Payroll for Small Business

There are many different aspects to running a business in Canada, be it large or small.  One of the most important aspects is payroll.  If you employ people to work for you and pay salaries or wages and provide other benefits and allowances then you must register a payroll account with the Canadian Revenue Agency. In order to do this you must first obtain a business number if you do not already have one.

Payroll for small business in Canada involves, amongst other things, making certain deductions to your employees’ wages and remitting them to the Canadian Revenue Agency. There are 3 main deductions: – income tax, Canada Pension Plan contributions and Employment Insurance contributions.

Each employee must complete form TD1 to determine their total personal income and claim amount.  From this, as an employer you will need to apply the correct tax code for deductions in the remainder of their income. These codes can be found on the Canadian Revenue Agency website or in their publications.

Canada Pension Plan deductions must be calculated for any employee between the ages of 18 and 70, who are in pensionable employment during the year, not considered disabled and who do not already receive a CPP pension.  As an employer your payments to the plan must match those of your employees, for example, if you deduct $250 for an employee for their contributions then you must pay the same amount to the CRA, making a total of $500.

Canada Pension Plan deductions must stop when each employee reaches the maximum pensionable earnings or maximum contributions amount for the year. For 2012 this amount is $2,306.70. If this amount is reached before the end of the tax year then no more deductions can be made from the employee.

Employment insurance is another deduction that must be made under payroll rules.  This must be deducted from your employees’ insurable earnings. There is no age limit on this deduction.  Deductions must stop when the maximum earnings are reached for the year – $45,900 for 2012 or the maximum premiums have been paid for the year – $839.97 for 2012. Employers must also contribute 1.4% of the amount deducted for each employee.

Once all deductions have been calculated for each employee it is your responsibility as the employer to remit the payments to the Canadian Revenue Agency.  If you are what is classed as a regular remitter then your payments must be paid on the 15th day after the deduction is made. Remittance due dates are based on the day the salary is paid to the employee rather than on the actual pay period so for deductions made on 30th June the remittance must be made to the CRA by 15th July at the latest.

These are just a few of the rules regarding payroll for small business. The Canadian Revenue Agency has a whole host of forms and publications available to assist you in setting up and maintaining your payroll account properly.