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Step-by-Step Guide · Ontario · 2026

How to Set Up Payroll for the First Time in Ontario

A complete, step-by-step guide to running payroll for your first employee in Ontario. Opening your CRA payroll account, calculating source deductions, remitting on time, issuing pay stubs, and filing T4s, explained in plain language by a licensed CPA so you stay compliant from the first paycheque.

Current as of June 2026. CPP and EI rates and ceilings are set for the 2026 year and the CRA adjusts them annually. Provincial employment-standards figures and remittance thresholds change over time. Please verify any figure against the latest CRA and Ontario government releases, or speak with us, before relying on it.

What This Guide Covers

1. Before You Run Payroll: What You Need 2. Step 1: Open Your CRA Payroll Account 3. Step 2: Set Up Your Employee Correctly 4. Step 3: Understand the Deductions You Must Withhold 5. Step 4: Calculate Each Pay Run 6. Step 5: Remit to the CRA on Time 7. Step 6: Issue Pay Stubs and Keep Records 8. Step 7: File T4s at Year-End 9. Ontario Employment Standards You Must Follow 10. Common Payroll Mistakes to Avoid 11. Frequently Asked Questions

1. Before You Run Payroll: What You Need

Running payroll in Ontario means more than paying a wage. The moment you hire your first employee, you take on legal obligations to the Canada Revenue Agency and to the province. Getting the setup right from the start protects you from penalties, interest and a great deal of stress.

What You NeedWhy
A business number (BN)Your CRA payroll account is opened as an extension of your business number. If you are incorporated you already have one.
A CRA payroll (RP) accountThis is the account you remit source deductions to. You cannot legally run payroll without it.
Employee informationThe employee's SIN, full legal name, address, and a completed federal and provincial TD1 form.
A pay scheduleHow often you pay, weekly, bi-weekly, semi-monthly or monthly, which determines your deduction calculations.
A way to calculate deductionsPayroll software, the CRA's payroll deductions calculator, or a CPA who handles it for you.
A record-keeping systemYou must keep payroll records and supporting documents for at least six years.

Payroll is one of the easiest areas to get wrong and one of the most penalized. Late or missed remittances carry penalties and interest, and errors compound every pay run. This is why many first-time employers hand payroll to a CPA from day one rather than learning the hard way. We run payroll for one employee from $125 per month, plus applicable taxes. Payroll Services →

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We Run Your Payroll From $125/month

Skip the calculations, the deadlines and the penalty risk. We handle your full payroll, source deductions, remittances, pay stubs and T4s, for one employee from $125 per month, and $75 per month for each additional employee, plus applicable taxes. Fixed flat fee, licensed CPA firm.

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2. Step 1: Open Your CRA Payroll Account

Before a single dollar of wages is paid, you need a payroll account with the Canada Revenue Agency. This is an RP account, registered under your business number, and it is where you remit the deductions you withhold from your employee.

1Confirm your business number

If you are incorporated, you already have a business number. If you are a sole proprietor without one, you register for a business number first. The payroll account attaches to it as a program account ending in "RP."

2Register the payroll (RP) account

Register your payroll account through CRA My Business Account, by phone, or with your CPA's help. You will provide basic details such as your expected number of employees, your pay frequency, and the date of your first pay. The account must be open before your first remittance is due.

3Note your remitter type

The CRA assigns you a remitter type, usually a regular monthly remitter for a new small employer. This determines when your remittances are due. Your remitter type can change as your payroll grows, so confirm it and watch for CRA notices.

Open the account before you pay anyone. The most common first-timer error is paying an employee, then scrambling to register and remit late. Set the account up first so your very first remittance is on time. We can register your payroll account and configure it correctly as part of setting you up. Payroll Services →

3. Step 2: Set Up Your Employee Correctly

Before the first pay run, you need accurate information from your employee and a clear understanding of their status. Getting this wrong at the start causes problems that ripple through every paycheque and into year-end.

What to CollectWhy It Matters
Social Insurance Number (SIN)Required to report the employee's earnings and deductions to the CRA. You must record it before the first pay.
Completed TD1 forms (federal and Ontario)These tell you the employee's tax credits so you withhold the correct income tax. Both the federal and provincial TD1 are needed.
Full legal name and addressNeeded for the T4 and CRA reporting. Errors here cause filing problems at year-end.
Employment statusConfirm the worker is an employee, not an independent contractor. Misclassifying a worker is a serious and costly mistake.
Pay rate and scheduleThe agreed wage or salary and how often they are paid, which drives every calculation.
Banking details for direct depositIf you pay by direct deposit, you need the employee's banking information.

Employee versus contractor is not your choice to make freely. The CRA decides worker status based on the actual relationship, control, ownership of tools, financial risk and integration. Calling an employee a "contractor" to avoid payroll deductions can lead to reassessment, back deductions, penalties and interest. If you are unsure, get advice before the first payment, not after a CRA review.

4. Step 3: Understand the Deductions You Must Withhold

From every paycheque you must withhold three statutory deductions and remit them to the CRA, along with the employer's share of CPP and EI. Understanding what comes off and what you add on top is the heart of payroll.

DeductionWho PaysWhat It Is
Income taxEmployee onlyFederal and Ontario income tax withheld based on the employee's TD1 and earnings.
Canada Pension Plan (CPP)Employee and employerYou withhold the employee's share and match it with an equal employer share.
Employment Insurance (EI)Employee and employerYou withhold the employee's premium; the employer pays 1.4 times the employee amount.

For 2026, the CPP and EI figures that drive these calculations are set as follows. These are indexed and change each year, so always confirm the current year's amounts.

2026 FigureAmount
CPP employee and employer rate (base)5.95% each
CPP maximum pensionable earnings (YMPE)$74,600
CPP basic exemption$3,500
EI employee premium rate1.63%
EI maximum insurable earnings$68,900
EI employer rate1.4 times the employee premium

The employer pays more than just the wage. On top of the gross pay, you owe the employer's matching CPP and 1.4 times the employee's EI. Budget for that when you set a wage, because your true cost of an employee is higher than the salary alone. We calculate all of this for you and tell you exactly what to remit. Payroll Services →

Use the current year's amounts, every year. CPP and EI rates and ceilings are adjusted annually. Using last year's numbers, or a stale spreadsheet, quietly produces wrong deductions all year and a year-end reconciliation problem. Payroll software or a CPA keeps the rates current automatically.

5. Step 4: Calculate Each Pay Run

Each pay period, you work out gross pay, subtract the deductions, and arrive at the net pay the employee receives. Here is the sequence for a single pay run.

1Determine gross pay

Start with the employee's gross earnings for the period, hourly wages times hours, or the salary divided by the number of pay periods, plus any overtime, bonuses or taxable benefits.

2Calculate the deductions

Work out income tax, CPP and EI on the gross pay using the current rates and the employee's TD1. The CRA's payroll deductions online calculator does this, and payroll software does it automatically. Apply the CPP basic exemption per pay period correctly.

3Arrive at net pay

Subtract the employee's deductions from gross pay to get the net amount you pay them. The withheld amounts are not yours to keep; they are held in trust for the CRA.

4Record the employer portions

Separately, record the employer's matching CPP and 1.4 times EI. These add to what you must remit, even though they do not come off the employee's cheque.

5Pay the employee

Pay the net amount by direct deposit or cheque, and provide a pay stub showing gross pay, each deduction, and net pay for the period and year to date.

The deductions you withhold are trust funds. Income tax, CPP and EI taken from an employee's pay do not belong to the business, even for a day. They are held in trust for the CRA, and failing to remit them is treated far more seriously than an ordinary debt. Keep them separate and remit them on time.

6. Step 5: Remit to the CRA on Time

Remitting means sending the CRA the income tax, CPP and EI you withheld, plus the employer's share of CPP and EI. The deadline depends on your remitter type, and missing it is one of the most penalized errors in payroll.

Remitter TypeGeneral Timing
Regular (monthly)Most new small employers. Remittance is generally due by the 15th of the month following the month you paid wages.
QuarterlySome new small employers with a strong compliance history may qualify to remit quarterly.
AcceleratedLarger employers remit more frequently, sometimes more than once a month, as their payroll grows.

Late remittances trigger penalties and interest immediately. The CRA charges a penalty on late or insufficient remittances, and the rate increases for repeated lateness, plus interest compounds daily at the prescribed rate. Because the withheld amounts are trust funds, the CRA pursues them aggressively. Set a reminder, or better, automate it. This single deadline is why many owners move payroll to a CPA.

Your remittance includes both sides. When you remit, you send the employee's withheld income tax, CPP and EI together with the employer's matching CPP and 1.4 times EI. Your payroll account tracks it all, and we reconcile it each period so what you remit matches what you owe. Payroll Services →

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Calculations, remittance deadlines, pay stubs and T4s, all handled for you. One employee from $125 per month, each additional employee $75 per month, plus applicable taxes. Fixed flat fee, no hourly billing, most AFFORDABLE CPA in Canada.

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7. Step 6: Issue Pay Stubs and Keep Records

Ontario law requires a written pay statement for each employee, and the CRA requires you to keep payroll records. Both protect you as much as the employee.

RequirementWhat It Means
Pay statement each pay periodOntario's Employment Standards Act requires a written statement showing the pay period, wage rate, gross pay, each deduction and net pay.
Year-to-date totalsA good pay stub also shows cumulative earnings and deductions for the year, which helps at year-end.
Keep records six yearsPayroll records and supporting documents must be retained for at least six years from the end of the year they relate to.
Record hours and wagesOntario requires employers to record hours worked, wages paid and deductions for each employee.

Good records make year-end painless. When every pay run is recorded with its deductions and year-to-date totals, your T4s reconcile cleanly and a CRA query is easy to answer. Sloppy records turn year-end into a reconstruction project. Clean payroll records and clean bookkeeping go hand in hand. Bookkeeping Services →

8. Step 7: File T4s at Year-End

After the calendar year ends, you summarize each employee's earnings and deductions on a T4 slip and file a T4 Summary with the CRA, the annual reconciliation of everything you withheld and remitted.

Year-End TaskWhat It Involves
Prepare a T4 slip per employeeEach employee's total employment income, CPP, EI and income tax for the year goes on their T4.
File the T4 Summary with the CRAThe summary totals all slips and reconciles to what you remitted during the year.
Give employees their copyEmployees need their T4 to file their personal tax return.
Meet the filing deadlineT4s are generally due by the end of February following the tax year. Late filing carries penalties per slip.

T4s must reconcile to your remittances. If what you reported on the T4s does not match what you remitted through the year, the CRA flags the difference and you may owe a balance plus penalties. This is exactly why accurate records every pay run matter. We prepare and file T4s as part of our payroll service, fully reconciled. Payroll Services →

9. Ontario Employment Standards You Must Follow

Payroll is not only a CRA matter. As an Ontario employer you must also comply with the province's Employment Standards Act, which sets minimum rules for how employees are paid and treated, alongside your CRA obligations.

StandardWhat It Covers
Minimum wageYou must pay at least Ontario's minimum wage, which is reviewed and adjusted periodically. Confirm the current rate.
Overtime payGenerally, hours over 44 in a week are paid at 1.5 times the regular rate, subject to the rules for the role.
Vacation payEmployees are entitled to vacation pay, a minimum percentage of wages that increases with length of service.
Public holidaysOntario has public holidays with specific rules on pay and substitute days for eligible employees.
Statement of wagesThe written pay statement each period is an employment-standards requirement, not just good practice.
Record keepingEmployers must keep records of hours, wages and vacation for each employee.

WSIB may also apply. Many Ontario employers must register with the Workplace Safety and Insurance Board and pay premiums based on payroll. Whether you are required to register depends on your industry. Check your obligation when you hire, because it is separate from your CRA payroll account.

10. Common Payroll Mistakes to Avoid

First-time employers tend to make the same handful of errors. Each is avoidable, and each can be expensive.

MistakeWhy It Hurts
Paying before registeringRunning payroll without an open CRA payroll account means a late first remittance and an immediate penalty.
Missing the remittance deadlineLate remittances are penalized at once, and the penalty rises for repeat lateness, plus daily interest.
Misclassifying an employee as a contractorThe CRA can reassess, demand back deductions, and charge penalties and interest. Status is based on the real relationship.
Using stale CPP and EI ratesOld rates produce wrong deductions all year and a reconciliation problem at year-end.
Spending the withheld deductionsWithheld amounts are trust funds for the CRA. Treating them as cash flow is a serious problem if you cannot remit.
Not issuing pay stubsOntario requires a written pay statement each period; failing to provide one breaches employment standards.
Forgetting the employer's shareBudgeting only for the wage and not the employer CPP and EI understates your true payroll cost.
Sloppy recordsPoor records make T4s hard to reconcile and a CRA query hard to answer.

Payroll mistakes compound silently. Unlike a one-off error, a payroll setup mistake repeats every single pay run until someone catches it, and the penalties and corrections pile up. The cost of getting payroll wrong for a year almost always exceeds the cost of having a CPA run it properly from the start.

Frequently Asked Questions

What do I need to start payroll in Ontario?
A business number, an open CRA payroll (RP) account, your employee's SIN and completed federal and Ontario TD1 forms, a pay schedule, and a way to calculate deductions. You also need a record-keeping system, since payroll records must be kept for at least six years.
How do I open a CRA payroll account?
Register an RP payroll account under your business number through CRA My Business Account, by phone, or with your CPA's help. You provide details like expected number of employees, pay frequency and first pay date. The account must be open before your first remittance is due.
When is my payroll remittance due?
It depends on your remitter type. Most new small employers are regular monthly remitters, with the remittance generally due by the 15th of the month after you paid wages. Some qualify for quarterly remitting. Confirm your remitter type with the CRA.
What deductions do I have to withhold?
Three statutory deductions: federal and Ontario income tax, Canada Pension Plan contributions, and Employment Insurance premiums. You withhold the employee's share of each, and you also pay the employer's matching CPP and 1.4 times the employee's EI.
How much does the employer pay on top of wages?
On top of gross pay, the employer owes a matching CPP contribution and EI at 1.4 times the employee's premium. So your true cost of an employee is the wage plus those employer portions. Budget for that when you set a salary.
What are the 2026 CPP and EI rates?
For 2026, the CPP base rate is 5.95% each for employee and employer on earnings between the $3,500 exemption and the $74,600 ceiling. EI is 1.63% for the employee on insurable earnings up to $68,900, with the employer paying 1.4 times that. These change annually, so confirm the current figures.
Can I just pay someone as a contractor to avoid payroll?
Only if they are genuinely a contractor. The CRA decides worker status on the real relationship, control, tools, financial risk and integration, not on the label. Misclassifying an employee as a contractor can lead to reassessment, back deductions, penalties and interest.
What is a TD1 form and why do I need it?
The TD1 is the form your employee completes so you know their tax credits and can withhold the correct income tax. You need both the federal TD1 and the Ontario TD1. Without them, you cannot calculate income tax deductions accurately.
What happens if I remit late?
The CRA charges a penalty on late or insufficient remittances, and the penalty rate increases for repeated lateness, with interest compounding daily at the prescribed rate. Because the withheld amounts are trust funds, the CRA enforces remittances aggressively. Remit on time, every time.
Are the deductions I withhold my money?
No. The income tax, CPP and EI you withhold from an employee are trust funds held for the CRA. They never belong to the business, not even temporarily. Spending them and failing to remit is treated far more seriously than ordinary business debt.
Do I need to give pay stubs?
Yes. Ontario's Employment Standards Act requires a written pay statement each pay period showing the pay period, wage rate, gross pay, each deduction and net pay. A good pay stub also shows year-to-date totals, which helps at year-end.
When are T4s due?
T4 slips and the T4 Summary are generally due by the end of February following the tax year. You prepare a T4 for each employee, file the summary with the CRA, and give employees their copies for their personal returns. Late filing carries penalties per slip.
How long do I keep payroll records?
At least six years from the end of the year they relate to. This includes pay records, hours, wages, deductions and supporting documents. Ontario also requires you to keep employment-standards records such as hours worked and vacation pay.
Do I have to register with WSIB?
Many Ontario employers must register with the Workplace Safety and Insurance Board and pay premiums based on payroll, but whether you are required depends on your industry. It is separate from your CRA payroll account, so check your obligation when you hire.
What is the minimum wage in Ontario?
Ontario sets a minimum wage that is reviewed and adjusted periodically, and you must pay at least that rate. Because it changes, confirm the current minimum wage with the Ontario government before setting pay. Special rates can apply to certain categories of work.
How is overtime calculated in Ontario?
Generally, hours worked over 44 in a week are paid at 1.5 times the regular rate, subject to the rules for the particular role and any averaging agreements. Some jobs are exempt. Confirm the overtime rules that apply to your specific employee.
Do I pay vacation pay separately?
Employees are entitled to vacation pay, a minimum percentage of wages that rises with length of service. You can pay it as time off with pay or as a percentage on each cheque, depending on your arrangement, but the entitlement itself is required by law.
Can I run payroll myself or should I use software?
You can run it yourself using the CRA's payroll deductions calculator, but most owners use payroll software or a CPA to keep rates current and deadlines met. The risk with doing it manually is stale rates and missed remittances, which are penalized.
How much does it cost to have a CPA run my payroll?
We run payroll for one employee from $125 per month, and $75 per month for each additional employee, plus applicable taxes. That is a fixed flat fee covering calculations, remittances, pay stubs and T4s. Payroll Services →
Does my first employee change my corporate taxes?
Wages and the employer's CPP and EI are deductible business expenses, which lowers taxable income, but they add cash obligations and remittance duties. The interaction with your corporate return is worth reviewing with your CPA so salary and dividends are planned sensibly.
Can I pay myself through payroll as the owner?
Yes. Owners of a corporation can take a salary through payroll, which means source deductions and T4s like any employee, or take dividends, or a mix. The right split is a tax-planning decision we help owners make based on their situation.
How quickly can I get payroll set up?
If your business number is in place, the payroll account and setup can usually be arranged quickly, often before your first pay date. The key is starting before you pay anyone, so the account is open and the first remittance is on time. We can set you up promptly.
What records does Ontario require me to keep?
Ontario requires employers to keep records of each employee's hours worked, wages paid, vacation pay and deductions, alongside the CRA's six-year retention rule for payroll records. Good record keeping satisfies both the province and the CRA at once.
Should I move payroll to a CPA from the start?
Many first-time employers do, because the penalties for getting payroll wrong outweigh the cost of having it handled. A CPA keeps rates current, never misses a remittance, issues compliant pay stubs and files reconciled T4s, all for a predictable monthly fee.
How do I get started with payroll setup?
Book a free consultation. We will open and configure your CRA payroll account, set up your employee correctly, and run every pay period from $125 per month for one employee, plus applicable taxes. Most AFFORDABLE CPA for business clients in Canada. Book a free consultation →

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Source deductions, remittances, pay stubs and T4s, all handled on a fixed flat fee. One employee from $125 per month, each additional $75 per month, plus applicable taxes. Most AFFORDABLE CPA for business clients in Canada.

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