One of those key items to tick off? Setting up payroll for the first time.
But Canadian payroll itself covers a lot more than just paying employees. It also includes tax withholdings, government remittances, and year-end slips.
And first-time setup includes registrations, pay schedules, employee information, and record-keeping. Rules vary by province and territory, with Québec having additional requirements.
One of the earliest choices for any business owner is how payroll will be processed. Your options include manual spreadsheets, an external accountant or bookkeeper, or full-service payroll software.
Ready to see what’s the right fit for your business? Let’s dive in.
Choosing your payroll path: Manual, accountant, or software
Three main approaches exist for Canadian payroll setup: manual spreadsheets, hiring an external accountant, or using full-service payroll software. Each path works for different budgets and business sizes.
Here is a breakdown to help make your decision easier.
Manual spreadsheets and CRA remitters
A manual approach uses Excel or Google Sheets to calculate gross-to-net pay, CPP or QPP, EI, and federal and provincial income tax. Remittances go through CRA My Business Account or online banking.
This method requires keeping tax rates, brackets, and thresholds current across all jurisdictions. Complex situations like multi-province teams, taxable benefits, and garnishments add calculation layers. Manual processing typically takes hours per pay run plus extra time at month-end and year-end.
Using an external accountant or bookkeeper
An external professional runs calculations, submits remittances to the Canada Revenue Agency and Revenu Québec, and prepares year-end tax slips. You provide hours worked, new hire details, terminations, and approvals.
Fees often include a base amount per payroll plus per-employee charges. Year-end slip preparation costs extra. This path works well for small headcounts or businesses that prefer third-party oversight.
Full-service payroll software
Full-service payroll software automates calculations for CPP/QPP, EI, and income tax. These platforms generate and e-file T4/T4A and RL-1 slips while supporting direct deposit and record of employment (ROE) e-filing.
Pricing typically involves a monthly subscription with per-employee charges. Setup requires business numbers, payroll account details, and bank verification.
Rise is one platform that combines payroll, time tracking, scheduling, HR, and benefits together. An all-in-one solution, Rise helps new employees onboard seamlessly as you get your business up and running.
Essential registrations before you pay anyone
Canadian payroll setup requires federal accounts, provincial registrations, and banking arrangements before running your first payroll.
Business number and CRA payroll account
A Business Number (BN) identifies your business with the Canada Revenue Agency. The payroll program account (format: RP0001) links to your BN for source deductions and remittances.
Registration happens through CRA's Business Registration Online, by phone, or by mail. Online registration typically issues a BN and payroll account immediately. You'll need:
- Legal name and operating name
- Business structure and addresses
- Expected first payday and employee count
- Provinces where employees work
Provincial registrations such as EHT or workers' comp
Several provinces levy an Employer Health Tax or payroll levy:
- Ontario and British Columbia: Apply EHT with exemption thresholds
- Manitoba and Newfoundland and Labrador: Apply payroll levies
- Québec: Applies Health Services Fund contribution tied to total payroll
Québec employers also register with Revenu Québec for source deductions covering income tax, QPP, QPIP, and HSF.
Workers' compensation registration varies by province. Each province's board (like WSIB in Ontario or WorkSafeBC in British Columbia) handles registration, classification, and premium calculations.
Banking setup for direct deposit
A Canadian business chequing account in your legal business name handles payroll transactions. Many employers maintain a separate payroll-only account for easier reconciliation.
Direct deposit uses Electronic Funds Transfer timelines, typically one to two business days before pay date. Employee deposits require account numbers, transit numbers, and institution numbers collected via direct deposit forms.
Collecting employee information and classifying workers
Employee setup includes legal name, home address, date of birth, Social Insurance Number, work location, hire date, job title, and compensation details. Direct deposit information and employment agreements complete the file.
Sensitive data like SINs require secure storage with limited access. Payroll records stay on file for six years from the end of the tax year.
TD1 and provincial tax forms
TD1 federal and provincial forms set an employee's personal tax credits and guide income tax withholdings. Each province uses its own version (TD1ON, TD1BC). Québec uses the provincial form TP-1015.3-V alongside the federal TD1.
Employees complete these forms at hire, when personal credits change, or when requesting additional tax withholding. Without completed forms, basic credits apply by default.
CPP and EI eligibility
CPP contributions apply to pensionable employment from age 18 to 70. Québec employees contribute to QPP under similar rules. Since 2024, a second earnings ceiling (CPP2/QPP2) applies to higher earnings.
EI premiums apply to most insurable employment with no age limit. Québec EI premiums are reduced because parental benefits come through the separate Québec Parental Insurance Plan (QPIP).
Employee vs. contractor checklist
Key factors for worker classification in Canada include:
- Control: Who sets tasks, schedule, methods, and performance evaluation
- Tools and equipment: Who owns, maintains, and insures work tools
- Financial risk: Chance of profit or loss, fixed-price contracts, worker-borne expenses
- Integration: Whether the role is part of core business operations
- Substitution: Ability to hire helpers without approval
Setting your pay schedule and payroll account
Payroll timing covers two parts: how often employees get paid and when source deductions go to the CRA. Pay frequency affects cash flow and processing workload.
How to decide on payroll frequency: Weekly, biweekly, and semi-monthly differences
Before you register for payroll, consider the frequency that works for your business.
Each pay cycle affects cash flow timing and payday predictability. Here are some upsides and downsides for each:
- Weekly (52 pay periods): Same weekday each week, highest payment frequency
- Upside: A good frequency if you have employees with hourly work. Weekly pay also makes overtime calculations straightforward.
- Downside: Creates more payroll runs, which puts more strain on payroll staff and could also complicate budgeting and financial planning.
- Biweekly (26 pay periods): Every two weeks, with two "three-pay" months
- Upside: It balances effort with predictability—employees know they’ll get paid on the same weekday, like every other Friday. It’s good for overtime calculation, too, which makes biweekly a flexible option.
- Downside: Twice a year, your employees will have three pay periods in one month. If your business operates on a monthly cycle for revenue, this can make your cashflow or reporting inconsistent.
- Semi-monthly (24 pay periods): Fixed dates like 15th and last day, no extra payroll months.
- Upside: Paycheques arrive around the same time as rent, utilities, and other monthly expenses. And with only 24 pay periods, this means bigger individual payments.
- Downside: Paydays can fall on weekends or holidays, delaying payment. If you pay employee overtime, this will result in uneven pay periods.
Determining remittance due dates
The CRA assigns a remitter type using your average monthly withholding amount (AMWA). Classification may change if withholdings grow:
- Quarterly remitter: AMWA under $3,000, due by 15th day after quarter-end
- Regular monthly remitter: Due by 15th day of following month
- Accelerated threshold 1: AMWA $25,000-$99,999, due twice monthly
- Accelerated threshold 2: AMWA $100,000+, due by third working day after pay period
New employers typically start as regular monthly remitters until CRA advises otherwise.
It’s important to note that you can’t decide your own frequency based on the AMWA and this is decided by the CRA. For more on remittance due dates here, please visit the CRA website.
Step-by-step payroll setup for Canadian small businesses
This section walks through actual payroll setup from initial configuration to your first pay run.
Step 1: Add employees and pay rates
Employee setup includes legal name, address, date of birth, SIN, work location, hire date, and employment status. Pay configuration covers hourly rate or salary, pay frequency, overtime basis, and default deductions.
Verification involves reviewing SIN accuracy, TD1 amounts, and province of employment for correct tax rules. Approval workflows confirm pay rates and effective dates before the first pay run.
Step 2: Track hours and overtime
Time gets captured through electronic timesheets, physical timecards, or integrated time-tracking apps. Data includes regular hours, overtime hours, paid breaks, leaves, and premiums like evening differentials.
Overtime thresholds vary by jurisdiction. For instance, Ontario uses 44 hours per week, British Columbia uses 8 hours per day or 40 per week, and Québec uses 40 hours per week. Set clear cutoffs for timesheet submission and manager approval.
Step 3: Calculate gross to net and withhold taxes
Since 2024, a second CPP/QPP tier applies on earnings above the first annual ceiling. Other deductions include RPP contributions, union dues, and garnishments. Review reports before finalizing to catch variances.
Step 4: Create records of employment and pay statements Step
Gross earnings include regular wages, overtime multipliers, vacation pay, statutory holiday pay, and taxable benefits. Payroll calculations apply federal and provincial tax tables, CPP or QPP, EI, and QPIP in Québec.
Pay statements display pay period dates, hours and rates, gross earnings by type, itemized deductions, net pay, and year-to-date figures. Many provinces require vacation accrual details and employer contact information.
A Record of Employment (ROE) gets issued when insurable earnings are interrupted through termination, leave, or reduced hours. Electronic ROEs filed through ROE Web are due within five calendar days after the interruption.
Step 5: Remit source deductions to CRA
Remittances include federal and provincial income tax, CPP or QPP, EI, and QPIP where applicable. Québec employers also remit to Revenu Québec.
Payment options include CRA My Business Account, pre-authorized debit, or financial institution services. Keep confirmation numbers and align remittances to your assigned schedule.
Running your first payroll: From hours to direct deposit
First payroll runs often reveal data gaps and timing issues. A simple review process reduces errors and late deposits.
Reconciling totals before submission
Pre-submission checks include verifying employee profiles, earnings calculations, deduction amounts, and banking details. Confirm gross pay equals net pay plus total deductions with no negative net amounts.
Check that tax, CPP/QPP, and EI/QPIP totals align with internal reports. Make sure your company payroll account has sufficient funds for both payroll and source deduction debits.
Approving direct deposits on time
EFT processing in Canada typically requires file approval one to two business days before pay date. First payroll runs or new bank setups can need three to five business days.
Cutoffs usually occur midday on the submission day. For a Friday payday, approve files by Wednesday for a two-day lead time. Earlier submission applies when bank holidays fall within the processing window.
Frequently asked questions about payroll setup
Do I need a separate payroll bank account in Canada?
Not legally required but commonly recommended. A separate account simplifies reconciliation, supports cash flow planning, and adds controls for direct deposits and CRA debits.
What happens if my scheduled payday falls on a statutory holiday?
When a scheduled payday falls on a holiday or non-banking day, wages are typically due on the previous business day. Direct deposit approval and funding timelines shift earlier to meet bank file cutoffs.
How long must I keep payroll records for Canadian tax purposes?
CRA retention is six years from the end of the tax year the records relate to. Some provinces and workers' compensation boards set longer retention periods for specific documents.
Can I issue electronic paystubs only to my Canadian employees?
Yes, electronic paystubs are acceptable across Canada when employees have reasonable access and can save or print copies. The paystub must include all required provincial details.
Ready to run stress-free payroll?
As a new business owner, we know you’re strapped for time.
Rise can help shorten your to-do list.
Our all-in-one platform combines payroll, benefits, time tracking, scheduling, and HR that’s built for Canadian businesses.
And you don’t have to worry about filing EHT and CRA remittances—we’re connected to all government agencies and automatically file these for you.
Want to learn more? Book a demo to see how Rise handles end-to-end payroll setup, sample pay runs, remittances, and year-end processes for Canadian businesses like yours.
