Hiring your first employee means taking on responsibilities for paying them, withholding and remitting payroll deductions, keeping records, and completing tax reporting. Payroll in Canada involves more than transferring net pay to an employee’s bank account. This guide explains how to do payroll in Canada from your first hire through year-end reporting. The process has seven actions: register, collect, calculate, pay, remit, record, and report. You’ll learn how to confirm employment status, open a Canada Revenue Agency (CRA) payroll program account, collect employee information, calculate gross pay and deductions, make employer contributions, pay employees, remit amounts to the appropriate government authority, and maintain payroll records.

Federal tax requirements apply across Canada, while provincial and territorial employment standards can affect minimum wage, overtime, vacation pay, statutory holiday pay, pay statements, and other payroll requirements. Quebec also has separate provincial payroll requirements. Use this guide to set up and run your first payroll. For requirements specific to your business or employees, consult the appropriate government authority or a qualified payroll, tax, accounting, legal, employment, or human resources professional.

How does payroll work in Canada?

Payroll in Canada is the process of calculating employee pay, withholding required deductions, adding employer contributions, paying employees, remitting amounts to the appropriate government authority, keeping payroll records, and completing annual reporting. Some tasks happen each pay period, while remittances and annual forms follow separate schedules.

Start with gross pay, which is an employee’s earnings before deductions. It can include wages or salary, overtime, vacation pay, statutory holiday pay, commissions, bonuses, and taxable benefits.

From gross pay, employers withhold required deductions. These commonly include:

• Income tax
• Canada Pension Plan (CPP) contributions
• Employment Insurance (EI) premiums

The payroll flow looks like this:

‍Gross pay → employee deductions → net pay to employee
‍
Gross pay + employer contributions → total employer payroll cost

Employee deductions reduce gross pay to net pay. Employer contributions are added by the employer rather than deducted from the employee’s pay. The deductions withheld and applicable employer contributions are remitted to the CRA.

For employees in Quebec, the deductions and employer contributions can include QPP and QPIP, with applicable amounts remitted to Revenu Québec.

Paying employees, remitting payroll deductions, and filing annual tax forms are separate responsibilities. Payroll deductions are calculated for each pay period, while remittance deadlines follow the schedule that applies to the employer.

For definitions of terms used throughout this guide, see Wave’s Canadian payroll terms.

How do you confirm if someone is an employee or a contractor?

Confirm employment status by looking at the working relationship, not only the worker’s job title or written agreement. The Canada Revenue Agency (CRA) considers factors such as control over the work, ownership of tools, opportunity for profit, and risk of loss. Employment status determines whether you generally need to pay the worker through payroll and withhold payroll deductions.

For contracts formed outside Quebec, the CRA generally applies common law principles. In Quebec, it uses the rules set out in the Civil Code of Québec.

Employee vs. self-employed contractor

The CRA considers the working relationship as a whole. This comparison shows how some factors can differ, but no single factor determines employment status.

Misclassifying an employee as a self-employed contractor can leave the employer responsible for CPP contributions, EI premiums, and income tax that should have been deducted, along with applicable interest and penalties. If you’re unsure about a worker’s status, you or the worker can request a CPP/EI ruling from the CRA.

Employees are generally paid through payroll, while self-employed contractors follow different tax and reporting requirements. For eligible contractor payments, see our guide on how to file a T4A. Once you’ve confirmed you’re hiring an employee, start onboarding your new employee and collect the information needed for payroll.

How do you open a CRA payroll program account?

Open a Canada Revenue Agency (CRA) payroll program account through Business Registration Online (BRO). If your business already has a nine-digit Business Number (BN), the payroll account is added to it. If you don’t have a BN, register for one at the same time. Register before your first payroll remittance is due.

A payroll program account identifies your business when you report and remit payroll deductions and employer contributions to the CRA. The account number contains:

• Your nine-digit BN
• The RP payroll program identifier
• A four-digit reference number

For example, a payroll account could be 123456789 RP 0001. Your BN stays the same across CRA program accounts, while the program identifier shows what the account is used for. A GST/HST account, for example, uses RT, while payroll uses RP.

Before registering, gather the information the CRA requests. Depending on your business, this can include:

• Business information and structure
• Business address
• Contact information
• BN, if you already have one
• Payroll information, including when you began or expect to begin paying employees

Canadian resident businesses register through BRO, which is now accessed through a CRA account. Some situations require a different registration process, so check the CRA’s current instructions before registering.

Register for a CRA payroll program account

After registering, save your payroll account number and confirmation. Some businesses may need separate payroll accounts for different payroll groups or operations.

Your payroll frequency and remittance frequency are separate. Paying employees every two weeks, for example, doesn’t mean you remit deductions every two weeks. Confirm the remitting requirements that apply to your payroll account with the CRA.

What provincial and territorial payroll requirements do you need to know?

Payroll in Canada must account for federal tax rules and the employment standards that apply to each employee. Provincial and territorial rules can affect minimum wage, pay frequency, overtime, vacation, statutory holidays, leaves, pay statements, permitted deductions, and final pay. Employers may also have workers’ compensation or provincial payroll tax obligations.

Who sets which payroll requirements?

Use this overview to see where to check different payroll requirements.

Before setting up payroll, check the rules that apply where each employee works. Requirements vary across Canada and can change, so use current guidance from the relevant federal, provincial, or territorial government.

If an employee works remotely in another province or territory, you may need to check more than one set of rules. Employment standards and the province used to calculate payroll deductions aren’t always determined the same way, so check the CRA’s province of employment guidance when hiring across provinces or territories.

What payroll requirements apply in Quebec?

Quebec has additional payroll requirements. Employers may need to make deductions and contributions for Quebec income tax, the Quebec Pension Plan (QPP), and the Quebec Parental Insurance Plan (QPIP), with some payments going to Revenu Québec instead of the CRA. Quebec also has its own employment standards and payroll forms, so check the current requirements before paying an employee in Quebec.

What employee information do you need to run payroll in Canada?

Before running payroll in Canada, collect your employee’s personal information, pay details, tax information, and payment details. At minimum, you’ll need their Social Insurance Number (SIN), province of employment, pay rate, completed tax forms, and information that affects their earnings and deductions. You’ll use these details to set up the employee, calculate payroll, and pay them.

What information should you collect from a new employee?

Personal information

• Full legal name
• Address
• Date of birth
• SIN
• Email and contact information
• Hire date
• Province of employment

The CRA requires employers to obtain an employee’s SIN and determine their province of employment. Province of employment helps determine which payroll deductions to use and may differ from the employee’s province of residence. Check the CRA’s province of employment guidance if you’re unsure.

Pay information

• Hourly rate or salary
• Expected hours
• Overtime eligibility
• Pay frequency
• Vacation policy and pay
• Statutory holiday treatment
• Bonuses, commissions, and allowances
• Taxable benefits

What tax information do you need from a new employee?

New employees generally complete a federal TD1 Personal Tax Credits Return and a provincial or territorial TD1. These forms provide the claim amounts used to calculate income tax deductions. Record requests for additional income tax deductions and any CPP, EI, QPP, or QPIP exemptions or elections that apply.

For more information, see Wave’s guide to TD1 forms for new employees.

For employees in Quebec, collect Revenu Québec’s Source Deductions Return (TP-1015.3-V) in addition to the federal TD1.

What payment information do you need?

For direct deposit, collect the employee’s bank account information and authorization. If you use another payment method, record the information needed to pay them.

Keep employee and payroll information secure and limit access to people who need it for payroll.

How do you choose a payroll schedule and payment method?

Choose a payroll schedule by deciding how often employees will be paid, which dates each pay period covers, and when payday will fall. Common pay frequencies include weekly, biweekly, semi-monthly, and monthly. Check the employment standards that apply to your employees before choosing a schedule, then confirm your business has enough time and cash to process each payroll.

A pay period is the time an employee’s pay covers, while the pay date is the day they receive their wages. Your pay frequency determines how often that happens.

When choosing a schedule, consider:

• The pay frequency allowed under the employment standards that apply to your employees
• How much time you need to collect and approve hours, overtime, commissions, and other pay changes
• When your business receives cash and when payroll funds need to be available
• Weekends and holidays that could affect pay dates or processing deadlines

If your employees are covered by federal labour standards, review the Government of Canada’s wages and pay requirements. Otherwise, check the provincial or territorial employment standards that apply.

How should you pay employees?

Pay employees using direct deposit, cheque, or another payment method permitted where they work. If you use direct deposit, collect the employee’s bank information and authorization, and account for any processing time required before payday.

Before each payroll, check that you have enough money available for employee net pay, employer payroll contributions, and the payroll amounts you’ll need to remit to the government.

If you use Wave Payroll, you pay employees by direct deposit. Check your payroll processing timeline before approving payroll so employees are paid on the scheduled date.

If you change your pay schedule or payment method later, tell employees what’s changing and update your payroll records and system settings.

Your first payroll setup timeline

How do you calculate gross pay in Canada?

To calculate gross pay in Canada, add all earnings an employee receives for the pay period before payroll deductions. Start with their regular wages or salary, then add earnings such as overtime, commissions, bonuses, vacation pay, statutory holiday pay, and taxable benefits. The calculation depends on how the employee is paid and what they earned during the pay period.

How do you calculate gross pay for an hourly employee?

Multiply the employee’s regular hours by their hourly rate, then add any other earnings for the pay period.

Example: An employee earns $25 per hour and works 40 regular hours.

40 hours × $25 = $1,000 regular pay

If the employee also earned overtime, vacation pay, commissions, or other amounts during the pay period, add them as required. Overtime rules vary by province, territory, and industry, so confirm the rules that apply before calculating it.

How do you calculate gross pay for a salaried employee?

Divide the employee’s annual salary by the number of pay periods in the year, then add any other earnings that apply.

Example: An employee earns $52,000 per year and is paid biweekly.

$52,000 ÷ 26 pay periods = $2,000 regular gross pay per pay period

What else can be included in gross pay?

Gross pay can include more than regular wages or salary. Depending on the employee and pay period, you may need to account for:

• Overtime
• Commissions
• Bonuses
• Vacation pay
• Statutory holiday pay
• Allowances
• Taxable benefits

A reimbursement isn’t automatically treated the same way as wages or a taxable benefit. The CRA distinguishes between reimbursements for employment expenses and allowances or benefits, and the tax treatment depends on the payment. Check the CRA’s guidance on taxable benefits and allowances when you’re unsure.

Taxable benefits can include goods, services, allowances, or reimbursements for personal expenses provided to an employee. If a benefit is taxable, its value is generally included in the employee’s income and can affect payroll deductions and year-end reporting.

Before calculating gross pay, review approved hours, timesheets, overtime, bonuses, commissions, benefits, and other changes for the pay period. If you need to correct a missed payment or make a retroactive adjustment, record the change so your payroll records show what was paid and why.

What payroll deductions and employer contributions do you need to calculate?

For most employees outside Quebec, you’ll calculate income tax, Canada Pension Plan (CPP) contributions, and Employment Insurance (EI) premiums from each pay. You’ll also calculate the employer’s share of CPP and EI. The amounts can vary based on the employee’s pay, province of employment, pay period, tax information, and annual limits.

What do you deduct from an employee’s pay?

Income tax is withheld from the employee’s pay. The amount depends on factors such as how much they earn, their province of employment, how often they’re paid, and the information on their TD1 forms.

CPP contributions are generally deducted from an employee’s pay until they reach the annual CPP limit. Employers contribute an equal amount. Employees who earn above a certain amount may also have CPP2 contributions, which employers match.

EI premiums are generally deducted from an employee’s pay until they reach the annual EI limit. Employers also pay EI premiums at a different rate.

Rates and annual limits can change. Use the CRA’s Payroll Deductions Online Calculator (PDOC) or payroll software with current rates rather than relying on an old calculation.

What are employer payroll contributions?

Employer contributions are amounts your business pays in addition to the employee’s gross pay. They don’t come out of the employee’s wages.

For example, if an employee earns $2,000 in gross pay, their income tax, CPP, and EI deductions reduce the amount they receive. Your share of CPP and EI is added to what the payroll costs your business.

The difference is:

Gross pay − employee deductions = net pay

Gross pay + employer contributions = total employer payroll cost

What deductions and contributions apply in Quebec?

Quebec payroll works differently. Employees and employers generally contribute to the Quebec Pension Plan (QPP) instead of CPP. Payroll can also include Quebec income tax, Quebec Parental Insurance Plan (QPIP) premiums, EI premiums, and other Quebec employer contributions.

For Quebec payroll deductions, use Revenu Québec’s payroll calculation tools for current rates and calculations.

How do you calculate gross pay to net pay?

To calculate net pay, start with gross pay and subtract the employee’s payroll deductions. Employer contributions don’t reduce the employee’s pay. Add them separately when calculating the total cost of payroll to your business.

Gross-to-net example

The amounts will vary by employee and pay period. Use current employee information and payroll rates when calculating each pay.

How do you run payroll in Canada?

To run payroll in Canada, confirm the pay period and employee information, calculate gross pay, subtract payroll deductions, add employer contributions, and calculate net pay. Review the amounts before approving payroll, then pay employees, provide pay statements, and save your payroll records. After payroll, set aside the deductions and employer contributions you’ll need to send to the government by the due date.

What are the steps for running payroll?

Follow the same process each pay period:

1. Confirm the pay period and pay date. Know which dates the payroll covers and when employees need to be paid.
2. Review hours and pay changes. Check approved hours, overtime, vacation, bonuses, commissions, benefits, and other changes.
3. Calculate gross pay. Add the employee’s regular pay and any other earnings for the period.
4. Check tax information. Confirm the employee’s province of employment and tax information are up to date.
5. Calculate employee deductions. Calculate income tax, CPP or QPP, EI, QPIP, and other deductions that apply.
6. Calculate employer contributions. Add the CPP or QPP, EI, QPIP, and other employer contributions your business needs to pay.
7. Calculate net pay. Subtract employee deductions from gross pay.
8. Check the total payroll cost. Confirm you have enough money for employee pay, employer contributions, and tax payments you’ll need to send.
9. Review the payroll. Look for missing employees, duplicate payments, unexpected changes, unusual deductions, or a negative net pay amount.
10. Approve payroll. Confirm the calculations and payment information before paying employees.
11. Fund payroll. Check that the account used for payroll has enough money available.
12. Pay employees. Send payment by direct deposit, cheque, or another permitted method.
13. Provide pay statements. Give employees the pay information required under the employment standards that apply to them.
14. Save your payroll records. Keep payroll reports, calculations, and payment details for your records, tax payments, and year-end reporting.

Payroll software can handle many of the calculations and payroll tasks, but your setup and review still matter. Check employee information, hours, pay changes, benefits, and deductions before approving payroll.

How do you run payroll with Wave?

With Wave Payroll, you can set up employees, choose a payroll schedule, enter pay information, calculate payroll, and review each payroll before approving it.

Before your first payroll, complete your business and employee setup, including your tax information, pay schedule, and employee payment details. Wave’s Canadian payroll setup guide walks through the process.

When it’s time to pay employees, use Wave’s Run Payroll page to review payroll before approving it. If you use direct deposit, leave enough time for the payment to reach employees by payday.

Eligible Canadian businesses can also use Wave’s payroll tax service for supported tax payments and filings. Check Wave’s Canadian payroll tax services for current availability and requirements. You can also handle payroll tax payments outside Wave.

How do you remit payroll deductions in Canada?

To remit payroll deductions in Canada, send the CRA the income tax, CPP contributions, and EI premiums withheld from employee pay, along with the employer CPP and EI contributions you owe. Your due dates depend on your CRA remittance schedule. Paying employees and sending payroll deductions to the CRA are separate tasks with different deadlines.

When are payroll remittances due?

The CRA groups employers by remitter type, which determines how often you need to send payroll deductions and contributions. How often you pay employees doesn’t determine how often you remit.

New small employers may qualify to remit quarterly if they meet the CRA’s requirements. Other employers may remit monthly or more often, depending on their payroll amounts and remitter type.

Follow the remittance schedule the CRA has confirmed for your payroll account.

Check the CRA’s current payroll remittance due dates to confirm your schedule and deadline.

How do you send payroll remittances to the CRA?

The CRA offers several ways to make payroll payments. Check the CRA’s payroll remittance methods before sending your payment.

After paying, check that the CRA received the payment and applied it to the correct payroll account. Save the confirmation with your payroll records.

If you have no employees to pay during a remitting period, you may need to report a nil remittance. If you find an error after paying, follow the CRA’s process for correcting the payment.

Late remittances can result in penalties and interest, so track remittance deadlines separately from employee paydays.

Can Wave handle Canadian payroll tax remittances?

Eligible Canadian businesses using Wave Payroll can use Wave’s payroll tax service for supported payroll tax payments and filings. Check Wave’s Canadian payroll tax services for current availability and requirements.

Use Wave’s Canadian payroll tax remittance due date guide alongside the CRA schedule for your payroll account to handle remittances outside Wave.

How do you record payroll in your books?

Record the full cost of payroll in your books, not just the amount paid to employees. Your records should show gross wages, employee deductions, employer contributions, net pay, and amounts you still need to send to the government. Keeping these amounts separate helps you match your payroll records to your bank transactions and see what payroll costs your business.

For each payroll, your books may need to show:

• Gross wages or salary as a business expense
• Employer CPP, EI, QPP, QPIP, or other contributions as business expenses
• Employee deductions you’ve withheld but haven’t sent to the government
• Employer contributions you still need to send
• Net pay paid to employees
• Vacation pay or benefits your business still owes, where applicable

Net pay isn’t your total payroll expense. If an employee earns $2,000 before deductions but receives $1,600, for example, recording only the $1,600 payment would leave out part of their wages and the employer contributions your business pays.

How do you check that your payroll records match?

After each payroll, compare your payroll reports with the payments and withdrawals in your business bank account. Check that:

• Employee payments match the net pay on your payroll report
• Employer contributions and employee deductions match your payroll calculations
• Payments to the government match the amounts you recorded
• Payroll adjustments appear in your books

Reconciling your payroll means checking that your payroll records, bank transactions, and payments to the government match.

What payroll records should you keep?

Keep records that show how employees were paid and how payroll deductions were calculated. These can include employment agreements, TD1 forms, employee information, timesheets, pay statements, payroll reports, deduction calculations, payment confirmations, tax notices, Records of Employment (ROEs), and T4 or T4A slips.

The CRA generally requires businesses to keep payroll records for at least six years after the year they relate to. See the CRA’s payroll record-keeping requirements for current guidance.

You’re still responsible for keeping the required records, even if you use payroll software or outside help.

What payroll reporting do you need to complete at year-end?

At year-end, most Canadian employers need to prepare T4 slips for employees and file a T4 information return with the CRA. You may also need to prepare T4A slips or Records of Employment (ROEs), depending on who you paid and what happened during the year. Before filing, check that employee earnings, deductions, employer contributions, and payroll remittances match your payroll records.

What should you check before filing payroll forms?

Before preparing tax slips, compare your payroll records with the amounts reported and paid throughout the year. Check employee earnings, payroll deductions, employer contributions, taxable benefits, and remittances. Fix any differences before filing where possible.

The CRA’s T4 Summary compares the payroll deductions and contributions you report with the amount you remitted during the year, so this review can help you catch differences before filing.

When are T4 and T4A slips due?

T4 and T4A information returns are generally due by the last day of February following the calendar year they cover. If you file more than five slips of the same type for a calendar year, the CRA requires you to file them electronically.

For step-by-step help, see Wave’s guide to filing a T4 and guide to filing a T4A.

When do you need to issue a Record of Employment?

A Record of Employment (ROE) is generally required when an employee has an interruption of earnings, such as when their employment ends or they stop working in certain circumstances. ROE deadlines depend on how you file and your pay schedule, so check Service Canada’s current ROE requirements when an interruption occurs.

What should you review before the next payroll year?

Before your first payroll of the new year, check for changes to payroll rates and annual limits, your CRA remittance schedule, and employee tax information. Update your payroll software and settings where needed.

Use this year-end checklist:

• Reconcile annual employee earnings and deductions
• Compare employer contributions with your payroll records
• Confirm payroll remittances
• Review taxable benefits
• Prepare and file T4 slips and your T4 information return
• Prepare T4A slips where required
• Issue any required ROEs
• Check new payroll rates and annual limits
• Confirm your CRA remittance schedule for the new year
• Update employee tax information where needed

If you use Wave Payroll, follow Wave’s Canadian payroll year-end checklist when preparing your year-end payroll information.

What common payroll mistakes should first-time employers avoid?

Common payroll mistakes include misclassifying workers, registering for a payroll account too late, using incomplete employee information, missing employer contributions, using outdated rates, and confusing employee paydays with tax remittance deadlines. Prevent many of these problems by checking your payroll setup before the first pay and reviewing each payroll before you approve it.

Watch for these common mistakes:

• Misclassifying an employee as a contractor. Confirm the working relationship before deciding whether someone should be paid through payroll.
• Opening your CRA payroll account too late. Register before your first payroll remittance is due.
• Using the wrong payroll account number. Check that payroll remittances are applied to the correct CRA payroll account.
• Using incomplete employee information. Collect the employee’s SIN, province of employment, TD1 forms, pay details, and payment information before payroll.
• Using the wrong province of employment. This can affect which payroll deductions you calculate.
• Forgetting employer contributions. CPP, EI, QPP, QPIP, and other employer contributions can add to the cost of payroll.
• Missing taxable benefits. Check whether benefits or allowances need to be included when calculating payroll.
• Using outdated rates or limits. Payroll rates and annual limits can change, so use current CRA or Revenu Québec information.
• Missing direct deposit processing deadlines. Leave enough time for employees to receive their pay by payday.
• Confusing payday with the remittance deadline. Paying employees and sending payroll deductions to the government follow separate schedules.
• Recording only net pay in your books. Your payroll records should reflect gross pay, deductions, employer contributions, and net pay.
• Missing provincial requirements. Check employment standards, workers’ compensation requirements, and employer payroll taxes that apply where your employees work.
• Skipping your year-end review. Compare payroll records, deductions, contributions, and remittances before preparing T4 and other year-end forms.

A consistent payroll process makes these checks repeatable for each pay period. If you use payroll software, review your employee information and payroll settings before approving your first pay.

How do you manage your first payroll?

Your first payroll comes down to a repeatable process: register, collect, calculate, pay, remit, record, and report. Start with accurate employee and payroll information, then review your calculations and payment details before approving each payroll.

Federal payroll rules apply across Canada, but provincial and territorial requirements can affect how and when employees are paid. Quebec also has separate payroll requirements. Check the current rules that apply to your employees before your first payday and as requirements change.

Payroll software can help manage calculations, employee payments, payroll records, and tax tasks. If you’re unsure about a requirement or calculation, check the appropriate government guidance or work with a qualified payroll, tax, accounting, legal, employment, or human resources professional.

Wave Payroll* helps eligible Canadian businesses set up employees, calculate payroll, pay employees, and manage payroll information in one place.