Small business payroll basics in Canada: a practical guide

Payroll is where small mistakes get expensive fast — the CRA expects the right deductions, remitted on time, every time. Here is the plain-language version of what running payroll in Canada actually involves, and how it connects to your books.

The core idea: every paycheque splits into what the employee takes home, what you withhold and send to the CRA on their behalf, and what you owe on top as the employer. Get that split right and remitted on schedule, and payroll is routine.

Before your first payroll

Register for a payroll (RP) account with the CRA, linked to your business number.
Collect a completed TD1 (federal and provincial) from each employee to set their deductions.
Confirm each worker is genuinely an employee vs. a contractor — misclassifying is a common, costly error.
Decide your pay frequency (weekly, bi-weekly, semi-monthly) and stick to it.

What comes off each paycheque

From gross pay you withhold the employee's share and remit it to the CRA:

Income tax — federal and provincial, based on their TD1.
CPP (Canada Pension Plan) contributions.
EI (Employment Insurance) premiums.

Then, as the employer, you owe your own share on top: your portion of CPP (matching) and EI (1.4× the employee's premium). That employer cost is real and needs to be budgeted, not forgotten.

Remitting to the CRA

Send withheld amounts plus your employer share by your remittance due date (usually the 15th of the following month for regular remitters).
Late remittances trigger penalties and interest — the CRA treats payroll money as funds held in trust, so it's enforced strictly.
Keep the cash for remittances separate as it's withheld, so it's there when due.

Year-end

Issue T4 slips to employees and file the T4 summary with the CRA, generally by the end of February.
Reconcile total remittances against total deductions for the year.
Issue records of employment (ROE) when someone leaves.

Payroll and your books are linked. Wages, the employer's CPP/EI cost, and the remittance liability all need to land in the right accounts so your financial statements and your bank reconciliations stay accurate. Payroll software handles the calculations; clean bookkeeping makes sure it's all recorded correctly.

Payroll landing correctly in your books?

LZ Financial has supported payroll for 50+ employees and full-cycle bookkeeping. We make sure wages, employer costs and CRA remittances are categorized and reconciled correctly, so payroll doesn't quietly break your financial statements.

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Official references

This guide is general educational information, not payroll, accounting or tax advice.

Frequently asked questions

What deductions come off a Canadian paycheque?

Income tax (federal and provincial), CPP contributions, and EI premiums are withheld from the employee. The employer then owes its own share of CPP (matching) and EI (1.4 times the employee premium) on top, and remits everything to the CRA.

When do I have to remit payroll deductions to the CRA?

For regular remitters, generally by the 15th of the month after you pay employees. The CRA treats these as trust funds, so late remittances carry penalties and interest — set the money aside as it's withheld.

Do I need a payroll account to hire employees?

Yes. Register for a CRA payroll (RP) account under your business number before your first payroll, and collect a completed TD1 from each employee to set their deductions correctly.