Payroll 101: A Beginner’s Guide to Running Payroll for Your Business

Key Takeaways:

• Understand the core responsibilities of running payroll as an employer
  
• Learn the difference between federal and provincial payroll obligations
  
• Avoid common compliance mistakes, including misclassification and late remittances
  
• Access trusted resources, tools, and guidance to set up payroll correctly from day one
  

Running payroll is one of the most important responsibilities of any employer. It ensures that employees are paid accurately and on time while fulfilling tax and legal obligations under both federal and provincial regulations. Whether hiring your first employee or scaling operations, understanding payroll fundamentals is essential to avoid compliance risks, penalties, and administrative inefficiencies.

This guide is designed to help new employers navigate the process of running payroll in Canada—from setting up accounts to remitting deductions, issuing pay statements, and maintaining proper records.

Step 1: Register for the Required Accounts

Before processing your first payroll, you must register for a payroll program account with the Canada Revenue Agency (CRA). This account enables your business to withhold and remit source deductions such as:

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

You will also require:

• A business number (BN) from the CRA
  
• Provincial registrations, such as Workplace Safety and Insurance Board (WSIB) in Ontario or WCB Alberta
  
• Registration with Revenu Québec if employing workers in Quebec
  

For more help, read our post: How to Handle Payroll Audits: A Step-by-Step Guide

Step 2: Classify Workers Accurately

One of the most common and costly mistakes is misclassifying workers. The CRA distinguishes between:

Improper classification can lead to retroactive payroll taxes, interest, and penalties. Use the CRA's RC4110 guide or seek professional advice if unsure.

In Quebec, employers must also adhere to classification rules outlined by Revenu Québec, which may differ slightly from federal definitions.

Step 3: Collect Employee Information and Create Records

Employers are legally required to maintain complete and up-to-date employee records. Before processing payroll, gather the following:

• Full legal name and mailing address
  
• Social Insurance Number (SIN)
  
• Signed employment agreement or offer letter
  
• TD1 and provincial TD1 forms for tax deductions
  
• Direct deposit information or banking details
  

You must keep payroll records for six years (CRA requirement), and in some provinces such as British Columbia, employers must also retain employment records for four years under the Employment Standards Act.

Step 4: Determine Gross Pay and Pay Frequency

Decide on your pay frequency (e.g., biweekly, semi-monthly, monthly), ensuring it complies with local employment standards:

Gross pay includes wages or salary, overtime, commissions, bonuses, and vacation pay. Be sure to apply provincial rules regarding overtime (e.g., 44 hours/week threshold in Ontario, 40 hours in British Columbia).

Step 5: Calculate and Withhold Source Deductions

Use the CRA Payroll Deductions Online Calculator (PDOC) or trusted payroll software to accurately calculate:

• Federal and provincial income tax
  
• CPP contributions: 5.95% for 2025, up to annual maximum
  
• EI premiums: 1.66% for 2025, up to annual maximum
  

Employer matching obligations:

• Match CPP contributions dollar-for-dollar
  
• Pay 1.4 times the employee's EI contribution
  

In Quebec, employers must also contribute to the Quebec Pension Plan (QPP) and the Parental Insurance Plan (QPIP) instead of CPP and EI.

Step 6: Remit Deductions and Contributions

Remittance due dates depend on your remitter type (new, regular, accelerated). Most new small businesses remit monthly, by the 15th day of the following month.

Use the CRA's My Business Account to remit electronically. Late remittances incur penalties starting at 3%, increasing based on delay duration.

Employers in Quebec must remit deductions to both Revenu Québec and the CRA.

Step 7: Issue Pay Statements and Maintain Compliance

You must provide employees with a written or electronic pay statement each pay period, detailing:

• Gross earnings
  
• Net pay
  
• Deductions (tax, CPP, EI)
  
• Pay period dates
  
• Hours worked (if hourly)
  

Some provinces also require additional information:

• Ontario: Must include wage rate and any vacation or public holiday pay
  
• Manitoba: Must include overtime hours and pay separately
  

All pay statements must be provided free of charge and in a legible format.

Step 8: Issue T4s and Records of Employment (ROEs)

By February 28 of each year, employers must issue:

• T4 slips to each employee
  
• A T4 Summary to the CRA
  

Use CRA’s Web Forms or certified payroll software to submit electronically.

In the event of an employee termination, layoff, or interruption of earnings, issue an ROE within:

• 5 calendar days of the interruption
  
• Or, 5 days after the end of the pay period in which the interruption occurred
  

Employers can submit ROEs through ROE Web (preferred method) or via compatible payroll platforms.

Best Practices to Simplify Payroll

• Automate payroll: Invest in reputable payroll software to calculate deductions, track pay records, and issue T4s automatically
  
• Stay current: Review annual updates to tax tables, minimum wage rates, and employment standards
  
• Review classification annually: Worker relationships can evolve over time
  
• Conduct internal audits: Check that payroll records match CRA remittance filings and employee pay statements
  

Common Mistakes to Avoid

Conclusion

Running payroll for your business is more than just paying employees—it is a legal and financial responsibility that requires accuracy, consistency, and compliance. By following structured payroll processes, using the correct tools, and staying informed about federal and provincial requirements, employers can meet their obligations confidently while building trust with their teams.

Getting payroll right from day one reduces long-term risk, improves employee satisfaction, and positions your business for sustainable growth.

Need Expert Payroll Support?

At Outsource Payroll Solution, we help businesses of all sizes streamline payroll, stay compliant, and focus on growth. From new employer setup to T4 filing and ROE management, our team ensures that every pay period runs smoothly.

Visit www.payrollsolution.ca to learn more or speak with a payroll specialist today.