Payroll Processing for Canadian Businesses

Payroll processing represents one of the most critical responsibilities for Canadian employers, with strict CRA regulations, complex calculations, and severe penalties for non-compliance. Understanding your obligations as an employer, calculating deductions accurately, remitting on schedule, and completing year-end reporting correctly aren't optional—they're legal requirements with significant consequences for errors.

This comprehensive guide covers everything Canadian employers need to know about payroll processing, from statutory deductions (CPP, EI, income tax) through remittance schedules, provincial variations, T4 slip preparation, and year-end reconciliation. Whether you're processing your first payroll or seeking to improve existing processes, understanding these requirements ensures compliance while avoiding costly penalties.

Many Canadian businesses choose to outsource payroll to professional services rather than manage the complexity in-house. Our payroll processing services handle all calculations, remittances, filings, and employee inquiries, ensuring complete compliance while freeing you to focus on your business. Whether you process payroll internally or engage professionals, understanding these requirements is essential for every Canadian employer.

Understanding Your Obligations as a Canadian Employer

Canadian employers have significant legal obligations when paying employees. You must register for a payroll program account with CRA before issuing your first paycheque, obtain Business Numbers (BN) with a payroll deductions (RP) suffix, collect completed TD1 forms from all employees for tax code selection, calculate statutory deductions accurately using CRA tables, and remit all withheld amounts to CRA according to strict schedules.

Beyond CRA requirements, employers must provide detailed pay stubs with each payment showing gross pay, all deductions, net pay, and pay period information. Maintain complete payroll records for each employee including dates of employment, earnings history, deductions withheld, and TD1 forms on file. Comply with employment standards regarding pay frequency, record-keeping, and statement delivery.

Employer responsibilities also extend to provincial requirements including Workers' Compensation Board registration and premium payments, Employer Health Tax where applicable (Ontario, BC, etc.), and provincial employment standards compliance. These obligations exist regardless of whether you have one employee or one hundred—the same rules apply.

Understanding When and How to Remit Payroll Deductions

Your payroll remittance frequency depends on your Average Monthly Withholding Amount (AMWA)—the average of your total CPP, EI, and income tax withholdings over the second preceding calendar year. New employers start as regular remitters but may be reassigned based on actual remittance history.

Regular Remitters (withholding under $15,000 monthly) remit by the 15th day of the following month. Quarterly Remitters (withholding under $3,000 monthly and under $25,000 annually) remit by the 15th of April, July, October, and January. Accelerated Threshold 1 Remitters (withholding $25,000-$99,999 monthly) remit within 3 working days. Accelerated Threshold 2 Remitters (withholding $100,000+ monthly) remit by the 3rd working day.

Remittances must be made electronically through CRA My Payment, financial institutions, or pre-authorized debit. Paper payments are permitted for very small remitters but discouraged. Late payments incur immediate penalty—3% if 1-3 days late, 5% if 4-5 days late, 7% if 6-7 days late, 10% if 8+ days late—plus daily interest on outstanding amounts. Professional payroll services track remittance deadlines automatically to ensure timely CRA payments.

Navigating Multi-Provincial Payroll Requirements

While CPP and EI are consistent nationwide, provincial income tax rates vary significantly. Employees working in Quebec pay provincial tax to Revenu Québec rather than CRA, requiring separate remittance and T4 filing. All other provinces use federal tax tables but with provincial tax credits applied based on employee work location, not residence.

Provincial minimum wage rates vary, affecting gross pay calculations for minimum wage employees. Some provinces have unique payroll taxes—Ontario Employer Health Tax (0.98% on payroll over $1,000,000), BC Employer Health Tax (1.95% on payroll over $500,000), Manitoba Health and Post-Secondary Education Tax Levy (2.15% on payroll over $1,750,000). Workers' compensation boards operate provincially with separate registration, premium calculations, and reporting requirements.

Employers with employees in multiple provinces must navigate these variations carefully. Apply provincial tax rates based on where work is performed, not where employees live. Register with Workers' Compensation in each province where you operate. Comply with provincial payroll tax thresholds and filing requirements. Our payroll services manage multi-jurisdictional complexity, ensuring correct application of all provincial requirements.

T4 Slips, T4 Summaries, and Year-End Reconciliation

Year-end payroll reporting is a major compliance obligation. Prepare T4 slips for every employee who received income during the calendar year, showing total income (box 14), CPP contributions (box 16), EI premiums (box 18), income tax deducted (box 22), pension adjustment (box 26), and other relevant amounts for employees with pensions, benefits, or other taxable situations.

T4 slips must be distributed to employees by the last day of February following the tax year and submitted to CRA by the same deadline. Employers with multiple locations file T619 summaries listing all T4 slips issued. T4 filing can be completed electronically through CRA My Business Account, Web Forms, or by paper (though paper filing is discouraged).

Year-end also involves reconciling all payroll accounts to ensure recorded remittances match CRA records, preparing PD7A summaries of total remittances, updating employee records for the new year, and reviewing any outstanding payroll obligations. Professional payroll services handle complete year-end reporting, including T4 preparation, filing, reconciliation, and employee distribution.

Documentation and Record Retention for Payroll Compliance

CRA requires comprehensive payroll record-keeping for compliance and audit protection. For each employee, maintain name, address, Social Insurance Number (SIN), dates of employment (start and end), complete earnings history by pay period, all deductions withheld from each paycheque, TD1 forms on file establishing tax codes, copies of all T4 slips provided, and records of taxable benefits provided.

Payroll records must be retained for six years from the end of the taxation year to which they relate, even if employment ends or business is sold. Records must be accessible for CRA audits and available for employee inquiries or disputes. Inadequate record-keeping during audits leads to assessments based on CRA estimates rather than actual records, potentially resulting in additional taxes, penalties, and interest.

Modern payroll systems maintain these records automatically, but employers must ensure data backup systems and retention policies. Electronic records are acceptable if they can be produced in readable format upon CRA request. Professional bookkeepers maintain organized payroll documentation, ensuring audit readiness and supporting all positions taken on tax filings.

Choosing the Right Payroll Processing Approach

The decision between processing payroll in-house or outsourcing to a professional service involves weighing control against complexity, cost against risk, and time savings against service fees. In-house payroll gives you direct control over processing timing and employee data access, requires payroll software like QuickBooks Payroll, and allows you to handle payroll immediately without waiting for third-party processing.

However, in-house payroll demands staying current on changing CPP/EI contribution rates, federal and provincial tax tables, remittance schedule rules, and year-end filing requirements. You bear full responsibility for accuracy—errors create compliance problems with CRA that result in penalties, interest, and potential audits. In-house payroll also requires time investment each pay period—processing, remitting, and responding to employee inquiries.

Outsourced payroll services handle all calculations using current tables, manage all remittances automatically, prepare and file year-end T4 slips, provide employee self-service portals for viewing pay stubs and changing tax information, and assume liability for calculation accuracy. Service fees typically range $20-$50 per employee monthly depending on features. For most businesses, outsourcing provides better value when considering the cost of software, time spent on payroll, and risk of expensive errors.

Professional Payroll Processing Services

Canadian payroll compliance is complex, regulations change frequently, and errors are expensive. Our payroll processing services handle all aspects of Canadian payroll including setting up new employees, calculating all statutory deductions accurately using current CRA tables, managing all remittances on schedule, preparing T4 slips and year-end filings, and maintaining complete payroll records.

Whether you need complete payroll outsourcing, support during peak periods, or review of your in-house payroll processes, our team delivers the expertise Canadian businesses trust. We handle the complexity so you can focus on your business while ensuring complete payroll compliance and peace of mind.