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How to Process Payroll

Imagine a payroll process that's as smooth as a freshly paved road—where errors are a rarity, and compliance isn't a cause for sleepless nights. That's the value of payroll automation.

Understanding payroll processing can seem intimidating at first, but automation systems can make it much less complicated. There is a compelling case to be made on how payroll automation can help your business save time—as it allows a hands-off approach that can free up your time so you can focus on other aspects of your business.

This guide will take you through the payroll process step by step, so you’re confident and prepared for payday.

What is Payroll Processing?

Payroll processing is the act of managing employee payments. It covers everything from inputting an employee into your payroll software to giving them their pay cheques.

If you’re a small business owner, chances are good you’re the one handling payroll. When your team gets bigger and payroll becomes more time-consuming, you might hand off this task to an accountant or HR manager.

Often, business owners purchase payroll accounting software to help with organization and ensure payroll compliance with provincial and federal labour standards. There are a lot of taxes to keep in mind when processing payroll, so it helps to have professional assistance.

If you’re wondering how processing employee payroll works, there are eight basic steps from start to finish.

Step-by-Step Guide to Processing Payroll in Canada

Processing payroll isn’t just about compensating your employees. It’s part of operating your business legally-according to provincial laws and the Federal Labour Standards. These standards and laws have several requirements that fit into your payroll process-from tracking employee time at work to record keeping. You’ll want to keep those regulations in mind when establishing a payroll process.

1. Choose a payroll system

There are three basic payroll systems to choose from: manual payroll, outsourced payroll, and payroll software.

  • Manual payroll is processed by hand, typically on paper or in a spreadsheet.
  • Outsourced payroll means hiring someone else to take care of everything from payroll taxes to bookkeeping.
  • Payroll software varies by plan or product. Most offer everything from basic payroll assistance to add-ons that may include time tracking or even HR services.

Before you commit to one system over another, consider factors like business growth, employee benefits, and the complexity of your province’s payroll laws. The more complicated the components and calculations, the more likely it is you’ll want to purchase payroll software or outsource payroll altogether.

2. Create a payroll policy

Before you create a payroll policy, review your local labour laws, provincial overtime laws, and federal labour standards. The most common violation is unpaid overtime, which can happen by accident when you don’t know the rules.

Here are some other things to include in your payroll policy:

  • Pay dates, including the length of each pay period, and when you pay employees after that.
  • How you’ll pay employees—by direct deposit or paper cheque.
  • Payroll deductions and withholdings and how the benefits you offer will impact the employee’s pay cheque.

3. Gather employee information

If you have employees, you should also have all of their information. Employee personal information that is required for payroll includes their social insurance number (SIN), and completed Form TD1, Personal Tax Credits Return. Employers that have employees in Quebec are also required to collect provincial Form TP-1015.3-V, Source Deductions Return.

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4. Set up direct deposit

Direct deposit can come with a nominal fee, but it’s convenient for both employees and their employers, and it can be included in the cost of payroll software. As a business owner, you can set up direct deposit through your business bank directly or your payroll service provider.

If your employees have opted for direct deposit, they’ll have to give you some information. This includes their bank’s name, their account number, their account type (chequing or savings), and their bank’s routing number. Once you have all that, the next step is to transfer that information to your payroll software or bank.

5. Establish a time tracking system

It's required of employers to maintain accurate records of the work hours an employee has worked each day. The federal government mandates that you must retain these records for at least 36 months after the work is completed. You can use these records to calculate overtime entitlements and demonstrate compliance with federal requirements.

One way to maintain these records is to track hours manually and ask employees to write down when they clock in and out. Otherwise, you might try a time tracking software that holds on to employee timesheet records for you. Either way, you’ll want to train employees to track their time as soon as possible.

6. Collect employee timesheets

Congratulations—you’ve reached the end of the pay period! It’s time to run your first payroll, which means it’s time to collect employee time cards. If they’re paper time cards, you’ll need to spend some time adding up the hours, checking for any mistakes, and transcribing the numbers to your payroll records.

If the time cards are digital, now is the time to import them to your payroll software. Depending on the product, those timesheets may already be sitting inside your payroll software, waiting for approval.

7. Approve and submit employee payroll

Approval is the most important step when running payroll for hourly employees. This is your chance to make sure all the hours worked make sense, so payroll is accurate. Once you have approved all employee time cards, you’re ready to run payroll and issue payments to employees.

8. Report and update payroll records

Once the cheques are out the door, it’s time to update your payroll records. Those records must show you’ve withheld applicable taxes from employee wages. You also have to show the tax contributions you’ve made.

Payroll records are important for other reasons, too. For instance, Canadian Labour Standards Regulations requires employers to keep all payroll records for three years. That information must include any employee benefit plans (including retirement or insurance) and any written seniority or merit system in place.

Traditional vs. automated payroll processing

Traditional payroll often involves manual data entry, physical timesheets, and manual calculations. It's labour-intensive, and prone to errors.

Payroll automation takes human error out of the equation, using technology to streamline these tasks.

From auto-calculating earnings and deductions to electronically filing T4s, automation minimizes human intervention, reducing errors and saving time. The stark difference lies in efficiency, accuracy, and the ability to adapt to changing regulations without sifting through volumes of paperwork.

The case for automation in payroll processing

Automating your payroll process brings several benefits. For starters, it significantly reduces the chances of human error. It also frees up your HR team's time to focus on strategic tasks like employee engagement and training.

Automated payroll systems also ensure you stay up-to-date with ever-changing tax laws and regulations, minimizing the risk of costly compliance issues. Automation makes your payroll process more efficient and reliable.

How Long Does it Take to Process Payroll?

Processing payroll may take several hours, depending on your number of employees and the tools you use. The more manual the process, the longer it will take.

Automated payroll and time tracking tools can reduce that time considerably. One reason is that most payroll processing solutions calculate payroll taxes for you, which could take hours if done by hand.

Once you submit payroll, the time it takes for those cheques to hit your account depends on the type of deposit. Some payroll providers offer as fast as same-day direct deposit or next-day direct deposit. In general, though, it takes about two to three business days.

An all-in-one solution for automated payroll processing in Canada

QuickBooks Payroll provides a simple all-in-one solution for automated payroll processing, allowing small to mid-sized businesses to manage payroll and HR all in one place. With QuickBooks Payroll, you can automate tax calculations and stay compliant with Canadian laws, all while saving precious time.

Plus, with QuickBooks' robust customer support, you're never alone in your payroll journey. QuickBooks Payroll lets you run payroll in less than 5 minutes*, so you have more time to focus on what matters most—your business. Discover how QuickBooks can revolutionize your payroll process. Learn more and start paying your employees with QuickBooks Payroll today.

*Median time spent by US QuickBooks Online Payroll users reviewing and approving payroll as of December 2022.

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