Before You Hire: Small Business Payroll Setup Checklist
About to hire your first employee? This checklist covers CRA payroll account setup, required forms, deduction calculations, and compliance requirements.
- Register for CRA payroll account before first pay date
- Collect TD1 forms from all employees on day one
- Calculate and remit source deductions on time
- Workers' Compensation is mandatory in most provinces
- Payroll software saves time and reduces errors
Your First Employee: Getting It Right
Hiring your first employee is exciting - but payroll compliance is serious business. Get it wrong, and you face penalties, interest, and angry employees.
This checklist ensures you're ready.
Pre-Hiring Checklist
- Apply online through CRA Business Registration
- Or call CRA Business Enquiries
- You'll receive a Payroll account number (e.g., 123456789 RP0001)
- Do this BEFORE your first pay date
- Contact your provincial WCB/WSIB
- Provide estimated payroll amounts
- Pay premiums (based on industry risk)
- Some industries have exemptions - check requirements
Options:
- Manual: Use CRA Payroll Deductions Online Calculator
- Software: Wave, QuickBooks, Sage, etc.
- Outsourced: Payroll service provider (like FinvoPay)
Day One: Employee Forms
- TD1 (Federal): Personal tax credits return
- TD1 (Provincial): Provincial tax credits
- Direct deposit form: Bank account information
- SIN collection: For T4 reporting
- Emergency contact: For safety purposes
- Employment contract: Terms of employment
If employee doesn't provide TD1, you must deduct tax as if they claimed only the basic personal amount. This usually means over-withholding.
Understanding Deductions
- Income Tax: Based on earnings and TD1 claims
- CPP: 5.95% of pensionable earnings (2024)
- EI: 1.63% of insurable earnings (2024)
- CPP (employer portion): 5.95% (same as employee)
- EI (employer portion): 2.282% (1.4x employee rate)
- Workers' Comp: Varies by industry (0.5-10%+)
Example: Employee earning $1,000/week
- Employee deductions: ~$250-$300 (tax + CPP + EI)
- Employee take-home: ~$700-$750
- Employer CPP: ~$60
- Employer EI: ~$23
- True cost to employer: ~$1,100 per $1,000 salary
Remittance Deadlines
Depends on your remitter type:
- New/Small Remitter: 15th of following month
- Threshold 1: 15th of following month
- Threshold 2: Twice monthly (15th and month-end)
- Large Remitter: Within 3 days of each pay
- 3% penalty if 1-3 days late
- 5% penalty if 4-5 days late
- 7% penalty if 6-7 days late
- 10% penalty if more than 7 days late
- Plus interest on unpaid amounts
Year-End Requirements
- Issue T4 slips by end of February
- File T4 Summary with CRA by end of February
- Issue ROEs for any employees who left during year
- Provide T4s to employees (paper or electronic)
- Reconcile total remittances to total T4s
Common Payroll Mistakes
- Misclassifying employees as contractors
- Missing remittance deadlines
- Not registering for Workers' Comp
- Incorrect vacation pay calculations
- Not updating TD1 forms when circumstances change
- Forgetting statutory holiday pay
Need Help Setting Up Payroll?
Tax Punjabi offers payroll setup and ongoing processing through FinvoPay. Get it right from day one.
This article is for educational purposes only. Consult a professional for your specific situation.