For new business owners in Ontario, setting up payroll can feel like a daunting task. Missing even a single step can lead to compliance issues, penalties, or unhappy employees. This guide breaks down the essential steps for setting up payroll in Ontario so you can manage your responsibilities with confidence.
Step 1: Obtain a Business Number and Register for a Payroll Program Account
Your first step is to obtain a Business Number (BN) from the Canada Revenue Agency (CRA). This nine-digit number serves as a unique identifier for your business across all levels of government.
You can apply for a BN:
- Online
- By mail
- By phone
Once you have your BN, you’ll need to register for a Payroll Program Account with the CRA. This account allows you to remit payroll deductions and file necessary information returns.
Step 2: Understand Employment Standards Legislation
Employers in Ontario must comply with both federal and provincial employment laws. Familiarize yourself with the Ontario Employment Standards Act (ESA), which outlines rules on:
- Minimum wage
- Hours of work
- Overtime pay
- Vacation entitlements
- Statutory holidays
- Termination notice requirements
Being informed helps you treat employees fairly and avoid penalties.
Step 3: Register with the Workplace Safety and Insurance Board (WSIB)
If you’re hiring employees, you must register with the Workplace Safety and Insurance Board (WSIB) within 10 days of your first hire. The WSIB provides insurance coverage for workplace injuries and illnesses. Registration can be completed online using your Business Number.
Step 4: Collect Employee Information and Complete Forms
Before processing payroll, gather these essential details from your employees:
- Full name and address
- Date of birth
- Social Insurance Number
Ensure each employee completes the federal and provincial TD1 forms, which determine the amount of tax to deduct from their income.
Step 5: Set Up a Payroll System
Decide how you’ll calculate and manage payroll. Your options include:
- Manual processing – Suitable for very small businesses, but it can be time-consuming and error-prone.
- Payroll software – Automates calculations for deductions like CPP, EI, and income tax, saving time.
- Payroll service providers – Outsource payroll responsibilities to professionals for a hands-off approach.
Whatever system you choose, ensure it’s updated regularly to reflect current tax rates and regulations.
Step 6: Calculate Payroll Deductions
For each pay period, calculate deductions for:
- Canada Pension Plan (CPP) contributions
- Employment Insurance (EI) premiums
- Federal and provincial income tax
Use the CRA’s Payroll Deductions Online Calculator or the provided payroll deduction tables to ensure accuracy. Mistakes can lead to compliance issues and unhappy employees.
Step 7: Remit Payroll Deductions to the CRA
Once deductions are made, remit the funds to the CRA along with your employer contributions for CPP and EI. Remittances are generally due by the 15th of the month following the pay period. Late remittances may result in penalties and interest.
Step 8: Maintain Accurate Payroll Records
By law, you must keep detailed payroll records for each employee for at least six years. These records should include:
- Hours worked
- Wages paid
- Deductions made
- Remittance details
Accurate records are essential for audits and for issuing required employee documents.
Step 9: Provide Pay Statements to Employees
In Ontario, employers must issue a written pay statement each pay period. This statement should include:
- Pay period dates
- Gross earnings
- Deductions (with the purpose of each deduction)
- Net pay
Transparent pay statements foster trust and keep employees informed.
Step 10: Prepare and Distribute T4 Slips at Year-End
At the end of the calendar year, prepare T4 slips summarizing each employee’s earnings and deductions. You must:
- Provide copies to employees.
- File the T4 slips and the T4 Summary with the CRA.
The deadline for submission is the last day of February following the calendar year.
Step 11: Stay Informed About Legislative Changes
Payroll laws and tax rates change regularly. Stay compliant by:
- Subscribing to CRA updates.
- Consulting with payroll professionals.
- Attending workshops or seminars.
Staying informed helps you avoid surprises and ensures your payroll processes are always up to date.