errors, especially as your business grows. Payroll tools and solutions can help you streamline the process, reduce mistakes, and save valuable time.

Benefits of using payroll tools

Payroll tools simplify complex calculations, automate tasks, and help ensure compliance with government requirements.

Here’s how they can make your life easier:

• Automated calculations: Tools can quickly and accurately calculate gross pay, deductions, and net pay.
• Tax compliance: Payroll solutions stay up to date with the latest tax rules, so you don’t have to.
• Employee management: Many tools include features like automated pay stubs, direct deposits, and employee record-keeping.
• Time savings: Automating payroll frees you up to focus on other areas of your business.

How payroll solutions can simplify the process

QuickBooks, for example, integrate payroll with other business tools, making it easier to track expenses, generate reports, and stay organized. These solutions can also remind you of important deadlines, such as remittance and T4 filings, so you never miss a step.

• By leveraging payroll tools, you can ensure accuracy and efficiency, leaving behind the stress of manual calculations. In the next section, we’ll discuss common payroll challenges and how to overcome them, helping you run payroll with even greater confidence.

Common payroll challenges and solutions

Even with the best systems in place, payroll can present unique challenges. Understanding these issues and knowing how to address them will help you avoid costly mistakes and ensure a smooth payroll process.

Avoiding common payroll mistakes

Some of the most frequent payroll mistakes include:

• Miscalculating deductions: Errors in CPP, EI, or income tax deductions can lead to penalties or employee dissatisfaction.
• Missing remittance deadlines: Late remittances to the CRA can result in fines and interest charges.
• Overlooking employee classification: Incorrectly classifying employees as contractors or vice versa can have legal and financial repercussions.

To avoid these pitfalls, use payroll tools to automate calculations and set up reminders for important deadlines. Regularly reviewing your payroll records can also help catch errors before they become problems.

Tips for staying compliant with regulations

Compliance is critical to avoid audits or penalties. Here’s how to stay on top of your responsibilities:

• Stay informed: Keep up with updates to tax laws and deduction rates to ensure accuracy.
• Organize your records: Maintain detailed payroll records for at least six years, as required by law.
• Use reliable tools: A payroll solution can help you stay compliant by automating tasks and keeping you informed of changes.

By addressing these challenges proactively, you can ensure your payroll process runs smoothly and meets all legal requirements.

In the final section, we’ll recap the key steps and encourage you to take advantage of the resources available to simplify payroll management.

Now you know how to do payroll effectively

Managing payroll may seem complex at first, but with the right approach and tools, it becomes a manageable and even efficient part of running your business. By understanding how to do payroll, setting up a solid system, processing payments accurately, and handling year-end responsibilities, you can ensure compliance and maintain a happy, productive workforce.

If you’re looking to simplify the process even further, consider leveraging tools like QuickBooks Payroll solutions. These tools automate calculations, stay up to date with tax regulations, and help you manage payroll with confidence.

With the steps and strategies outlined in this guide, you’re equipped to handle payroll efficiently—leaving you more time to focus on growing your business. Ready to streamline your payroll? Let QuickBooks help you get started today.