How to Run Payroll in Canada: Complete Guide
The step-by-step guide to running payroll in Canada. Covers CRA payroll account registration, TD1 forms, CPP and EI calculations with dollar examples, federal and provincial tax withholding, remittance schedules, T4 filing, ROE requirements, ESA Ontario compliance, payroll software and CRA penalties. Written by a licensed Ontario CPA.
Step 1: Open a CRA Payroll Account
Before you pay your first employee, you must open a payroll program account with CRA. This is separate from your Business Number, corporate tax account and HST account. The payroll account (RP) is where you remit source deductions: CPP contributions, EI premiums and income tax withheld from employees.
| Registration Item | How to Register | Timeline |
|---|---|---|
| CRA payroll program account (RP) | Register online through CRA My Business Account, by phone (1-800-959-5525) or by mailing Form RC1. If you incorporated through Gondaliya CPA, payroll registration is included free. | Online: immediate. Mail: 2 to 4 weeks. |
| WSIB (Workplace Safety and Insurance Board) | Register online at wsib.ca within 10 days of hiring your first Ontario worker. Mandatory for most industries. | Online: immediate. Coverage effective on the date of first hire. |
| EHT (Employer Health Tax, Ontario) | Register if your Ontario payroll exceeds $1,000,000 per year. Exemption for the first $1,000,000 for eligible employers. | Register through Ontario OneSource or by mail. |
The Payroll Account Number Format: Your CRA payroll account number is your 9-digit Business Number followed by "RP" and a 4-digit reference number (e.g., 123456789RP0001). If you have multiple payroll accounts (e.g., different provinces or business divisions), each gets its own RP reference number. All remittances, T4s and correspondence reference this number.
Step 2: Collect Employee Information and TD1 Forms
Before processing the first paycheque, collect the following from every new employee.
| Form or Document | Purpose | Key Details |
|---|---|---|
| TD1 (Federal Personal Tax Credits Return) | Determines the amount of federal income tax to withhold from each pay. The employee claims personal credits (basic personal amount, spouse, dependants, disability, tuition). | Every employee must complete TD1 on hire. If they only claim the basic personal amount ($16,129 for 2026), they can indicate so on the form. Keep on file. Do not send to CRA. |
| TD1-ON (Ontario Personal Tax Credits Return) | Determines provincial income tax withholding for Ontario employees. Same concept as federal TD1 but for Ontario credits. | Every Ontario employee completes this alongside the federal TD1. Other provinces have their own provincial TD1 forms. |
| Social Insurance Number (SIN) | Required for CPP, EI and income tax reporting. Every T4 requires the employee's SIN. | Record the SIN securely. Verify format (9 digits). SINs starting with 9 indicate temporary work permits (verify work authorization). |
| Direct deposit information | Bank transit number, institution number and account number for electronic pay. | Direct deposit is not legally required but is standard practice. Paper cheques are permitted under the ESA. |
| Void cheque or direct deposit form | Confirms banking information. | Many employers accept a screenshot from online banking showing the transit, institution and account numbers. |
Step 3: Determine Pay Structure and Pay Period
| Pay Period | Frequency | Pay Periods Per Year | Best For |
|---|---|---|---|
| Weekly | Every week (e.g., every Friday) | 52 | Hourly workers, construction, labour-intensive businesses |
| Bi-weekly | Every two weeks | 26 | Most common in Canada. Works for salaried and hourly employees. |
| Semi-monthly | Twice per month (e.g., 15th and last day) | 24 | Salaried employees. Aligns with monthly rent and expense cycles. |
| Monthly | Once per month | 12 | Senior management, executives. Less common for hourly staff. |
| Pay Type | How to Calculate | Example |
|---|---|---|
| Hourly | Hours worked x hourly rate. Overtime at 1.5x after 44 hours/week (Ontario ESA). | 40 hours at $22/hour = $880 gross. 6 overtime hours = 6 x $33 = $198. Total: $1,078. |
| Salary | Annual salary / number of pay periods per year. | $65,000 annual / 26 bi-weekly pay periods = $2,500 gross per pay. |
| Commission | Revenue generated x commission rate. May be draw vs. commission or base + commission. | $80,000 in sales at 5% = $4,000 commission. Subject to CPP, EI and income tax like regular pay. |
Ontario Minimum Wage: As of October 2025, the Ontario general minimum wage is $17.20 per hour. Student minimum wage is $16.20 per hour. Liquor servers minimum wage is $17.20 per hour (equal to general minimum wage since January 2022). Minimum wage is reviewed annually. Paying below minimum wage is an ESA violation with penalties up to $100,000 per offence.
Need help configuring your pay structure, processing pay runs and staying compliant? See our Payroll Processing Services.
Step 4: Calculate CPP Contributions and EI Premiums
| Deduction | Employee Rate | Employer Rate | Maximum Annual Employee Contribution | Exemption |
|---|---|---|---|---|
| CPP (first ceiling, $71,300) | 5.95% | 5.95% (matching) | $4,034.10 | $3,500 basic exemption (annual) |
| CPP2 (second ceiling, $71,300 to $81,200) | 4.00% | 4.00% (matching) | $396.00 | Applies only to earnings between the first and second ceiling |
| EI | 1.64% | 2.296% (1.4x employee rate) | $1,077.48 | No exemption. First dollar of insurable earnings is subject to EI. |
Worked Example: Bi-Weekly Pay of $2,500 Gross
| Deduction | Calculation | Amount Deducted from Employee |
|---|---|---|
| CPP | ($2,500 - $134.61 bi-weekly exemption) x 5.95% | $140.74 |
| CPP2 | $0 (earnings below second ceiling threshold for this pay period) | $0.00 |
| EI | $2,500 x 1.64% | $41.00 |
| Federal income tax | Based on TD1 credits and CRA tax tables (use payroll software or CRA PDOC) | $214.58 (approximate, basic personal only) |
| Provincial income tax (Ontario) | Based on TD1-ON credits and CRA tax tables | $107.85 (approximate, basic personal only) |
| Total deductions | $504.17 | |
| Net pay (employee receives) | $2,500 - $504.17 | $1,995.83 |
| Employer Cost Above Gross Pay | Calculation | Amount |
|---|---|---|
| Employer CPP (matching) | $140.74 x 1.0 | $140.74 |
| Employer EI (1.4x employee) | $41.00 x 1.4 | $57.40 |
| Total employer cost per pay period | $2,500 + $140.74 + $57.40 | $2,698.14 |
| Annual employer cost (26 pays) | $2,698.14 x 26 | $70,151.64 |
The Employer Pays More Than the Gross Salary: For every employee earning $65,000, the true employer cost is approximately $70,152 after CPP and EI employer contributions. That is $5,152 above the salary. When budgeting payroll, always add 8% to 10% on top of gross wages to cover employer CPP, EI and WSIB premiums. A 10-employee company at $60,000 average salary should budget approximately $660,000, not $600,000.
Full-Service Payroll from $125/month
We set up your CRA payroll account, process every pay run and remit to CRA on time. T4 preparation, ROE processing, WSIB management and ongoing expert assistance all included FREE.
Step 5: Remit Source Deductions to CRA
You must remit CPP, EI and income tax withheld from employees, plus your employer share of CPP and EI, to CRA by the applicable due date. The remittance frequency depends on your average monthly withholding amount (AMWA).
| Remitter Type | AMWA (Average Monthly Withholding Amount) | Due Date | How to Remit |
|---|---|---|---|
| Regular remitter (new employers) | Under $25,000 | 15th of the month following the month you withheld | CRA My Business Account, online banking (payroll remittance payee), or Form PD7A at a financial institution |
| Accelerated remitter (Threshold 1) | $25,000 to $99,999.99 | 25th of the same month for pay dates in the first 15 days. 10th of the following month for pay dates from the 16th to end of month. | Same methods as regular |
| Accelerated remitter (Threshold 2) | $100,000 or more | Third working day after the pay date | Same methods as regular. No exceptions on timing. |
| Quarterly remitter (small employer) | Under $1,000 (with perfect compliance history) | 15th of the month following the end of each quarter (April 15, July 15, October 15, January 15) | CRA may assign quarterly status to employers with very small payrolls and clean compliance records |
Late Remittance Penalties Are Severe: CRA charges 3% for payments 1 to 3 days late, 5% for 4 to 5 days late, 7% for 6 to 7 days late and 10% for more than 7 days late or for amounts not remitted at all. Repeat offenders in the same calendar year face double penalties (up to 20%). On a $10,000 monthly remittance that is 8 days late, the penalty is $1,000 (10%) plus compound daily interest at 8%. Directors are personally liable for unremitted source deductions under Section 227.1 of the Income Tax Act.
We manage remittance deadlines and CRA compliance for every payroll client. Learn more: Payroll Compliance & Remittances Services.
Step 6: Comply with the Ontario Employment Standards Act (ESA)
| ESA Requirement | What Employers Must Do | Key Numbers |
|---|---|---|
| Minimum wage | Pay at least the provincial minimum wage for all hours worked. | $17.20/hour general. $16.20/hour student (under 18, working 28 hours/week or less during school). |
| Overtime | Pay 1.5x the regular rate for hours worked over 44 in a week. Overtime threshold is 44 hours, not 40. | Employee earning $22/hour: overtime at $33/hour for every hour after 44. |
| Vacation pay | Minimum 4% of gross earnings for the first 5 years of employment. 6% after 5 years. | $50,000 salary: $2,000 vacation pay in years 1 to 5. $3,000 after 5 years. |
| Public holidays (9 statutory holidays in Ontario) | Employees are entitled to the day off with public holiday pay (regular wages for the day) or premium pay (1.5x) if they work the holiday. | New Year's Day, Family Day, Good Friday, Victoria Day, Canada Day, Labour Day, Thanksgiving, Christmas Day, Boxing Day. |
| Pay statement (pay stub) | Provide a written pay statement every pay period showing gross pay, deductions and net pay. | Must include: pay period dates, wage rate, hours (if hourly), gross earnings, each deduction (CPP, EI, tax, other), net pay. |
| Record keeping | Maintain payroll records for at least 3 years after the employee's last day. | Records include: name, address, date of birth, hire date, wage rate, hours, vacation, deductions, termination date. |
| Termination pay and severance | Termination pay: 1 week per year of service (max 8 weeks). Severance pay: 1 week per year (if 5+ years of service and employer payroll over $2.5M). Can be combined. | Employee with 6 years at a $3M payroll company: 6 weeks termination + 6 weeks severance = 12 weeks total. |
Questions about ESA compliance, overtime calculations, vacation pay or termination obligations? See our Payroll Help & Support page or book a free consultation.
Step 7: File T4 Slips and Records of Employment
| Filing | What It Is | Deadline |
|---|---|---|
| T4 slip (per employee) | Reports total employment income, CPP contributions, EI premiums and income tax deducted for the calendar year. One T4 per employee per RP account. | Last day of February following the calendar year (e.g., February 28, 2027 for the 2026 tax year) |
| T4 Summary | Summarizes all T4 slips filed under your RP account. Reports total remittances vs. total deductions. Any balance owing or overpayment. | Same as T4: last day of February following the calendar year |
| Record of Employment (ROE) | Filed through ROE Web when an employee has an interruption of earnings (termination, layoff, leave, reduction in hours). Required for the employee to apply for EI benefits. | Within 5 calendar days of the interruption of earnings or the date you become aware of it |
| T4A (if paying contractors) | Reports fees, commissions or other amounts paid to subcontractors, consultants or independent contractors. Not required if paying another corporation. | Last day of February following the calendar year |
Late T4 Filing Penalty: CRA charges $10 per day for each T4 slip not filed by the February deadline, with a minimum penalty of $100 and a maximum of $7,500 per filing. For 20 employees with T4s filed 30 days late, the penalty is $6,000 (20 slips x $10 x 30 days, capped at $7,500). File electronically through payroll software to avoid manual errors and late penalties. Electronic filing is mandatory if you have more than 5 T4 slips.
We prepare and file T4, T4A and T5 slips for every payroll and bookkeeping client. See our T4, T4A & T5 Preparation Services.
Step 8: Choose Payroll Software
| Software | Best For | Starting Price | Key Features |
|---|---|---|---|
| QuickBooks Online Payroll | Businesses already using QBO for bookkeeping. Seamless integration. | $22/month + $5/employee | Auto CPP/EI/tax calculation, direct deposit, T4 filing, ROE Web integration, CRA remittance. Integrates with QBO GL. |
| Wagepoint | Small businesses wanting a dedicated, easy payroll platform. | $20/month + $4/employee | Auto calculations, direct deposit, T4, ROE, CRA remittance, year-end filing. Clean interface. No accounting software required. |
| ADP | Mid-size to large businesses needing HR integration, time tracking and compliance. | Custom pricing (typically $50+/month) | Full HR suite, benefits administration, time and attendance, compliance alerts, T4, ROE, CRA remittance. Scalable. |
| Ceridian Dayforce | Enterprise and large mid-market businesses. | Custom pricing | HCM platform: payroll, HR, benefits, workforce management, talent. Real-time pay. Multi-province and multi-country. |
| CRA Payroll Deductions Online Calculator (PDOC) | Manual payroll for very small businesses (1 to 3 employees). | Free | Calculates CPP, EI and income tax per pay period. You must manually process payment, track remittances and file T4s yourself. Not recommended for more than 3 employees. |
We Recommend QBO Payroll or Wagepoint for Most Clients: Both integrate with QBO or Xero for bookkeeping, automatically calculate CPP, EI and income tax, process direct deposit, file T4s electronically and track CRA remittance deadlines. For businesses with 1 to 50 employees, these platforms cost $20 to $50 per month and save 5 to 10 hours of manual payroll work per pay period. We configure QBO Payroll or Wagepoint for every payroll client at onboarding. Learn more about our Online Payroll Services.
Step 9: Understand Director Liability for Payroll
| Liability Area | What Directors Are Liable For | Legislative Section |
|---|---|---|
| Unremitted source deductions (CPP, EI, income tax) | Directors are jointly and severally liable for the corporation's failure to remit payroll source deductions. CRA can assess the director personally for the full amount plus penalties and interest. | Section 227.1 of the Income Tax Act |
| Unremitted HST | Directors are personally liable for unremitted HST collected from customers. | Section 323 of the Excise Tax Act |
| WSIB premiums | Directors can be held personally liable for unpaid WSIB premiums under the WSIA. | Workplace Safety and Insurance Act |
| Due diligence defence | A director can avoid personal liability by proving they exercised due diligence: took reasonable steps to prevent the failure to remit. This means actively monitoring remittance compliance, not just relying on a bookkeeper or payroll provider. | Section 227.1(3) |
We handle WSIB registration, premium calculations and annual reconciliation for every employer client. See our WSIB Reporting & Compliance Services.
This Is the Most Serious Risk for Business Owners: If your corporation fails to remit $50,000 in payroll source deductions and the corporation cannot pay (insolvent, bankrupt or dissolved), CRA will assess you personally as a director. The $50,000 plus penalties (up to 20%) plus compound daily interest becomes your personal debt. CRA can garnish your personal bank accounts, wages and register a lien against your home. The only defence is due diligence: documented proof that you actively monitored payroll compliance. We configure automated remittance through payroll software for every client to establish this paper trail.
CRA Payroll Penalties at a Glance
| Violation | Penalty | Interest |
|---|---|---|
| Late remittance (1 to 3 days) | 3% of the amount | 8% compound daily on balance owing |
| Late remittance (4 to 5 days) | 5% of the amount | 8% compound daily |
| Late remittance (6 to 7 days) | 7% of the amount | 8% compound daily |
| Late remittance (8+ days or failure to remit) | 10% of the amount. 20% for repeat offences in the same calendar year. | 8% compound daily |
| Late T4 filing | $10/day per T4 slip. Minimum $100. Maximum $7,500. | N/A |
| Failure to deduct CPP or EI | Employer liable for both employee and employer shares. 10% penalty on the undeducted amount. | 8% compound daily from the original due date |
| Late or missing ROE | $2,000 fine per ROE under the EI Act. Criminal prosecution possible for repeated failures. | N/A |
| Failure to provide pay statement | ESA violation. Administrative penalty up to $1,000 per employee per contravention. | N/A |
Payroll Processing Checklist: Every Pay Period
- Collect and verify hours worked (timesheets, POS reports, time tracking software)
- Calculate gross pay: hours x rate (hourly) or salary / pay periods (salaried). Add overtime at 1.5x after 44 hours (Ontario).
- Calculate CPP deduction: (gross pay - pay period exemption) x 5.95%. Check if annual maximum has been reached.
- Calculate EI deduction: gross pay x 1.64%. Check if annual maximum has been reached.
- Calculate federal and provincial income tax using CRA tables, PDOC or payroll software
- Calculate any other deductions: group benefits, RRSP, union dues, garnishments
- Calculate net pay: gross pay minus all deductions
- Process payment: direct deposit or cheque by the scheduled pay date
- Provide pay statement (pay stub) to every employee showing gross, deductions and net
- Calculate employer contributions: CPP matching + EI at 1.4x employee rate
- Remit total source deductions (employee + employer) to CRA by the applicable due date
- Record the payroll journal entry in QBO or Xero (wages expense, CPP/EI payable, tax payable, bank)
Full-Service Payroll. From $125/month.
CRA registration, payroll processing, source deduction remittance. T4 preparation, ROE processing, WSIB management and ongoing expert assistance all FREE for payroll clients.
Frequently Asked Questions: Running Payroll in Canada
Stop Worrying About Payroll. Let a CPA Handle It.
Gondaliya CPA processes payroll, remits to CRA, files T4s, issues ROEs and ensures ESA compliance for Ontario businesses. From $125/month. T4, ROE, WSIB and ongoing support all FREE. 900+ five-star reviews.