When Sarah started her small business, she knew there would be challenges, but payroll wasn’t something she gave much thought to—until she hired her first employee. She remembers the excitement of growing her team, followed quickly by confusion when it came to calculating payroll deductions. What seemed like a simple task—paying someone for their work—quickly turned into a whirlwind of unfamiliar terms like CPP, EI, T4s, and remittances. Suddenly, payroll wasn’t just about cutting checks—it was about navigating compliance and making sure everything was in order with the CRA.
We hear this all the time from business owners. Payroll sounds daunting, but the truth is, it doesn’t have to be that hard. Every accounting process has two sides: compliance and operations, and payroll is no different. Compliance ensures you’re following government rules, like making the right deductions and remitting payroll taxes on time. Operations, on the other hand, is about ensuring your employees get paid smoothly and reliably so you can keep your employees happy too.
That’s where Wagepoint comes in. It’s a tool designed to make both sides of payroll simple, so you can spend less time worrying about compliance and more time focusing on growing your business. In this guide, we’ll show you how to get your payroll system up and running in less than an hour, using Wagepoint to streamline the whole process.
To legally pay your employees in Canada, there are several steps you need to follow to ensure you’re compliant with federal and provincial regulations. This includes setting up a payroll account with the Canada Revenue Agency (CRA), withholding income taxes, and making contributions to government programs like Employment Insurance (EI) and the Canada Pension Plan (CPP).
Before you can start paying employees, you’ll need to register for a payroll program account with the CRA. This is essential because it allows you to remit payroll deductions like income tax, EI, and CPP to the government.
Once registered, the CRA will issue you a 15-character payroll program account number, which you’ll use for all your payroll filings and remittances.
As part of your payroll account setup, you’ll also need to choose your payroll frequency—this determines how often employees will be paid. The most common payroll scheduling options include:
We generally recommend semi-monthly payroll because it ensures predictable cash flow and avoids the potential complication of having three pay periods in one month, which can occur with a biweekly schedule. For many business owners, this makes financial planning easier and reduces cash flow strain.
However, the right choice depends on your business's needs. If you prefer to match your payroll schedule to your clients’ billing cycles or if employees expect a particular pay frequency, those considerations should weigh into your decision.
As an employer, you’re responsible for withholding federal, provincial, and territorial income taxes from your employees’ paychecks. These taxes are deducted at source, which means they are taken from an employee's wages before they are paid.
This is where Wagepoint 2.0 shines. Wagepoint automatically calculates and applies the correct income tax rates, meaning you don’t need to manually figure out how much to withhold. This saves time and helps prevent payroll errors that could result in penalties or fines.
What is EI?
Employment Insurance (EI) is a program that provides temporary income to employees who are out of work or unable to work due to circumstances like illness or parental leave. Both you (the employer) and the employee contribute to this fund through payroll deductions.
What is CPP?
The Canada Pension Plan (CPP) is a retirement benefit system designed to provide income to Canadians when they retire or if they become disabled. As with EI, both the employer and the employee make contributions to this plan. The amount is based on the employee’s earnings.
With Wagepoint 2.0, you don’t need to worry about calculating these amounts manually. Wagepoint automatically calculates and withholds the correct amounts from each employee’s paycheck, ensuring you meet all compliance requirements.
Workers' Compensation
Workers' compensation insurance is another mandatory part of the Canadian payroll system, but it’s managed on a provincial level. Each province and territory has its own workers' compensation system:
Workers' compensation is designed to cover employees who are injured on the job. It’s important to set this up correctly because the rates and rules vary depending on the province. You’ll also need to ensure that workers' compensation is not deducted from the owner's income—this is a common mistake. The insurance is only applicable to insurable employee wages.
If your business offers additional benefits, such as health or dental insurance, you may need to deduct benefit premiums from your employees' pay. These only apply to taxable benefits which could include things like:
Wagepoint can also manage these deductions, ensuring that everything is automatically calculated and deducted from each paycheck, keeping your benefit deductions compliant and streamlined. Make sure to check out the benefit eligibility to ensure you don't over or under deduct.
Vacation pay is a legal entitlement in Canada, and its calculation varies depending on the province and how long an employee has been with the company. Generally, employees with less than five years of service are entitled to 4% of their gross wages as vacation pay. Employees with more than five years are usually entitled to 6%.
With Wagepoint 2.0, vacation pay is calculated automatically based on each employee's gross wages. The software allows you to decide whether vacation pay is accrued and paid out when the employee takes time off, or whether it’s included in every paycheck.
A T4 slip is a year-end tax document that summarizes an employee's employment income and the deductions made throughout the year, including income taxes, CPP, and EI. You’re required to issue T4 slips to employees and file them with the CRA by the end of February each year.
Wagepoint generates T4s for you automatically, so you don’t need to manually calculate and prepare these documents. This helps ensure accuracy and prevents the risk of missing CRA deadlines.
Understanding the different types of employment is crucial when setting up payroll. Different classifications of employees are subject to different rules regarding pay, benefits, and statutory deductions. Here’s a breakdown of the main types of employment in Canada and what they’re entitled to:
Now that the compliance side of payroll is sorted, it’s time to look at operations—how you actually pay your employees. This includes everything from onboarding employees to processing payroll and handling remittances. We recommend using Wagepoint 2.0 to make this process as smooth and efficient as possible.
We’ve chosen Wagepoint 2.0 as our favorite payroll software for a few key reasons:
Important Note: Wagepoint recently went through a software update that has made it even easier for business owners to navigate the platform (hence the 2.0). You may be skimming a few blogs on payroll setup so keep in mind to check that they are up to date!
Here’s how to get started with Wagepoint 2.0:
Once you’ve completed these steps, your Wagepoint account is ready to go. You can now start adding employees and running payroll.
Once you’ve set up your Wagepoint account, it’s time to onboard your employees. During the onboarding process, you’ll need to collect key information to ensure that payroll runs smoothly and that all deductions are handled correctly.
Here’s what you’ll need from each employee:
You’ll need two TD1 forms for each employee:
Employees can download the forms from the Canada Revenue Agency (CRA) website:
Employees will fill out these forms when they are hired and can update them if their personal circumstances change (e.g., marriage, dependents, or other tax credits). Once you have these forms, Wagepoint will use the information to accurately calculate and withhold the appropriate federal and provincial income tax for each employee.
Running payroll is the core function of Wagepoint, and it’s a breeze to do. For each pay period, you simply need to:
Wagepoint then handles the rest, automatically calculating:
Once everything is set, Wagepoint issues payments to employees via direct deposit, and it creates detailed payroll reports for your records.
One of the most important aspects of running payroll is ensuring that you remit payroll deductions to the CRA on time. Late remittances can lead to fines and penalties, so it’s crucial to stay on top of this.
Wagepoint 2.0 automates the entire remittance process. It calculates how much you owe in EI, CPP, and income tax deductions for each pay period and then submits these amounts directly to the CRA on your behalf. This ensures you never miss a remittance deadline, keeping your business in perfect compliance.
When an employee leaves your company, you’re required to issue a Record of Employment (ROE). The ROE outlines why the employee left, how long they worked, and their total earnings. It’s especially important for employees who may apply for Employment Insurance (EI) benefits after leaving.
With Wagepoint, generating and issuing ROEs is easy. The software pulls employee information directly from your payroll data and produces the ROE, which you can then submit to Service Canada. This is especially important for seasonal workers, as they often rely on ROEs to apply for EI during off-seasons.
Managing payroll can be time-consuming, especially for small and medium-sized business owners who already have their hands full. While payroll software like Wagepoint makes the process simpler, some business owners still prefer to delegate this responsibility. Luckily, there are several ways to hand off payroll tasks, each with its own advantages. Let’s break down your options and why hiring an accountant is often the sweet spot for small to medium-sized businesses.
Many small businesses delegate payroll tasks to an internal team member, often an office manager or admin assistant. This person becomes responsible for entering employee hours, processing payroll, and ensuring deductions are handled correctly.
This option works best for businesses with a small, stable staff and relatively simple payroll needs. However, as your business grows, it can become overwhelming for your internal team.
For small and medium-sized businesses, outsourcing payroll to an accountant is often the most balanced and efficient option. Accountants bring professional expertise, allowing them to handle payroll compliance, tax filings, and any financial intricacies that might arise.
For small to medium-sized businesses, outsourcing payroll to an accountant strikes the perfect balance between affordability and expertise. You get peace of mind knowing that payroll is being handled professionally without the hefty price tag of larger payroll service providers.
Large payroll providers like ADP are widely known for offering comprehensive payroll and HR services to businesses of all sizes. These providers manage payroll, tax filings, benefits, and employee records in one integrated solution.
For larger companies with more complex HR needs, third-party payroll providers like ADP make sense. However, for small and medium-sized businesses, they are often an unnecessarily expensive option when compared to an accountant.
If your business is small to medium-sized, outsourcing payroll to an accountant is usually the best route. It provides professional expertise and peace of mind without the hefty cost of larger payroll providers. Plus, accountants often offer additional services like tax preparation and financial advising, making them a great partner for managing your business finances as a whole.
If you prefer to keep things in-house and have a team member with some financial expertise, delegating payroll to an internal admin could work—just be mindful of the time it might take and the potential for mistakes. On the other hand, if your business is large or rapidly growing, using a comprehensive third-party payroll provider like ADP might be the best fit.
Remember Sarah from the beginning? Now, as she wraps up her first year managing payroll, she can hardly believe how far she’s come. What started as a confusing and stressful task has become a smooth, dependable process. With Wagepoint handling the heavy lifting—from direct deposits to automated tax remittances—Sarah’s payroll now runs like clockwork. She recalls the anxiety of her first payroll run and all the time spent figuring out deductions and compliance. Now, with the right setup and tools, she has peace of mind knowing her system is compliant and her team is paid accurately and on time.
For business owners like you, building a strong payroll process isn’t just about cutting checks; it’s about creating trust and stability within your team. With compliance in place and a streamlined operation, you can focus on what truly matters: growing your business and building a positive, engaged workplace. When payroll runs seamlessly in the background, it frees up your time and energy, allowing you to channel your efforts into new opportunities, confident that payroll is one less thing to worry about.
1. What payroll schedule should I choose for my business?
We recommend semi-monthly payroll frequency because it provides consistent cash flow without the complications of extra pay periods, as seen with biweekly payroll.
2. How does Wagepoint handle payroll remittance?
Wagepoint calculates all payroll deductions for EI, CPP, and income tax, then automatically remits these amounts to the CRA, ensuring timely compliance.
3. What is a T4, and when do I need to issue it?
A T4 slip is a tax document summarizing an employee's income and deductions for the year. You must issue T4s by the end of February for the previous year. Wagepoint automatically generates T4s for you.
4. How to calculate vacation pay in Canada?
Vacation pay is typically 4% or 6% of an employee’s gross wages, depending on their length of service. Wagepoint automatically calculates and applies vacation pay for each employee based on provincial rules.
5. What Are the Payroll Tax Filing Deadlines?
Payroll tax remittances in Canada need to be submitted regularly to the CRA to avoid penalties. The deadlines vary based on your remittance frequency, which the CRA assigns based on your average monthly withholding amount (AMWA).
Using Wagepoint can help you keep track of these deadlines and automate remittances based on your schedule, minimizing the risk of late filings.