Hiring employees in Canada comes with certain risks and responsibilities, especially when it comes to Canadian payroll tax. Payrolling your first employee can be stressful: there’s a lot to know, many regulations to follow, and many processes and procedures to go through to ensure you’re following Canadian law and paying your Canadian workers correctly.
Here are answers to the top five questions you might have about Canadian payroll tax, so you can feel confident about hiring your first employee and handling payroll and taxes in Canada for the first time.
1. What are my responsibilities regarding Canadian payroll tax as an employer?
To begin, you’re going to have to get a business number if you do not already have one, and then you’re going to have to register with the CRA for a payroll account. Next, you will need to have the employees you hire provide you with their SINs and fill out the necessary information forms that will determine how much income tax they will pay.
Once employees start to work and accumulate pay, it will be your responsibility to calculate their salaries and their mandatory deductions, including federal and provincial taxes, employment insurance premiums, and Canada pension plan contributions, along with any other deductions that need to be made.
Once these calculations have been correctly made and your employees have been paid, it is also your responsibility as an employer in Canada to remit the workers’ deductions as well as your own employer contributions to the CRA regularly. You will also have to file taxes annually.
2. How can I easily calculate Canadian payroll tax and deductions?
It might seem pretty straightforward to calculate Canadian payroll tax and deductions, but it can become increasingly complex. The amounts will vary according to the TD1 forms your employees filled out as well as the year of operation and the location you’re operating in. Specific rules and exceptions for tax, CPP, and EI deductions can be found in the Income Tax Act, Canada Pension Plan and Employment Insurance Act. The easiest way calculate deductions is to check out the CRA’s tax tables and use an online deductions calculator.
3. What do I need to know about preparing T-4 Slips?
You are responsible for preparing T-4 slips for all of your company’s past and current employees who received income that year. You must send these slips out by February 28 of each year, and keep records of all income paid as part of your Canadian payroll tax obligations.
4. How do I remit deductions to the taxation center?
You will need to send remittances to the government on a regular basis, by the required deadlines, by cheque or money order. The first time you do so you will also need to add a letter stating that you’re a new remitter and provide your business number, company name, address, and phone number, and the period the remittance is for. The deadlines you will have to follow will vary depending on your average monthly withholding amount. Penalties for missed deadlines are 10 to 20 percent of the money owing.
5. Can anyone help?
Absolutely. If your payroll needs do not warrant a full-time, permanent payroll clerk, you can either outsource your Canadian payroll tax needs to a payroll provider or engage an employer of record (EOR). In both cases, you will hand over the responsibility to a third party.
Both the provider and the EOR will ensure that your employees are paid accurately and on time, ensure that all appropriate taxes and other deductions are withheld, that your remittances are filed on time, and that your company is processing payroll in compliance with Canadian regulations. The only difference is that with a payroll provider, you are still the employer of your workers and have full responsibility towards them while an employer of record takes over as the legal employer and you enter into a co-employment relationship.