Hiring your first employee in Canada feels exciting and heavy at the same time. You carry new responsibility. You must pay people on time. You must follow tax rules. You must keep records that stand up to audits. This guide walks you through each step so you do not feel lost. You learn what to register for, what to deduct, and how to send money to the government. You see where most new employers make mistakes and how to avoid penalties. You also learn when it makes sense to handle payroll yourself and when to look at small business payroll services so you can focus on running your work. By the end, you will know how to set up payroll in Canada with clarity and control.
Step 1. Confirm that the worker is an employee
First, you must decide if the person is an employee or a contractor. This choice controls payroll. It also affects tax, benefits, and risk.
You treat the person as an employee when you:
- Control where, when, and how they work
- Provide tools or equipment
- Set their schedule and duties
- Do not allow them to hire their own helpers
You can read the Canada Revenue Agency guide on this point in RC4110 Employee or Self-employed. If CRA later decides the worker was an employee, you may owe back CPP, EI, and tax plus interest. So you must get this right.
Step 2. Register your business and get a payroll account
You need a Business Number before you pay wages. You also need a payroll program account with CRA.
You can:
- Register online through the CRA Business Registration portal
- Call CRA by phone
- Use a paper form if needed
You can learn how to do this at the official CRA page Registering your business.
Once you register, CRA gives you a payroll account that ends in RP0001. You use this number on all payroll forms and payments.
Step 3. Collect employee information and forms
Next, you must gather key details from your new hire. You should do this before the first day of work.
Ask for:
- Full legal name and address
- Social Insurance Number
- Date of birth
- Completed federal TD1 form
- Completed provincial or territorial TD1 form
The TD1 forms tell you how much tax to withhold. You must keep these forms on file. You do not send them to CRA unless asked.
Step 4. Understand basic payroll deductions
Each pay period, you must take money from your employee’s pay and send it to the government. You also add your share of certain costs. The main parts are:
- Income tax
- Canada Pension Plan or Quebec Pension Plan
- Employment Insurance
Basic Payroll Costs for a New Employee
You must use current CRA tables or payroll software to get the right amounts. Rates change each year. Even a small error can build into a painful balance.
Step 5. Pick a pay schedule and method
You must choose how often you pay your employee. You also choose how you pay.
Common pay schedules are:
- Weekly
- Every two weeks
- Twice per month
- Monthly
Comparison of Common Pay Schedules
You may pay by direct deposit, cheque, or other method that your province allows. You must pay on time every pay day.
Step 6. Decide whether to use payroll software or a service
Payroll by hand takes time and focus. You must track hours, overtime, vacation, and deductions. You must watch for legal changes.
You have three common paths.
First, you can do payroll yourself with CRA tables and simple spreadsheets. This costs less money. It costs more time. It also raises the chance of mistakes.
Second, you can use payroll software. Many tools link to CRA tables. They can create pay stubs, records of employment, and T4 slips.
Third, you can hire a payroll company or accountant. This costs more money each month. It can save peace of mind. It can also help when you grow and add more staff.
Step 7. Send payroll deductions to CRA on time
Taking money from pay is not enough. You must send it to CRA by the due date. If you pay late, CRA may charge penalties and interest.
For most new employers, payroll deductions are due by the 15th of the next month. For example, January payroll holds are due by February 15. CRA may move you to a faster schedule if your deductions grow.
You can remit by:
- Online banking
- CRA My Business Account
- Mail or at your bank with a remittance form
Step 8. Keep clear records and give pay stubs
You must keep payroll records for at least six years. You must be able to show:
- Hours worked
- Wages and overtime
- Vacation earned and paid
- Deductions and employer costs
- Dates of each payment
You must also give each employee a pay statement each pay period. Many provinces require details such as hours, rate of pay, gross pay, and each deduction. Clear records protect you and your worker if there is a dispute.
Step 9. Year end slips and when someone leaves
At the end of the year, you must prepare T4 slips for each employee. You must also file a T4 summary with CRA. These show total income and deductions for the year.
When an employee stops work, you may also need a Record of Employment. This record helps them with EI claims. Many payroll tools can create this form for you.
When to seek extra help
You do not need to handle payroll alone. You can ask an accountant or bookkeeper to review your setup. You can also use government guides and phone lines for support.
If payroll tasks pull you away from serving your customers or caring for your family, you may choose an outside service. This choice can bring calm. It can also lower the risk of missed deadlines and surprise tax bills.
With a clear process and the right support, you can pay your first hire with confidence. You protect your employee. You protect your business. You also protect your own peace of mind.
