Table of Contents
- Getting Started: CRA Payroll Account Registration and Your First Pay Run
- Understanding Mandatory Payroll Deductions in Ontario
- CRA Payroll Remittance Deadlines: What You Must File and When
- Employment Standards Act Payroll Requirements for Ontario Employers
- Payroll Software for Small Business: What to Look For
- Employees vs Independent Contractors: Getting Classification Right
- Payroll Audit Preparation and Year-End Filing Requirements
- Frequently Asked Questions
Last Updated: September 11, 2026
Getting Started: CRA Payroll Account Registration and Your First Pay Run
Learning how to manage payroll for small business in Ontario starts with one account and one clean first run. Open a CRA payroll account before the first payday, not after. You can register a payroll account number through CRA My Business Account or by phone, and it links to your existing business number.
A payroll account is a CRA program account that tells the agency you are an employer withholding source deductions from employee pay. Registration takes minutes, but the setup decisions behind it last for years. Choose your payroll frequency (weekly, biweekly, or monthly), set up direct deposit, and collect a completed TD1 federal and provincial form from each employee before their first paycheque. Ontario employers also need WSIB coverage in most cases, and once total annual remuneration crosses the provincial threshold, an Employer Health Tax account. Your first run should produce three things: a payroll register, a pay stub showing gross pay to net pay, and a remittance amount ready for the CRA.
What most new employers miss is the order of operations. Register the account, get the TD1s, and set your pay period before you run payroll once. Retrofitting a pay cycle after six months of ad hoc paydays creates reconciliation work that costs far more than the setup would have.
Understanding Mandatory Payroll Deductions in Ontario
Every Ontario paycheque carries five deductions you cannot skip: CPP contributions, EI premiums, federal income tax, provincial income tax, and any garnishments on file. CPP and EI are shared costs. You withhold the employee’s half and add the employer’s matching share on top, which means the true cost of a hire sits above the salary you agreed to.
Statutory deductions come off before you calculate net pay. Taxable benefits, such as a company vehicle or group life coverage, get added to gross pay first because they form part of the employee’s taxable income. Non-taxable allowances, like reasonable travel reimbursements, do not. Get that distinction wrong and your T4 slips will not reconcile at year end.
| Deduction | Who Pays | Based On |
|---|---|---|
| CPP contributions | Employee + employer match | Pensionable earnings |
| EI premiums | Employee + employer (1.4x) | Insurable earnings |
| Federal income tax | Employee only | TD1 and pay frequency |
| Provincial income tax | Employee only | Ontario TD1 |
| WSIB premiums | Employer only | Insurable payroll by rate group |
| Employer Health Tax | Employer only | Ontario remuneration above threshold |
CRA Payroll Remittance Deadlines: What You Must File and When
Miss a remittance and CRA charges penalty and interest on the amount you failed to send. That is the short answer, and it is the one that costs owners the most. Your remittance schedule depends on your average monthly withholding, which CRA assigns after you register.
How to Calculate Your Remittance Frequency
Add up the source deductions you withheld last year and divide by twelve. A small employer with modest withholding remits quarterly, on the 15th of the month following the end of each quarter. Once average monthly withholding climbs, CRA moves you to monthly, then to accelerated thresholds where larger employers remit two or more times per month. You do not choose your frequency; CRA tells you, and it changes as your payroll grows.
What Happens If You Miss a Remittance Deadline
Penalties escalate with each repeat failure, and interest compounds daily. The practical risk is worse than the fee: repeated late remittances can trigger a demand to file and, in serious cases, a requirement to post security. When a business receives a CRA letter, reconstructing the remittance history and filing overdue returns promptly can prevent escalation.
Employment Standards Act Payroll Requirements for Ontario Employers
Ontario’s Employment Standards Act sets the floor for pay, and it goes further than most federal guides admit. The ESA governs vacation pay, public holiday pay, overtime, minimum wage, pay stub contents, and statutory leaves, and each one has its own calculation. This is where a generic Canada-wide payroll article stops being useful.
Vacation Pay, Public Holiday Pay, and Overtime
Vacation pay accrues at 4% of gross wages for employees with under five years of service, rising to 6% after five years (ontario.ca). The accrual is based on gross wages including commissions, bonuses, and overtime, not just base salary. Public holiday pay is calculated from the wages earned in the four weeks before the holiday, divided by 20. Overtime applies after 44 hours in a work week and is paid at 1.5 times the regular rate; hours worked over the daily or weekly threshold in a single day do not trigger overtime on their own, but the weekly total does. Each of these must appear correctly on the pay stub, not just in your accounting file.
Minimum Wage, Pay Stub Contents, and Statutory Leaves
Ontario’s general minimum wage is set by regulation and adjusts annually, so confirm the current rate before your next pay run rather than relying on last year’s number. Every pay stub must show the employer’s legal name and address, the employee’s name, the pay period and pay date, the wage rate and hours worked, gross and net pay, itemized deductions, and vacation pay accrued or paid. Missing any of those fields is an ESA violation even if the math is correct.
The ESA also grants job-protected leaves that interact with payroll: pregnancy and parental leave, personal emergency leave, family caregiver leave, and bereavement leave. An employee on an unpaid ESA leave still accrues vacation pay on any wages earned before the leave, and you must not treat the leave as a break in service for vacation entitlement purposes. If you top up a leave voluntarily, that top-up is taxable and must be reported on the T4.
Records of Employment and Termination Pay
A Record of Employment must be issued within five calendar days of an employee’s interruption of earnings, whether that is a layoff, a quit, or a termination (canada.ca). Termination pay depends on length of service and the size of your payroll, and it is separate from severance pay, which only applies to larger employers. Get the ROE wrong and your former employee’s EI claim stalls, which is a problem you will hear about.
Paying vacation pay as a percentage on every cheque without tracking the accrual is a common shortcut. It works until an employee leaves mid-year and you cannot show what was already paid. Keep a running vacation balance in your payroll register, and reconcile it against the ESA minimum before you issue the final pay.
Ontario Employment Standards Act, 2000
Payroll Software for Small Business: What to Look For
The right payroll software for small business does four things well: calculates CPP and EI correctly, files your remittance, produces T4 slips, and integrates with your accounting file. Everything else is a preference. For most owner-operated businesses, the deciding factor is not the feature list but whether the payroll module talks to the ledger without a manual journal entry every month.
QuickBooks Online, Xero, and Sage: Integration with Accounting Software
QuickBooks Online Payroll handles CRA remittances and T4s directly inside the file you already use. Xero pairs with a payroll add-on, which suits businesses that want their bookkeeping and payroll in one login. Sage offers a deeper payroll module that fits manufacturers and trades with complex pay rules. The trade-off is real: integrated payroll costs more per month, but it removes the reconciliation work that eats a bookkeeper’s afternoon.
| Option | Best For | Trade-Off |
|---|---|---|
| QuickBooks Online Payroll | Owners already on QuickBooks | Fewer manual entries, higher monthly cost |
| Xero plus payroll add-on | Teams wanting one login | Add-on dependency |
| Sage Payroll | Complex pay rules | Steeper learning curve |
| Outsourced payroll | Owners with no time to run it | Fixed monthly fee, less hands-on control |
Employees vs Independent Contractors: Getting Classification Right
Misclassifying a worker as an independent contractor is one of the most expensive payroll errors a small business can make. CRA looks at control, ownership of tools, chance of profit, and integration into your business, not at what the contract says. A worker you direct, schedule, and supply tools for is an employee, whatever the invoice calls them.
If CRA reclassifies a contractor, you owe the unremitted CPP and EI for both sides, plus penalties and interest. The contractor’s own tax filing does not protect you. Review every contractor relationship annually, and if the working reality has drifted toward employment, fix the classification before an audit does it for you.
The contract is evidence, not proof. CRA and the Ontario Labour Relations Board both look at how the work actually happens. Document the arrangement in writing and keep it consistent with reality.
Payroll Audit Preparation and Year-End Filing Requirements
Audit preparation is mostly a record-keeping habit, not a scramble in March. CRA can review your payroll file for up to four years, and the businesses that survive a review cleanly are the ones that kept a payroll register, remittance confirmations, TD1s, and ROEs in one place. Year end adds T4 and T4A slips, a summary return, and a reconciliation of every remittance you made against what you reported.
A Payroll Audit Readiness Checklist
Most small businesses never get audited, but the ones that do are asked for the same handful of documents. Keep these current and you can answer a CRA request in an afternoon rather than a month:
- Payroll register showing every pay period, gross pay, each deduction, and net pay
- Remittance confirmations for every period, matched to the general ledger
- Signed TD1 federal and provincial forms for each employee, updated when a life event changes their credits
- ROEs issued, with the reason for separation and the dates
- Contractor agreements plus evidence of how the work actually happens
- WSIB premium remittances and clearance certificates
- Employer Health Tax returns and payment confirmations
- T4 slips and the T4 summary, reconciled to the payroll register
A common pattern is a business that remits correctly all year but cannot produce the register that ties the remittances to the T4s. CRA reconciles those three documents against each other, so a gap in any one of them invites questions. Reconcile quarterly, not annually, and the year-end filing becomes a formality.
Remote and Distributed Teams
Remote and distributed teams add a wrinkle. If an employee works from home in another province, payroll can follow the province of employment rather than your office address, which affects provincial tax and sometimes WSIB. Track each employee’s work location and update it when it changes. If you hire someone outside the country, the CRA payroll account does not cover them, and you may need to look at a local payroll arrangement or a contractor structure instead. Document the work location for every employee at hire and review it annually.
Year-End Filing
Year end is a sequence, not a single task. Issue T4 and T4A slips to employees and contractors by the last day of February, file the T4 summary with CRA, and reconcile the total remitted against the total reported. If the two do not match, fix the discrepancy before you file rather than after CRA flags it. Keep every payroll record for at least six years from the end of the tax year, because that is the window CRA can review.
Audit readiness is a quarterly habit, not a March project. Reconcile the register, remittances, and T4s every quarter and the year-end filing takes an afternoon.
HK Accounting provides weekly, biweekly, or monthly payroll processing, CRA remittances filed on schedule, T4 and T4A slips, Records of Employment, WSIB reporting, and Employer Health Tax returns, all calculated to Ontario Employment Standards Act rules. We maintain a filing calendar for every client covering corporate returns, HST, payroll remittances, slips and annual filings, and we correspond with CRA on your behalf. If a filing is late because of our error, we cover the penalties and interest.
Frequently Asked Questions
How do I register for a CRA payroll program account?
Apply online through CRA My Business Account, by phone, or by mail using your business number. You will receive a payroll account number, usually within 10 business days. Once registered, you can file remittances and access your account online. If you already have a business number for HST, you can add a payroll program account to it rather than starting from scratch.
How often must I remit payroll deductions to the CRA?
Your remittance frequency depends on your average monthly withholding amount from two years ago. New employers with no history remit quarterly. Once your average monthly withholding reaches $3,000, you move to monthly remitting. At $25,000 or more, you remit twice monthly. At $100,000 or more, you become a threshold 2 remitter and may need to remit within three business days of each pay date.
What is the difference between an employee and an independent contractor for payroll purposes?
Employees work under the employer’s direction, use employer-provided tools, and have set hours. Independent contractors control their own work, invoice for services, and can work for multiple clients. The CRA looks at control, ownership of tools, financial risk, and integration into the business. Misclassifying an employee as a contractor can trigger CPP, EI, and income tax reassessments plus penalties.
How do I handle vacation pay and public holiday pay requirements under the Employment Standards Act?
In Ontario, employees with less than five years of service earn at least 4% vacation pay; those with five years or more earn 6%. You can pay vacation pay on each paycheque or accrue it and pay before vacation. Public holiday pay is calculated as regular wages plus vacation pay divided by the number of days worked in the four work weeks before the holiday. Both must appear on your payroll records.