Hiring your first employee is an exciting milestone; it means your business has grown to the point that you both need and can afford more help. It also means that now you are going to need to run payroll and unfortunately, that’s a little more complicated than just handing someone a pay cheque every two weeks.
Here are the details.
The Steps to Doing Payroll
1) The very first thing you have to do is open a payroll program account with the Canada Revenue Agency (CRA).
You will be using the payroll account to remit the deductions you need to make from your employees’ pay, so the best thing to do is set up a payroll account before you even hire anyone.
If you hire someone before you’ve set up a payroll account, you’ll need to do it ASAP because there are penalties for failing to deduct what you should have deducted from employees’ pay or for remitting to the CRA late.
To open a payroll account, all you need to do is add a payroll account if you already have a Business Number.
If you don’t have a Business Number (BN), you can register for a payroll account and a Business Number at the same time. In either case, here are the different ways you can register.
2) Hire employees.
And when you hire someone, make sure you get two pieces of information from them;
- their Social Insurance Number (SIN); and
- a completed Form TD1, Personal Tax Credits Return.
Form TD1 is the form used to determine the amount of tax to be deducted from a person’s employment income.
You will need both the SIN and a completed Form TD1 from each employee to properly make payroll deductions and complete the related paperwork.
3) Make the appropriate deductions.
As an employer, you have to calculate and withhold:
- the Canada Pension Plan (CPP) contributions,
- Employment insurance (EI) premiums, and
- income tax deductions
from each employee, based on the amounts you pay them.
You also have to calculate your share of CPP and EI which you will also have to remit to the Canada Revenue Agency.
On its web page on Methods of calculating deductions the CRA says, “There are numerous versions of the Payroll Deductions Tables to help you calculate CPP contributions, EI premiums, and the amount of federal, provincial (except Quebec), and territorial income tax that you have to deduct.”
The easiest way to calculate deductions, though, is to let accounting software such as QuickBooks do it for you.
4) Remit your deductions by the due date.
All of the deductions you’ve made from each employee’s pay as well as your share of CPP and EI and the appropriate remittance form need to be sent in to the CRA by the correct date.
The due date depends on what type of remitter you are. New remitters have to send their deductions in on or before the 15th day of the month after the month you’ve made them.
5) Complete and file information returns.
There are two types of information returns most employers will have to complete;
1. a T4 slip for each employee, which shows the employee all the employment income, commissions, taxable allowances and benefits, or any other remuneration that you’ve paid him or her; and
2. a T4 Summary which you will complete and file with the Canada Revenue Agency which summarizes all the amounts you reported on your T4 slips.
If you are in the construction industry and have employed contractors, you will also have to complete and file T5018 under the Contract Payment Reporting System.
Both summaries and slips are due on the last day of February that follows the calendar year to which they apply.