Payroll Canada: Small Business Guide 2025

A practical guide to Canadian payroll — source deductions, CRA remittances, T4 slips, and the best software for small businesses.

Canadian Payroll Basics

When you hire your first employee in Canada, you take on significant compliance obligations. The Canada Revenue Agency requires you to deduct and remit three types of source deductions from employee pay: Canada Pension Plan (CPP) contributions, Employment Insurance (EI) premiums, and income tax. As an employer, you also match CPP contributions and pay 1.4x the employee EI premium.

2025 Source Deduction Rates

Deduction	Employee Rate	Employer Rate	2025 Maximum
CPP (Canada Pension Plan)	5.95% of pensionable earnings	5.95% (employer matches)	$3,867.50 each
CPP2 (second additional)	4% on earnings $73,200–$81,200	4% (employer matches)	$396 each
EI (Employment Insurance)	1.66% of insurable earnings	2.324% (1.4x employee rate)	Employee: $1,049.12; Employer: $1,468.77
Income Tax	Federal + provincial marginal rate	N/A	Varies by income

CRA Payroll Remittances (PD7A)

Payroll remittances are submitted using Form PD7A (or through My Business Account online). The remittance frequency depends on your average monthly withholding:

• Regular remitters: Average monthly withholding $25,000 or less — remit by the 15th of the following month
• Accelerated remitters (Threshold 1): Average monthly withholding $25,000–$99,999.99 — remit twice monthly (by the 25th of the current month and the 10th of the next)
• Accelerated remitters (Threshold 2): Average monthly withholding $100,000+ — remit within 3 banking days of each payday
• Quarterly remitters: New employers or those with very low withholdings — remit quarterly

Late remittances attract a penalty of 3–10% of the amount owing plus interest. CRA takes payroll remittances very seriously — directors of corporations are personally liable for unremitted source deductions.

Annual T4 Filing

By February 28 of each year, you must file T4 slips (Statement of Remuneration Paid) with CRA for every employee paid in the previous calendar year, and provide copies to employees. T4s report total employment income, CPP contributions, EI premiums, income tax deducted, and other amounts. File via CRA's My Business Account, tax software, or your payroll provider.

Payroll Software Options for Canadian Small Business

Software	Price/Month	Best For
Wagepoint	$20 + $7/employee	Small businesses, simple payroll
Payworks	Custom pricing	Mid-size businesses, HR features
ADP Run	Custom pricing	Growing businesses, full HR suite
QuickBooks Payroll	$18 + $6/employee	QuickBooks accounting users
Humi	$8+/employee	HR + payroll combined platform

Employee vs Contractor: CRA's View

Many small businesses try to avoid payroll obligations by classifying workers as independent contractors. CRA applies a multi-factor test (control, tools, financial risk, integration) to determine true employment status. Misclassification results in back-assessment of all unremitted source deductions plus penalties and interest — often going back 4 years. When in doubt, get a written contract and a CRA ruling (Form CPT1) to confirm contractor status.