How to Set Up a Payroll System That Works for Your Canadian Business

Setting up an effective payroll system is essential for ensuring that your employees are paid on time, correctly, and in compliance with Canadian payroll laws. Here are the key steps to creating a payroll system that works for your business:

1. Determine Your Payroll Schedule
   Decide how often you'll pay your employees. Common options include weekly, biweekly, or monthly pay periods. Your choice should reflect the needs of your business and your employees.

2. Register for a Payroll Account with the CRA
   If you haven’t already, register with the Canada Revenue Agency (CRA) to obtain a payroll account number. This is required for remitting payroll deductions such as income tax, Canada Pension Plan (CPP) contributions, and Employment Insurance (EI) premiums.

3. Classify Employees Correctly
   Ensure you understand the difference between employees and independent contractors. Independent contractors are not subject to payroll deductions, so it’s important to classify them correctly to avoid penalties.

4. Track Hours Worked and Calculate Payroll Deductions
   Keep accurate records of hours worked by hourly employees and calculate the appropriate deductions for each employee. This includes income tax, CPP, EI, and any other applicable deductions like health benefits.

5. Remit Payroll Deductions to the CRA
   You must remit payroll deductions to the CRA by the due date to avoid penalties. This includes not only employee deductions but also the employer portion of CPP and EI.

6. Distribute Pay Stubs
   Provide your employees with a pay stub outlining their gross pay, deductions, and net pay. This ensures transparency and helps employees keep track of their earnings and taxes.

A reliable payroll system is vital for staying compliant and maintaining good employee relations. If you need assistance setting up or managing your payroll, ASMO TaxPro is here to help.