Payroll Basics for Canadian Small Business Owners

Step 1: Register a CRA payroll account before the first pay date

Before you issue your first paycheque, you need a CRA payroll deductions account. This is a sub-account of your Business Number (BN) and is identified by the letters “RP” followed by four digits (e.g., 123456789RP0001). If you already have a BN for GST/HST purposes, adding a payroll account is done online through My Business Account at CRA, by phone at 1-800-959-5525, or by mail using the RC1 form.

If you do not yet have a Business Number, you can register for a BN and a payroll account at the same time through the CRA Business Registration Online service. Registration typically takes 5–10 business days to process by mail; online registration generates the BN immediately, with the payroll account activated within a few days.

Critical point: you cannot make payroll remittances — the amounts deducted from employees and your employer contributions — without an active RP account. Late registration means late remittances, which trigger CRA penalties. Register before or immediately after making your first hire, not on the day of the first payroll.

Pay frequency rules: what Ontario's ESA requires

Ontario's Employment Standards Act (ESA) requires that employees be paid on a regular pay day, at intervals of not more than one week apart — unless a longer interval is agreed upon in writing and does not result in the employee going more than one month without a pay day. In practice, the most common pay frequencies in Ontario are:

• Weekly— common in food service, retail, and construction. Highest administrative burden but most preferred by hourly workers.
• Bi-weekly (every two weeks)— the most common frequency for Ontario small businesses. 26 pay periods per year.
• Semi-monthly (twice per month)— 24 pay periods per year, typically the 15th and last day of each month. Common for salaried professional roles.

Monthly payroll is not common in Ontario and may conflict with the ESA if employees work on an hourly basis and must wait more than a month between pay days. Once you set a pay frequency, changing it requires written notice to employees and must comply with the ESA's notice requirements.

TD1 and TD1-ON forms: collect before the first paycheque

Every new employee must complete two forms before you process their first pay:

• Federal TD1 (Personal Tax Credits Return)— declares the federal personal amounts the employee is entitled to claim. The basic personal amount for 2026 is $16,129. Additional amounts apply for spouse or common-law partner, dependants, disability, caregiver, and others.
• Provincial TD1-ON (Ontario Personal Tax Credits Return)— the Ontario equivalent. The Ontario basic personal amount for 2026 is $11,865. Employees living in Ontario complete both the federal TD1 and the TD1-ON.

The amounts on these forms determine how much federal and provincial income tax you withhold from each paycheque. If an employee does not submit a TD1, CRA requires you to withhold as if they claimed only the basic personal amount. Keep signed copies on file; you do not send them to CRA unless requested.

Employees must file a new TD1 within seven days when their personal amounts change (e.g., a new dependant). As an employer, you are responsible for updating your withholding accordingly.

Payroll remittances: amounts, deadlines, and penalties

Each pay period, you deduct from each employee's gross pay: federal and provincial income tax, Canada Pension Plan (CPP) contributions, and Employment Insurance (EI) premiums. You then add your employer share of CPP (equal to the employee deduction) and your employer share of EI (1.4 times the employee EI premium). The total of all these deductions — employee and employer portions combined — must be remitted to CRA by the deadlines below.

• Regular remitter (new employers and small payrolls)— remit by the 15th of the month following the month in which you made the deductions. If you pay employees in January, the remittance is due by February 15th.
• Quarterly remitter— available if your average monthly withholding is less than $3,000 and you have a perfect CRA compliance record. Due by the 15th of April, July, October, and January.
• Accelerated remitter— required when average monthly withholding exceeds $25,000. CRA notifies you; accelerated deadlines apply within 3 or 10 days of the pay date.

CRA late-remittance penalties start at 3% for amounts one to three days late, escalating to 10% for amounts more than seven days late, and 20% for willful failure or repeat violations. Penalties apply to the total unremitted balance, not just the employer portion. Remit through My Business Account, NETFILE, or your bank's CRA payroll payment option.

Records of Employment and T4 slips: the year-end obligations

Two filings bookend the employment relationship for CRA purposes:

• Record of Employment (ROE)— issued within five calendar days of an employee's last day of work (or the last day of the pay period in which they stopped working) whenever an interruption of earnings occurs. This covers terminations, resignations, layoffs, leaves, and materernity/parental leave. ROEs are filed electronically through Service Canada's ROE Web. The ROE triggers the employee's eligibility to apply for EI benefits.
• T4 slips (Statement of Remuneration Paid)— issued to each employee and filed with CRA by the last day of February for the preceding calendar year. T4s summarize the employee's total employment income, income tax deducted, CPP contributions, and EI premiums for the year. You file a T4 Summary with CRA along with the individual slips. Penalties for late T4 filing start at $100 and increase with the number of slips filed late.

Most payroll software (QuickBooks Payroll, Ceridian, Payworks, Wagepoint) generates ROEs and T4s automatically from your payroll records. Manual payroll in a spreadsheet significantly increases the risk of T4 errors — CRA can assess penalties for incorrect T4 amounts.

Frequently asked questions