Payroll for Small Businesses in Canada 2025

Updated March 2025 · 11 min read

Hiring your first employee is a major milestone — and a significant administrative responsibility. Canadian payroll involves federal and provincial deductions, CRA remittances, year-end T4 filing, and potentially provincial employer levies like WSIB in Ontario. This guide walks through everything a Canadian small business owner needs to know to run payroll correctly.

Setting Up Payroll: First Steps

Register a Payroll Account with CRA

Before you pay your first employee, register for a payroll deductions account with the CRA. This is separate from your income tax account and HST/GST account — it has its own account number (format: 123456789 RP 0001). Register online through CRA My Business Account, by phone (1-800-959-5525), or by mail. Registration is free.

Collect TD1 Forms from Employees

Each new employee completes a TD1 Personal Tax Credits Return — both federal and provincial versions. These forms tell you how much income tax to withhold from each paycheque. Employees claiming only the basic personal amount don't need to submit anything, but you should still keep signed TD1 forms on file.

Determine Pay Periods

Choose a pay period: weekly (52 pays/year), bi-weekly (26 pays/year), semi-monthly (24 pays/year), or monthly (12 pays/year). Most Canadian small businesses use bi-weekly payroll. Your pay schedule affects how you calculate withholdings and when remittances are due.

Source Deductions: What You Withhold

For each pay period, you calculate and withhold three items from employee gross pay:

1. Canada Pension Plan (CPP) Contributions

Both employees and employers contribute to CPP. For 2025:

• Employee CPP contribution rate: 5.95% of pensionable earnings
• Employer CPP contribution rate: 5.95% (you match the employee amount)
• CPP exemption: $3,500 basic exemption per year
• Maximum pensionable earnings: $68,500 (2025 figure)
• Maximum annual CPP contribution per employee: approximately $3,867
• CPP2 (second additional contribution) also applies at 4% on earnings between the first and second ceiling

2. Employment Insurance (EI) Premiums

Both employees and employers pay EI premiums:

• Employee EI premium rate: 1.66% of insurable earnings (2025)
• Employer EI premium rate: 1.4x the employee rate (approximately 2.32%)
• Maximum insurable earnings: $65,700 (2025)
• Maximum employee EI premium: approximately $1,091/year

3. Income Tax Withholding

Federal and provincial income tax is withheld from each paycheque based on the employee's annual income projection. CRA provides payroll deductions tables (T4032) updated annually. Modern payroll software calculates this automatically. Manual calculation using CRA's Payroll Deductions Online Calculator is possible but time-consuming.

Employer Contributions

As an employer, you pay amounts in addition to what you withhold from employees:

• Matching CPP contributions (equal to employee CPP deducted)
• EI employer premium (1.4x employee EI premium)
• WSIB/WCB premiums (workers' compensation — varies by province and industry)
• Ontario Employer Health Tax (EHT) if total Ontario payroll exceeds $1 million (exemption threshold for private sector)
• Quebec-specific employer levies (CSST, RQAP employer portion) for Quebec employers

CRA Remittance Schedule

The amounts you withhold from employees plus your employer contributions must be remitted to the CRA. Your remittance schedule depends on your average monthly withholding:

• New employers and small withholders (under $3,000/month average): Monthly remittance, due by the 15th of the following month
• Regular remitters ($3,000–$15,000/month average): Monthly remittance, due by the 15th of the following month
• Quarterly remittance: Available for employers with perfect compliance history and small withholdings — due the 15th after the end of each quarter
• Accelerated remitters ($15,000–$50,000/month): Semi-monthly remittances
• Large employers (over $50,000/month): More frequent remittances

Late remittances attract penalties of 3–10% depending on how late they are, plus interest. These penalties apply per incident and can add up quickly. Set up automatic remittance payments through your bank's CRA payment service.

T4 Slips and T4 Summary

By the last day of February each year, you must:

• Issue T4 slips to every employee who received employment income in the previous calendar year
• File a T4 Summary return with the CRA summarizing all T4s issued
• Submit copies of all T4 slips to the CRA

T4 slips report employment income, CPP contributions, EI premiums, income tax deducted, and other taxable benefits. Employees need their T4 to file their personal tax return. Missing the T4 deadline results in penalties of $25/day up to $2,500 per failure.

WSIB/WCB: Workers' Compensation

Workers' compensation is provincially administered. In most provinces, employers in covered industries must register and pay premiums based on their industry classification and payroll:

• Ontario: Workplace Safety and Insurance Board (WSIB) — most employers with employees must register
• British Columbia: WorkSafeBC
• Alberta: Workers' Compensation Board (WCB)
• Other provinces: Each has its own workers' compensation board

Premium rates vary by industry — high-risk industries (construction, manufacturing) pay higher rates than low-risk ones (professional services, retail). Some owner-operators can opt in to personal coverage.

Best Payroll Software for Canadian Small Businesses

• Wagepoint: Canadian-built, simple interface, designed for small businesses. Handles all CRA remittances automatically. Good QuickBooks integration. Popular choice for businesses with 1–50 employees.
• Payworks: Canadian payroll service with strong compliance track record and good customer support. Available in all provinces.
• ADP Canada: Larger payroll service used by businesses of all sizes. More expensive than Wagepoint/Payworks but very comprehensive.
• Humi: Canadian HR and payroll platform for growing businesses that want HR functionality alongside payroll.
• QuickBooks Payroll: Integrated directly into QuickBooks Online — convenient if you're already using QuickBooks for accounting.