Hiring your first employee is a big step. It means your business is growing. It also means you now have payroll obligations, and CRA takes those very seriously. Payroll errors and late remittances are one of the most common triggers for penalties.

Here is everything you need to set up before your first payday.

Step 1: Get a payroll account with CRA

If you already have a business number (BN), you need to add a payroll program account (RP) to it. You can do this through CRA My Business Account or by calling CRA’s Business Enquiries line.

Step 2: Collect employee information

Before the first payday, get a completed TD1 (Federal) and TD1ON (Ontario) form from your employee. These forms determine how much income tax to withhold. Also collect their SIN and set up direct deposit.

Step 3: Calculate and withhold source deductions

Every pay period, you must calculate and withhold three things:

  • Federal and provincial income tax
  • Canada Pension Plan (CPP) contributions
  • Employment Insurance (EI) premiums

As the employer, you also pay your share: CPP is matched dollar for dollar, and EI is 1.4 times the employee’s premium.

Step 4: Remit to CRA on time

New employers with average monthly withholdings under $25,000 are quarterly remitters (due the 15th of the month following the end of each quarter).

Late remittance penalties are harsh: 3% (1-3 days late), 5% (4-5 days), 7% (6-7 days), 10% (more than 7 days). Plus daily compound interest. For repeat offenders, penalties can double to 20%.

Step 5: Register for WSIB

In Ontario, most industries require Workplace Safety and Insurance Board (WSIB) coverage. Construction, manufacturing, restaurants, and retail are all mandatory. WSIB premiums are based on your insurable payroll and your industry’s rate.

Step 6: Set up a record-keeping system

You must keep payroll records for at least six years. For each employee, maintain: hours worked, pay rate and gross earnings, all deductions, vacation pay accrued and paid, and dates of employment.

Step 7: Know Ontario employment standards

The Ontario Employment Standards Act (ESA) sets minimum requirements for:

  • Minimum wage (currently $17.20/hour as of October 2024)
  • Overtime pay (1.5x after 44 hours/week)
  • Vacation (minimum 2 weeks after 12 months, 3 weeks after 5 years)
  • Public holidays (9 statutory holidays in Ontario)
  • Termination and severance pay

Step 8: File T4s by end of February

After year-end, you must prepare and file T4 slips for each employee and a T4 Summary for CRA. The deadline is the last day of February. Give copies to employees by the same date.

Consider payroll software or a service

For one or two employees, CRA’s free PDOC calculator can work. But as soon as you have three or more employees, payroll software (like Wagepoint, Humi, or Rise) saves time and reduces errors. The cost is typically $20-50/month plus a per-employee fee.

L&R Accounting sets up payroll for new employers in Ontario, handles CRA registrations, and provides ongoing payroll processing and compliance support. If you are about to hire, get the setup right from day one.

Geetha Srinivasan, CPA (Ontario), CPA (US)
L&R Accounting Services Ltd.