Canadian Payroll Setup Guide: Simplify Payroll in 2025

ByCheckMark

canadian payroll set up guide

Setting up and managing payroll in Canada can feel overwhelming at first, but with the right steps and tools in place, it becomes a streamlined part of running your business. Whether you’re hiring your first employee or growing a team, understanding your responsibilities as an employer is essential—not only to stay compliant with the Canada Revenue Agency (CRA), but also to ensure your employees are paid accurately and on time.

This guide walks you through the key stages of Canadian payroll setup, payroll deductions, remittance responsibilities, and tips for avoiding common errors.

Step 1: Register Your Business and Open a Payroll Account

Before you can pay employees, you need to get your business legally registered.

  • Obtain a Business Number (BN): A 9-digit number issued by the CRA that identifies your business to federal, provincial, and municipal governments.
  • Register for a Payroll Program Account: Once you have a BN, add a payroll program account (format: 123456789RP0001) to handle source deductions such as income tax, Employment Insurance (EI), and Canada Pension Plan (CPP) contributions.

You can register online at CRA’s Business Registration Online, by phone, by mail, or through My Business Account if you’re already registered.

Step 2: Collect Required Employee Information

Before your employees start work, you must collect the following:

  • Social Insurance Number (SIN): Ensure the SIN is accurate and matches government records. A SIN beginning with “9” indicates a temporary resident authorized to work in Canada.
  • TD1 Forms (Federal and Provincial): These determine the amount of tax to deduct. Each employee must complete a TD1 Personal Tax Credits Return for both federal and their applicable provincial/territorial jurisdiction.

Keep these forms on file for each employee.

Step 3: Calculate and Deduct Source Deductions

As an employer, you’re responsible for calculating and withholding three primary payroll deductions from your employee’s gross earnings:

1. Canada Pension Plan (CPP) Contributions
  • Required for employees aged 18–69 who are not receiving a CPP retirement or disability pension.
  • Employers match the CPP contributions dollar-for-dollar.
2. Employment Insurance (EI) Premiums
  • Deducted on all insurable earnings up to the annual maximum.
  • Employers contribute 1.4 times the amount withheld from the employee.
3. Income Tax
  • Deducted based on the employee’s total earnings and claim amounts listed on the TD1 forms.
  • Use the CRA’s Payroll Deductions Online Calculator or certified payroll software like Checkmark Canada Cloud Payroll to ensure accurate calculations and to stay updated with current tax tables.

If you’re operating in Québec, you’ll need to account for:

  • Québec Pension Plan (QPP) instead of CPP.
  • Québec Parental Insurance Plan (QPIP) premiums.
  • Provincial income tax specific to Québec.

Visit Revenu Québec for provincial rates and details.

Step 4: Understand and Report Taxable Benefits

Not all compensation is paid in cash. Non-cash perks and benefits—such as personal use of a company vehicle, housing, low-interest loans, or health premiums—may be considered taxable benefits. These must be included in the employee’s gross income before deductions are calculated.

Determine whether the benefit is subject to CPP, EI, or income tax. For more on this, refer to CRA’s guide on Taxable Benefits and Allowances.

Step 5: Remit Payroll Deductions to the CRA

Once you’ve deducted the necessary amounts, you must remit them to the CRA, along with your share of CPP and EI.

Remittance Schedule

Most new employers are classified as regular remitters, meaning your payroll deductions must reach CRA on or before the 15th of the following month.

Examples:

  • Employees paid on June 25 → Remittance due by July 15
  • Employees paid on July 3 → Remittance due by August 15

If you have a strong remittance history, the CRA may reclassify you as an accelerated or quarterly emitter.

How to Remit

  • Online through CRA My Business Account
  • By mail with a cheque or money order made payable to the Receiver General for Canada
  • Using certified payroll software like Checkmark Canada Cloud Payroll, which generates remittance reports and simplifies the payment process

If you’re sending your first payment and haven’t yet received a remittance form, include a letter that lists:

  • Your Business Number
  • That you’re a new emitter
  • The period the remittance covers
  • Your business name, address, and phone number

Step 6: Issue Year-End Slips (T4, T4A) and File the T4 Summary

At the end of each calendar year, you must complete and file the following:

  • T4 Slips for each employee (reporting income and deductions)
  • T4 Summary Form (a summary of all your T4 slips)

These must be provided to employees and submitted to the CRA on or before the last day of February following the tax year.

You can file:

  • Electronically via CRA’s T4 Web Forms
  • By mail to the CRA’s tax centre (only if you’re filing fewer than 50 slips)

Failure to file accurately and on time can result in serious penalties.

Step 7: Keep Records for at Least Four Years

As a Canadian employer, you’re legally required to maintain all payroll records—including employee information, TD1 forms, pay records, deductions, remittances, and issued slips—for at least four years from the end of the tax year they relate to.

Records must be stored securely at your business premises or another Canadian location accessible to CRA officials upon request.

What Happens If You Miss a Payroll Deduction or Deadline?

The CRA takes payroll compliance very seriously. Employers who:

  • Fail to deduct proper amounts,
  • Miss remittance deadlines, or
  • File inaccurate or late year-end slips

…can be penalized with fines ranging from $1,000 to $25,000, interest charges, or even imprisonment up to 12 months in severe cases of non-compliance.

Bonus Tip: Use Payroll Software to Automate and Stay Compliant

Manual payroll can be time-consuming and error-prone. Fortunately, Canadian employers can use trusted payroll software such as Checkmark Canada Cloud Payroll to:

  • Stay up to date with federal and provincial tax rules
  • Automate deductions and remittances
  • Generate CRA-compliant T4 slips and summaries
  • Simplify ROE issuance
  • Reduce costly mistakes

Whether you’re paying employees weekly, biweekly, or monthly, a cloud-based payroll solution ensures your records are safe, accurate, and CRA-compliant.

For more information, visit the CRA’s official payroll page. By staying informed and organized, you’ll meet all your obligations and build trust with your employees and government agencies alike.