Running a successful small business comes with one challenge after another. So it’s a major achievement – and relief – when you can finally hire that first employee and start benefiting from some extra help. Unfortunately, if you don’t understand business employment taxes, this initial hire may turn into a burden.

The 5 Steps to Properly Executing Payroll

Complying with the CRA’s rules takes five steps.

Step 1: Open a Payroll Account with the CRA

Before you can hire anyone, you must acquire a tax number from the CRA.

The CRA offers three options for doing this:

  • The Business Registration Online Service (BRO)
  • Over the phone by calling 1-800-959-5525
  • Filling out the RCI Form and mailing/faxing it to the appropriate tax center/office

Once you have your tax number from the CRA, you can begin hiring employees.

Step 2: Collect Required Employee Information

Next, you’ll need your new employee’s information.  The best way to collect this information is to have the new employee fill out the federal and provincial TD1 forms.

Step 3: Make the Appropriate Deductions from Payroll

Before you do the first payroll, determine the employee’s taxable benefits. The CRA’s Guide T430 goes into great detail about how to determine the monetary value of all benefits and which ones are subject to employment taxes.

You will also need to calculate the payroll deductions for each pay period.  This is the amount that has to be remitted to the government to cover CPP, EI and taxes.  This amount can be determined by using the CRA’s on-line payroll calculator.

Step 4: Sending in Remittance

Initially, you’ll need to send a cheque or money order to your assigned tax center.  It must be made out to the Receiver General.  You will need to include a letter containing the following:

  • That you are a new employer
  • What payment period your payment covers
  • Your business number
  • The employer’s name, address, and telephone number

This needs to be received by the government no later than the 15th day of the following month.  Failure to do so can result in a large penalty for late filing.

After that, the CRA will send you remittance forms through the mail that can be used to file your payroll remittances.  These can then be used to pay the tax at a bank.

Step 5: Reporting Employees’ Income and Deductions

Finally, you must complete your T4 slip for your new employees and a T4 summary form. The T4 information form must be filed and the T4 slips provided to your employees by the last day of February following the year for which it applies

Need Help with Your Accounting?

The CRA has worked to make business employment taxes and remittances as easy as possible.  However, it still takes a lot of work to properly operate a payroll system.  As you hire more employees, the challenge will continue to grow.

That’s why so many companies trust Padgett with their accounting and bookkeeping needs. Contact us today if you’d like to learn about how we can help your business.