How to Run Payroll in Canada: A Complete Guide for Small Business Owners

Running payroll in Canada doesn't have to be complicated, but there are enough rules, deadlines, and CRA requirements that even experienced business owners get tripped up. This guide walks through everything you need to know, from setting up your first employee to filing T4s at year-end.

Whether you're running payroll manually with spreadsheets or looking to switch to a dedicated payroll tool, this is the complete picture.

Getting started: what you need before your first pay run

Before you pay a single employee, you need a few things in place.

Register as an employer with the CRA

If you haven't already, you need a Business Number (BN) from the CRA with a payroll program account (RP). You can register online at canada.ca or by calling the CRA. This account is how you'll remit source deductions each pay period.

Collect employee information

Every new hire needs to complete a federal TD1 form (and a provincial TD1 where applicable). These forms tell you how much income tax to withhold. Without a completed TD1, you're required to withhold tax as if the employee has no credits, which means over-withholding.

You'll also need each employee's:

• Full legal name and Social Insurance Number (SIN)
• Date of birth (relevant for CPP exemptions)
• Province of employment
• Pay rate and schedule (hourly, salary, piecework)
• Banking information for direct deposit

Choose your pay frequency

Canadian employers typically pay on one of four schedules: weekly, biweekly, semi-monthly (twice a month on fixed dates), or monthly. Your choice affects how deductions are calculated. Most small businesses use biweekly (26 pay periods/year) or semi-monthly (24 pay periods/year).

CRA deductions explained: CPP, EI, and income tax

Every pay period, you're required to deduct three things from employee pay and remit them to the CRA: Canada Pension Plan (CPP) contributions, Employment Insurance (EI) premiums, and income tax. You also contribute the employer portion of CPP and EI on top of that.

Canada Pension Plan (CPP and CPP2)

CPP contributions are calculated as a percentage of the employee's pensionable earnings, minus the basic exemption. In 2025, the CPP contribution rate is 5.95% for both the employee and employer, up to the year's maximum pensionable earnings. A second-tier CPP2 contribution applies to earnings above the first ceiling.

Employees over 70, or those receiving a CPP retirement pension who have elected to stop contributing, are exempt from CPP deductions. Always verify eligibility before withholding.

Employment Insurance (EI)

EI premiums are deducted from insurable earnings at the employee rate (1.66% in 2025, up to the maximum insurable earnings). As the employer, you pay 1.4 times the employee's EI premium — so for every dollar your employee contributes, you remit $1.40.

Some employment types are exempt from EI. Certain family members employed by a corporation, self-employed individuals electing not to participate, and specific contract arrangements may not qualify for EI coverage. When in doubt, contact the CRA.

Income tax

Federal and provincial income tax is calculated using the payroll deductions tables published by the CRA each year. The amount withheld depends on the employee's total annual salary, pay frequency, and the credits claimed on their TD1 forms. Using outdated tax tables is one of the most common and costly payroll errors.

Generating pay stubs

In Canada, employers are legally required to provide employees with a statement of earnings for each pay period. Most provinces specify that this must include gross pay, all deductions itemized, and net pay. Some provinces have additional requirements around vacation pay disclosure.

What a proper pay stub must show

• Employee name and pay period dates
• Gross earnings (regular hours, overtime, any additional pay types)
• CPP deduction (employee share)
• EI premium (employee share)
• Federal income tax withheld
• Provincial income tax withheld
• Any other deductions (benefits, garnishments, union dues)
• Net pay
• Year-to-date totals for each line item

Providing a clear, accurate pay stub protects both your employees and your business. Employees use pay stubs for loan applications, rental agreements, and personal tax filing. Errors on pay stubs lead to disputes, and in some cases, employment standards complaints.

Remittance to the CRA

Remitting your payroll deductions on time is non-negotiable. Late or missing remittances trigger penalties and interest that add up quickly, and the CRA takes payroll compliance seriously. Directors of corporations can be held personally liable for unremitted source deductions.

When do you remit?

Your remittance frequency is based on your average monthly withholding amount from two calendar years ago:

• Regular remitters (most small businesses) — by the 15th of the month following the month in which you paid your employees
• Quarterly remitters — available to employers with an average monthly withholding amount of less than $3,000. Remittances are due April 15, July 15, October 15, and January 15
• Accelerated remitters (Threshold 1) — twice monthly, by the 25th and the 10th
• Accelerated remitters (Threshold 2) — within 3 banking days of each pay date

What do you remit?

For each remittance, you send the employee's CPP contributions plus your matching employer CPP contributions, the employee's EI premiums plus your employer share (1.4x), and all income tax withheld. PayCub generates a remittance summary automatically after each payroll run, so you always know exactly what to send.

Year-end T4 reporting

Every February, you're required to file T4 slips with the CRA and distribute copies to all employees by the last day of February. The T4 summarizes each employee's total employment income and all source deductions for the calendar year.

T4 slip basics

Box 14 (employment income), Box 16 (CPP contributions), Box 18 (EI premiums), Box 22 (income tax deducted), and Box 52 (pension adjustment, if applicable) are the core boxes most small businesses need to complete. If you're paying certain taxable benefits or have employees with special situations, additional boxes may apply.

T4A for contractors and other payments

If you pay fees for services to an unincorporated individual (a sole proprietor contractor), you may be required to issue a T4A slip. The threshold is generally $500 or more in a calendar year. T4As are also used for pension payments, RESP income, and other specific payment types.

T4 and T4A slips must be filed with the CRA electronically if you have more than 5 employees. PayCub generates both T4 and T4A reports directly from your payroll data, ready to file.

Common mistakes to avoid

After working with thousands of Canadian small businesses, these are the payroll errors we see most often — and they're all avoidable.

• Using outdated deduction tables. The CRA updates tables every January. Running January payroll with last year's tables creates immediate shortfalls.
• Missing the remittance deadline. A 3% penalty applies for remittances that are 1 to 3 days late. It jumps to 7% for 4 to 7 days late, and 10% after that.
• Not collecting TD1 forms. Without completed TD1s, you must withhold as if the employee has no personal credits, which creates over-withholding and employee complaints.
• Misclassifying employees as contractors. The CRA has specific criteria for employment status. Getting this wrong can result in reassessment and back remittances for years of payroll.
• Forgetting employer contributions. You owe CPP and EI contributions on top of what you withhold from employees. Many first-time employers underestimate their actual payroll cost.
• Inconsistent pay stubs. Pay stubs must be provided each pay period in most provinces. Failing to do so is an employment standards violation, regardless of how you pay.

Payroll is one of the most compliance-heavy parts of running a small business in Canada, but it doesn't have to consume hours of your time. Once your employees are set up in PayCub, running a full pay cycle typically takes under five minutes, from calculating deductions to emailing pay stubs to your team.