Updated Checked by the Tax-Services.ca editorial team How we check
To set up payroll for a Canadian business, you register for a CRA payroll deductions account, which is your nine-digit business number plus the letters RP and a four-digit reference, such as 123456789 RP 0001. After that you work out each pay run, send the deductions in on time, and file slips in February. The first pay run is where most owners feel lost, so this page walks through one.
What do you need to set up payroll?
A business number and a payroll account. The CRA says registering online is the fastest route, and you can open other accounts (GST/HST, for one) in the same sitting. If you already have a business number, the payroll account is added to it, and the number itself doesn’t change. The paper route is form RC1.
Next, decide who is an employee. A person who works under your direction, with your tools, at set hours, with no chance of profit or loss of their own is usually an employee. Someone who runs their own operation, brings their own equipment and can send a helper in their place looks like a contractor. The CRA weighs all of these together, so if you’re unsure, read its employee or self-employed page before you hire.
Then gather the basics for each person: legal name, address, start date, wage, and the forms your payroll software or accountant asks for. Getting these right on day one saves a long clean-up at year end.
Which deductions come off each cheque?
Income tax, CPP and EI come off the employee’s pay. In Quebec it’s QPP instead of CPP, with a parental insurance premium on top, and Revenu Québec takes the provincial side. You then add your own share.
| Item (2026) | Employee | Employer |
|---|---|---|
| CPP | 5.95% on pay from $3,500 to $74,600 | Matches the employee |
| CPP second tier | 4% from $74,600 to $85,000, at most $416.00 | Matches the employee |
| EI outside Quebec | $1.63 per $100 up to $68,900 (max $1,123.07) | 1.4 times the employee (max $1,572.30) |
| Income tax | From the CRA payroll tables and the employee’s forms | None |
What does the first pay run cost?
Suppose you hire two people in Ontario at $2,000 a month each. The payroll remittance calculator shows $489.07 held back from their pay each month across both of them (income tax, CPP and EI), plus $294.57 for your share. So $783.64 goes to the CRA each month, and the payroll costs you $4,294.57 in total, not $4,000.
That’s an estimate, not a pay stub. Your payroll software will use the real tax tables and each person’s claim amounts. For a single employee’s split, try the payroll deductions calculator, and use the take-home pay calculator to tell a new hire what they’ll see in their account.
How often do you pay and remit?
Pick a pay schedule you can keep. Every two weeks, twice a month and monthly are all common, and the calculators above handle each. Changing it later is possible but irritating for staff.
Remitting is a separate clock. The CRA’s page on what happens after you register says new employers are regular remitters and send the money monthly unless the CRA tells them to use a different frequency. Regular means you pay by the 15th of the month after the pay date. A smaller employer may later qualify as a quarterly remitter, with dates of April 15, July 15, October 15 and January 15, but the CRA decides that from its own records.
In the example above, wages paid in March mean $783.64 is due by April 15. Check your remitter type in your CRA business account, and set a reminder for the 15th rather than the 14th.
Slips are a yearly job. T4 slips for each employee, plus the summary, are due by the last day of February after the calendar year, and employees need their copies by then to file their own returns. If you hire someone in November, they still get a T4, even for a few paycheques.
What should you do before the first payday?
- Register the payroll account and note the account number.
- Collect a TD1 form from each employee, plus their legal name, address and start date.
- Choose payroll software or an accountant to run the numbers.
- Open a separate savings account for the money you hold for the CRA.
- Set remittance reminders and a February reminder for slips.
That fourth item is a quiet lifesaver. The deductions aren’t your money, and a separate account keeps them out of the groceries and rent of your business.
What are the common first-year mistakes?
Paying a contractor who’s really an employee. Forgetting the employer half of CPP and EI in the budget. Sending the money late, which costs 3% to 10% of the amount depending on the delay. And paying below the minimum wage, which has nothing to do with the CRA and everything to do with your province. Use our minimum wage calculator to see the current rate where your employee works.
One small thing with a large payoff: keep a folder, paper or digital, for every pay run. You’ll need those records for six years.
How we checked the figures
Account structure and registration come from the Canada Revenue Agency‘s business number and payroll account pages. CPP and EI rates are the CRA’s 2026 figures, and the remittance schedules are from its when-to-remit page. The worked example is our own calculation. This is an independent guide, separate from any government body.
Frequently asked questions
What do I need to set up payroll in Canada?
A business number and a payroll deductions account with the CRA, which carries the letters RP. Quebec employers also deal with Revenu Québec for provincial deductions.
How do I register for a payroll account?
Register online for a business number and add the payroll account in the same session. The paper route is form RC1.
What do I deduct from an employee's pay?
Income tax, CPP (QPP in Quebec) and EI. You then add your own CPP match and EI at 1.4 times the employee's premium.
How often do I send deductions to the CRA?
It depends on your average monthly withholding amount. Small employers usually remit quarterly or by the 15th of the next month.
Can I use someone else to run payroll for me?
Yes, through an accountant or a payroll service. You stay responsible for the remittances, so check that the dates are being met.
All payroll and salary calculators
- Self-employed taxes in Canada: income, CPP and GST
How tax works when you are self-employed in Canada: reporting income and expenses, paying both halves of CPP, instalments and when to register for GST