As a small business owner in Canada, it is important to have a reliable and accurate payroll system in place to ensure that your employees are paid on time and that all necessary deductions are made. Setting up payroll can seem like a daunting task, but with the right information and resources, it is a relatively straightforward process.
Tips for setting up your payroll system
Determine your payroll frequency: In Canada, most businesses pay their employees on a biweekly or monthly basis. Decide how often you will pay your employees and be consistent with your schedule.
Register for payroll with the Canada Revenue Agency (CRA): You will need to register for a payroll account with the CRA in order to deduct and remit the necessary taxes from your employees’ pay.
Set up your payroll deductions: The CRA requires that you deduct various taxes and contributions from your employees’ pay, including income tax, employment insurance, and the Canada Pension Plan. You will need to set up these deductions in your payroll system.
Choose a payroll system: There are several options for managing payroll, including using software or hiring a payroll service. Consider your business needs and budget when deciding on the best option for you. Some options are Wagepoint (10% discount here), Humi, ADP and accounting software like Quickbooks or Xero. In addition, we use Gusto to assist with US payroll.
Communicate with your employees: Make sure your employees are aware of the payroll process and any changes that may affect their pay. It is also important to provide them with accurate pay stubs so they can track their earnings and deductions
The importance of a reliable payroll system
As a small business owner in Canada, it is important to have a reliable and accurate payroll system in place to ensure that your employees are paid on time and that all necessary deductions are made.
A well-managed payroll system can also help ensure compliance with tax laws and contribute to the overall financial health of your business.
Choosing the right payroll system for your business
When it comes to managing payroll, you have two main options: handling it in-house using software or hiring a payroll service.
Each option has its own set of pros and cons, and the best choice for your business will depend on your specific needs and budget.
In-house vs. payroll service
Payroll management can be a time-consuming and complex task for small business owners, especially when you have other responsibilities to attend to. One solution is to assign a dedicated individual to handle payroll duties, either within your company or through a third-party payroll company.
If you choose to outsource payroll to a third-party company, there are several pros to consider. For example, it can save you time and ensure that your payroll is processed using the most up-to-date employment tax guidelines. However, it’s important to keep in mind that outsourcing payroll can be costly, and as a small business owner, you are still responsible for all remittance filings and any mistakes that may occur. With the right assistance, your remittance obligations can be automated through various payroll software solutions.
Alternatively, you may choose to handle payroll duties in-house, either by assigning a dedicated employee or by taking on the task yourself. As your business grows and you hire more employees, you may find it more efficient to delegate payroll responsibilities to a dedicated individual. It’s important to carefully weigh the pros and cons of both options and choose the one that works best for your business.
Factors to consider when choosing a payroll system
When deciding on the best payroll system for your business, consider the following factors:
Available resources: Consider your business’s budget and available time and staff resources when deciding on a payroll system.
Compliance: It is important to ensure that your payroll system is compliant with all relevant tax laws and regulations. Both in-house and payroll service options can offer compliance support, so consider which option will be most suitable for your business.
Employee needs: Make sure to communicate with your employees about the payroll process and any changes that may affect their pay. It is also important to provide them with accurate pay stubs so they can track their earnings and deductions.
How Can I Set-Up Payroll With The CRA?
As a small business owner in Canada, it’s important to set up payroll correctly and accurately to ensure compliance with the Canada Revenue Agency (CRA). Follow these five steps to get started:
Gather employee personal information: Each employee will need to fill out a TD1 Personal Tax Credits Return from the CRA, which determines the amount of payroll tax you as an employer will need to deduct from their wages. Make sure to use the appropriate forms for your business location, as the amounts may vary by province or territory. Additionally, every employee working for a wage requires a social insurance number (SIN) from the Government of Canada. Make sure to obtain each employee’s SIN when they start working for you, and if they don’t have one, encourage them to apply for one and provide it to you within three days of receiving it. The SIN is important for determining Canada Pension Benefits in retirement, so it’s crucial to have it recorded correctly on payroll reporting.
Set up a payroll program with CRA: If you’re a small business owner in Canada, it’s important to set up a Payroll Program Account with the Canada Revenue Agency (CRA) when deducting funds from your employees’ wages. This account helps the CRA identify your business whenever you have contact with them.
To set up a Payroll Program Account, you’ll receive a 15-digit number that includes your nine-digit registered business number, a two-letter code for the program (RP for the payroll program), and a four-digit reference number to identify multiple accounts. If you don’t already have an active registered business number, the CRA will assign one to your business at this time.
Your Payroll Program Account will include important information about your business, such as the number of employees receiving payroll, the payroll frequency (such as biweekly, bimonthly, or monthly), the date of the first wages paid to employees, the duration of months covered for employee payroll, and any payroll service used (if applicable). Depending on your business, you may also need to include the country of the head office, parent company, or affiliate. If your business belongs to a franchise, you’ll need to include franchisor information in your Payroll Program Account as well.
By setting up a Payroll Program Account with the CRA, you can ensure that your small business is properly identified and in compliance with all necessary regulations.
Determine deductions and contributions: It’s important to accurately calculate and withhold the necessary deductions and payroll contributions from your employees’ gross income with each scheduled payroll. These deductions may include Employment Insurance (EI), Canadian Pension Plan (CPP), and Income Tax for federal and provincial/territorial areas.
There are a few ways you can determine these amounts. Many digital payroll systems will automatically calculate them based on the information you input. Alternatively, you can use the online calculator through the Canada Revenue Agency (CRA) website to calculate them manually.
Once you’ve determined the proper amounts to deduct from your employees’ gross pay, you can forward the remaining net amount to your employees. As an employer, you’ll also have your own portion of deductions to submit to the CRA, which may differ from what each employee pays.
It’s important to keep all of the money from these necessary deductions and payroll contributions in a separate trust account until you’re ready to remit the total amount to the government. This will help ensure accurate bookkeeping and avoid any confusion when it comes time to submit the payment to the CRA.
In addition to these mandatory deductions, you may also choose to withhold optional deductions from your employees’ gross pay, such as health and dental benefits, short and long-term disability insurance, social committee payments, or RRSP contributions. These deductions are not required by law, and employees must agree to them in writing before you can withhold them from their pay.
Submitting Payroll Withholdings to the Canada Revenue Agency (CRA): It’s important to know when and how to submit the payroll withholdings for your employees to the Canada Revenue Agency (CRA). The due dates for these payments don’t necessarily depend on your pay period frequency, but rather on the total amount.
For many small businesses, quarterly payments to the CRA are sufficient. These payments cover amounts from $0 up to $2,999 and are due by the 15th of the month following the previous quarter. For example, if your business operates on a January to March pay period, you’ll need to submit all payroll withholdings by April 15th.
As your business grows and the remittance amounts increase, you may need to change your payment schedule to monthly or even accelerated payments to the CRA.
It’s also important to note that even if you don’t have any payroll withholdings to submit, you are still required to send in a NIL remittance. This may happen if you employ seasonal workers or contractors who did not complete any pay during the previous quarter.
By understanding the requirements for submitting payroll withholdings to the CRA, you can ensure compliance and avoid any potential issues for your small business.
Meeting Your Annual Payroll Summary Return Obligations: As a small business owner, it’s important to understand your obligations when it comes to completing and submitting an Annual Payroll Summary Return to the Canada Revenue Agency (CRA). This return must be completed and submitted, along with any corresponding slips, by the last day of February for the previous year. Depending on the type of income you pay your employees, you may need to fill out more than one slip.
Failure to submit your Annual Payroll Summary Return on time can result in fines or penalties for your small business, which can be costly. However, by staying organized and on top of these obligations, you can avoid any potential issues.
By understanding and meeting your annual payroll summary return obligations, you can ensure compliance and protect your small business.
As a small business owner, it’s essential to understand and follow the necessary steps to set up payroll for your employees. This includes collecting personal information, setting up a Payroll Program Account with the Canada Revenue Agency (CRA), calculating and withholding the necessary deductions and payroll contributions, and remitting these payments to the CRA. Additionally, it’s important to complete and submit your Annual Payroll Summary Return on time, along with any corresponding slips, to avoid fines or penalties. By following these steps and staying organized, you can ensure compliance, protect your small business, and ensure the overall financial health of your organization.
We know how important it is for you to stay informed about your tax obligations and keep your business in compliance. If you have any questions or need assistance with your small business taxes, don’t hesitate to reach out to the team at Strata-G. Our experienced professionals are here to help you navigate the complex world of small business taxes and ensure that you are in compliance with all relevant laws and regulations. Contact us today to learn more and schedule a consultation.
