Payroll for Small Business: Important Filings and CRA Deadlines
For small business owners, hiring that first employee is one of the most exciting milestones of entrepreneurship. However, with your first hire, comes the responsibility of setting up payroll. This is something you’ll want to get right the first time around because payroll can have a major impact on the success of your team. No matter how enthusiastic your employees may be, they expect to be compensated for their work and it’s up to you to ensure that they receive the right amount every single payday.
To help you get payroll right from the very first pay run, we’ve put together a quick guide for small business owners. From registering for a Business Number (BN), to figuring out your payroll remittance schedule, we’ll outline everything you need to know.
Cover Your Bases
Before you start signing cheques, you’ll need to start with a few payroll basics. One of the first steps you need to take is to verify compliance with the provincial labour department. Each province has its own set of rules when it comes to important payroll issues such as minimum wage, vacation laws, termination requirements, and more. You’ll want to double check all of this information to ensure that you’re following the specific employment standards for your province.
With some research out of the way, the next step is to register your business with the CRA. Though this might seem like an intimidating process, it’s far easier than you might think. Registering your business simply requires getting a Business Number (BN), which is a nine-digit number that the CRA assigns to your business as a tax ID. This is the basis for all other program accounts like payroll, income tax, etc..
After registering for a BN, you will also need to pick the correct program accounts for your business. There are four program accounts to choose from:
RC for corporation income tax (if your business is incorporated)
RT for GST/HST (if your business collects GST/HST)
RM for import/export (if your business imports goods or sells goods or services abroad)
RP for payroll (if your business pays employees)
Some of these program accounts may or may not be applicable to your business. If you’re unsure which program account matches your business, you can always double check the CRA website, or ask your accountant.
Once you’ve confirmed your BN and correct program accounts, you’ll need to collect the following from each employee:
Social Insurance Numbers (SINs): Employers are legally obligated to collect and record the SIN number from their employees within three days of the hire date. If you don’t receive this information, you’ll have to notify Service Canada within six days of the employee’s hire date.
Federal and Provincial TD1 forms: Employers need to keep a record of each employee’s federal and provincial TD1 forms. This is necessary in order to determine the amounts that need to be withheld for source deductions.
After covering your bases, the next step is to determine what kind of employee you’re going to hire. In other words, you need to know whether you’ll be bringing on an employee or an independent contractor (also known as a self-employed individual). It’s important to make this distinction because the classification of an employee has major implications on the person’s entitlement to Employment Insurance (EI) benefits. It also determines how they are treated under other legislation such as the Canada Pension Plan and the Income Tax Act.
The CRA’s Employee or Self-Employed? (RC4110) document provides a detailed overview of the difference between employees and independent contractors. In general, the CRA determines a worker’s status by looking at the following:
The employer sets the hours of work, not the employee
The employer provides the tools and equipment necessary to carry out the job
The employee is paid a salary
The employee has legal and financial obligations to the employer
The company is responsible for withholding and remitting all federal and provincial taxes, workers compensation, Canada Pension Plan (CPP), and Employment Insurance (EI) on the employee’s behalf
The contractor sets their hours
The contractor provides the tools and equipment necessary to carry out his or her job
The contractor shared a monthly or hourly fee and then invoices the employer
The contractor is considered an independent business in their own right
The contractor is responsible for paying their own federal or provincial taxes
In short, the CRA is basically looking at the intent of the relationship and the amount of control the worker has in the job. While some of these differences may seem subtle, it’s important to take the time to properly classify your employees. If you misclassify an employee as an independent contractor, you will have to contend with the following:
The employer must remit unpaid taxes and may be subject to interest and/or other penalties.
The employer will need paid CPP and EI premiums.
Any business expenses claimed by the “contractor” will need to be repaid (a situation that can have major financial implications for the “contractor”).
At this point, you’ve done your homework and you’ve got everything ready to hire your first employee. Now it’s time to find out how you’ll remit (file) payroll taxes back to the Canadian government.
The T4001 Employers’ Guide - Payroll Deductions and Remittances explains that as an employer, you must calculate, deduct, and remit certain source deductions each time you run payroll. In other words, if you’re an employer, you need to send a certain amount of money to the government each time payroll is run. The math ends up looking like this:
Deductions (withholdings) based on the income of each employee include:
CPP contributions (5.1% up to a yearly maximum)
EI premiums (1,62% up to a yearly maximum)
Income tax (based on provincial/territorial rates)
Your share as an employer:
Employer CPP contributions (must match the amount deducted from each employee’s contribution)
Employer EI premiums (1.4x the amount deducted from each employee’s premium)
To calculate your payroll deductions, you can use the CRA’s Payroll Deductions Online Calculator. Alternatively, if you use a dedicated payroll software solution, the calculations will be done for your automatically.
Now that you know how much to remit, the question is when you should pay. This is known as your payroll remittance schedule and it is determined by your average monthly withholding amount (AMWA). Your AMWA is the sum of all payroll deductions you paid to the CRA in a calendar year, averaged on a monthly basis. Your AMWA also determines the remittance deadlines you’ll need to follow:
Remitting Frequency: Monthly.
Remitting Period: Calendar months.
Remittance Due Dates: 15th day of the month following the one in which you made the deductions.
Remitting Frequency: Quarterly
Remitting Period: January 1 to March 31; April 1 to June 30; July 1 to September 30; October 1 to December 31.
Remittance Due Dates: Payments are due on or before April 15th, July 15th, October 15th, and January 15th for payroll processed in the previous quarters.
Accelerated Remitter (Threshold 1)
Remitting Frequency: Up to twice a month.
Remitting Period: 1st to 15th of the month; 16th to end of the month.
Remittance Due Dates: Remittances are due on the 25th day of the same month for payroll processes in the first 15 days of the month. For payroll processed after the 16th day of the month, remittances are due by the 10th day of the following month.
Accelerated Remitter (Threshold 2)
Remitting Frequency: Up to four times a month.
Remitting Period: 1st to 7th of the month; 8th to 14th of the month; 15th to 21st of the month; 22nd to the last day of the month.
Remittance Due Dates: Remittances are due by the third working day after the week in which the payroll was processed.
You can make your remittance payments via the following methods:
Over the phone
By Visa Debit or Interact using the CRA’s My Payment service
Though a third-party provider such as a payroll company
At a financial institution
By mail with a cheque
While the above provides you with all the basics you need to set up payroll for your small business, it never hurts to consult an expert. For advice on running payroll for small business, contact the accounting professionals at Capex Chartered Professional Accountants.