As a small business owner, you may have various questions about payroll – it can be a complex and critical aspect of managing your business. In this blog, we’ll outline the payroll process so you can feel confident in your accounting success (don’t forget to download our ebook below!). And, if you need help along the way or have questions, we’re here for you.
Types of payroll taxes or deductions
Your company’s payroll is the list of employees who must be paid a wage consistently each month. In basic terms, the payroll process involves what is due to employees (net pay) and how much must be sent to the government (payroll remittance).
When your employees are paid, they will receive taxable and non-taxable benefits. Taxable benefits are things like bonuses, health benefits or gifts. Consult this benefits chart to figure out if your allowance is taxable.
Withholdings are when an amount is held back from the gross payments going to your employees. These include
Canada Pension Plan contributions (CPP)
- The employer must contribute to CPP and the employee. If you are self-employed, you are both the employee and the employer (so you will contribute to both).
- Find the CRA chart for annual CPP contribution rates. Generally, the first $3,500 is tax-exempt. You’re required to pay up to maximum pensionable earnings of $68,500.
- Beginning Jan. 1, 2024, you must deduct the second additional CPP contributions on earnings above the annual maximum pensionable earnings of $73,200. See the CPP2 rates and maximums.
- These new ceilings were calculated per the CPP legislation and considered Canada's average weekly wages and salary growth.
- As of 2019, the Canada Pension Plan (CPP) is gradually being enhanced. This means that today’s workers, the seniors of tomorrow, will have higher benefits and greater financial stability through a small increase in the amount they contribute to the CPP.
Employment Insurance premiums (EI)
- Employees also chip in some of their EI premiums, with the employer contributing the big chunk.
- If you are self-employed, you are typically exempt from EI and should opt out of EI premiums. Learn more about employment insurance for the self-employed.
- Opting out of EI is unnecessary if you own a corporation, as it is already set up that way. You can opt in, but 99% of the time, it's not recommended.
Federal income tax
- Employers are responsible for withholding income tax on behalf of the employee and remitting it to the CRA.
- The tax rates for withholding are standardized but can be customized in certain circumstances if the employee fills out a TDI form, which details the adjustments to the amount of tax to be deducted.
Provincial income tax
- Each province collects tax from employees living in their province, which must also be withheld.
- Find the chart for Alberta 2023 and 2022 Tax Rates & Tax Brackets.
Remittance schedule
Payroll remittances include money you withhold from each employee for personal income taxes, CPP and EI. These payments are due on the 15th of each month following the month the employee was paid. For example, the June payroll remittance payment must be paid by July 15.
If your company has no employees, the owners have some flexibility. Generally, the owners will still need to do monthly payroll remittances if they choose to do wages rather than dividends for their compensation. Owners are usually exempt from EI and can choose to get paid once a year – as an annual bonus – which allows them to make just one single payroll remittance 15 days after their year-end.
Your main options for paying payroll remittances are online banking, CRA My Payment, paying in person or mailing a cheque.
If you miss the 15th of the month payment deadline, you’ll be hit with a 10% penalty for the remittance amount (5% for the first offense). In Alberta, make sure to pay before 10 p.m., which is midnight out east.
Calculating payroll taxes
How do you calculate payroll remittances? Watch this video from one of our partners, Curtis.
The CRA offers a Payroll Deductions Online Calculator (PDOC) to calculate federal, provincial (except for Quebec), and territorial payroll deductions. It will confirm the deductions you include on your official statement of earnings.
Compliance policies
Overtime
A few options exist for accruing overtime, and requirements vary by industry. A general guideline is over eight hours a day or over 44 hours a week. These requirements should be set in an employment contract. We encourage you to look at the labour standards for your specific province and area of work.
Vacation Pay, Flex Days and Paid Time Off (PTO)
Vacation is paid time off that generally accrues throughout the year and should be detailed in the employment contract. For example, if your employee is entitled to 12 vacation days, you would earn or accrue one vacation day for each month you work.
Six months in, you should be able to take six vacation days and get paid your normal pay cheque even when you’re away. Alternatively, a business may pay out vacation on each paycheque: two weeks of vacation is 4%, and three weeks is 6% of gross pay. Your employment contract should specify how much vacation you can carry over calendar years or have accrued at one time.
Frequency of pay runs
The most common options are:
- Bi-weekly (80 hours per pay period, 26 pay runs per year),
- Semi-monthly (86.67 hours per pay period, 24 pay runs per year)
- Monthly (160 hours per pay period), 12 pay runs per year)
Business owners can pay themselves quarterly or annually if they choose.
Download our payroll ebook
Our free guide “How To Set Up Payroll Like a Pro” outlines payroll for small business owners. In our ebook, you’ll learn:
- The basics of payroll
- Important dates and deadlines
- Payroll rules and policies
- How to run payroll
- Our favourite payroll software
Download it today!
Our Chartered Professional Accountant (CPA) professionals have extensive knowledge of the changing tax laws. Let us help you with deductions, write-offs, expenses, tax returns, GST filing and more.
Read more about Corporate Tax topics relevant to you and your small business.
