Hiring Your First Employee? Here’s What You Need to Know About Payroll & Taxes
- Onyx Accounting
- Mar 5
- 2 min read
Hiring your first employee is an exciting milestone for any small business. It means growth, new opportunities, and the ability to delegate tasks so you can focus on scaling your business! However, with hiring comes responsibilities—particularly when it comes to payroll and taxes.
In Canada, employers must follow specific regulations to ensure compliance with the Canada Revenue Agency (CRA). Here’s what you need to know to get started:
1. Register for a Payroll Account with the CRA
Before paying your first employee, you need to register for a payroll account with the CRA. This account is used to track payroll deductions and remittances. You can register online through the CRA’s Business Registration Online (BRO) service or by mail.
Once registered, you’ll receive a business number (BN), which is required for reporting and remitting payroll taxes.
2. Understand Mandatory Payroll Deductions
As an employer, you are responsible for deducting the following from your employee’s pay:
Canada Pension Plan (CPP) contributions
Employment Insurance (EI) premiums
Income tax
You must also contribute the employer’s share for CPP and EI:
Employers match CPP contributions dollar for dollar.
Employers pay 1.4 times the employee’s EI deduction.
To calculate these deductions accurately, use the CRA’s Payroll Deductions Online Calculator or accounting software designed for payroll management.
3. Remitting Payroll Deductions to the CRA
After deducting payroll amounts, you must remit them to the CRA by the required due dates. Typically, payments are made monthly, with deadlines on the 15th of the following month. Late payments can result in penalties and interest charges.
When remitting, you must include:
The total payroll amount
Deductions for CPP, EI, and income tax
Your business number (BN)
4. Provide a Pay Statement
Employees in Canada are entitled to receive a detailed pay statement each pay period. This document should outline:
Gross pay
Deductions (CPP, EI, income tax)
Net pay (take-home amount)
Pay period dates
Some provinces have specific rules regarding pay statements, so check with your local employment standards office.
5. Issue a T4 Slip at Year-End
At the end of the calendar year, you must provide your employee with a T4 slip, which summarizes their income and deductions. The T4 must also be filed with the CRA by the last day of February each year.
Your employee will use this document to file their personal income tax return.
6. Consider Employment Standards and Benefits
In addition to payroll and taxes, it’s essential to understand employment standards, which vary by province. These include:
Minimum wage laws
Vacation pay and statutory holiday pay
Overtime pay regulations
You should also determine whether you’ll offer additional benefits, such as health insurance, bonuses, or retirement savings plans, as these may have tax implications.
7. Use Payroll Software to Simplify the Process
Managing payroll manually can be complex and time-consuming. Using payroll software (such as QuickBooks, Wagepoint, or Payworks) can automate calculations, tax remittances, and T4 filings, reducing the risk of errors.
Get Professional Help to Stay Compliant
Navigating payroll and tax obligations can be overwhelming, especially for first-time employers. A professional accountant or bookkeeper can help ensure your payroll is accurate and compliant with Canadian laws.
Need help setting up payroll for your first employee? Contact us today for expert payroll and tax support tailored to your business!
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