Hiring your first employee is the point where a business stops being a solo operation, and it's also the point where you take on an obligation that behaves unlike any other. Late GST costs you interest. Late corporate tax costs you interest. Late payroll remittances can be collected from you personally, as a director, even through a corporation.
None of it is complicated. It's just unforgiving, and it has to be set up before the first payday rather than cleaned up after.
- Settle employee versus contractor first. Everything below follows from that answer, and getting it wrong is expensive in both directions.
- Open a payroll (RP) account before the first pay run, and collect a SIN plus signed federal and provincial TD1 forms from the employee.
- Three things come off the employee: CPP, EI, and income tax. Two things go on top for you: matching CPP and EI at 1.4 times the employee's rate. There is no employer match on income tax.
- Budget roughly 8% on top of salary for statutory employer costs alone, before workers' compensation, health taxes, benefits or vacation pay.
- Remit on time — usually by the 15th of the following month. Withheld amounts are deemed to be held in trust, and directors can be held personally liable for failures.
- T4s are due the last day of February, and the penalties are per slip, per day.
Read on for the setup sequence, what actually comes off a paycheque, the true cost of an employee, the remittance rules, and the provincial layer nobody mentions.
Are you actually hiring an employee?
Before anything else: decide honestly whether this person is an employee or an independent contractor. It is not a choice you make for convenience, and calling someone a contractor in an agreement doesn't make them one. The CRA looks at control, ownership of tools, chance of profit and risk of loss, and integration into your business.
Getting it wrong in the direction people usually get it wrong — treating an employee as a contractor — means the CRA can assess you for the CPP and EI that should have been withheld and remitted, including the employee's share, plus penalties and interest. The full analysis is in employee or contractor?
If the answer is employee, keep reading. If it's contractor, you're in a different world — no source deductions, but a possible T4A obligation instead (see T4 vs. T4A).
What to do before the first payday
- Open a payroll program account (RP). It attaches to your existing business number. Do this before you run the first pay, not after — you need the account number to remit.
- Get the employee's Social Insurance Number. You're required to ask for it within three days of starting, and to see the card or an official document. A SIN beginning with 9 signals a temporary resident with work authorization — check the expiry.
- Have them complete a federal TD1 and a provincial TD1. These set the personal credits that determine income tax withholding. Without them you withhold at the basic amount only.
- Agree the terms in writing — rate, hours, pay period, start date, vacation entitlement. Not a legal requirement everywhere, but it prevents most disputes.
- Register for workers' compensation in your province if your industry requires coverage. Most do.
- Pick a pay frequency and stick to it. Semi-monthly and bi-weekly are the common choices; bi-weekly means three-pay months twice a year, which surprises people's cash flow.
What comes off, and what goes on top
Here's the part that's genuinely worth internalizing, because the asymmetry between the three deductions is where the intuition fails.
CPP is withheld at 5.95% of pensionable earnings and matched dollar for dollar by you. Pensionable earnings are gross pay less the basic exemption of $3,500 a year, pro-rated across your pay periods. For 2026 the first earnings ceiling is $74,600, giving a maximum contribution of $4,230.45 each. Above that, CPP2 applies at 4% each on earnings between $74,600 and $85,000 — a maximum of $416 each.
Source: CRA, CPP contribution rates, maximums and exemptions and Second additional CPP (CPP2) contribution rates and maximums. Quebec uses the QPP with its own rates.
EI is withheld at 1.63% of insurable earnings for 2026, to a maximum insurable amount of $68,900 — a maximum employee premium of $1,123.07. Your share is 1.4 times theirs, so you pay up to $1,572.30 for that employee. This is the number most first-time employers don't see coming.
Source: CRA, EI premium rates and maximums. Quebec has a lower EI rate because of the Quebec Parental Insurance Plan, which carries its own separate premiums.
Income tax is withheld according to the CRA's payroll deductions tables and the employee's TD1 claims. You contribute nothing toward it — you're purely a collection agent. Use the CRA's Payroll Deductions Online Calculator or payroll software; don't estimate it.
What an employee actually costs
Owners budget the salary. The salary is not the cost. Here's a $60,000 Ontario employee in 2026, with only the mandatory federal items included:
About 7.9% on top of salary — and that's the floor. Add workers' compensation premiums (industry-rated), any employer health tax, benefits, and, for hourly staff, vacation pay on top of wages. A realistic loaded cost for a small employer is commonly 15–25% above salary.
That gap is the same one that drives the in-house versus outsourced maths, and it's why "I can afford $60,000" and "I can afford this hire" are different statements.
Remitting on time
Every pay period you withhold the employee's CPP, EI and income tax, add your own CPP and EI, and send the total to the CRA. Your deadline depends on your remitter type, which the CRA assigns based on your average monthly withholding amount:
| Remitter type | Based on | Due |
|---|---|---|
| Quarterly | New employers with small withholdings and a clean compliance history | 15th of the month after each quarter |
| Regular | Average monthly withholding under $25,000 | 15th of the following month |
| Accelerated — threshold 1 | $25,000 to $99,999.99 | 25th of the same month, or the 10th of the next |
| Accelerated — threshold 2 | $100,000 or more | Within three working days of the pay period |
Source: CRA, Types of remitters and When to remit (pay).
Almost every first-time employer is a regular or quarterly remitter, so the practical rule is: the 15th of the month after you paid them.
Now the reason this matters more than your other deadlines. Amounts you withhold are deemed to be held in trust for the Crown, separate from your own property — even from the claims of your secured creditors. And when a corporation fails to remit, the Act makes its directors personally liable for the amount, plus interest and penalties.
Source: Income Tax Act, s. 227(4) and (4.1) — deemed trust for amounts deducted or withheld. Director liability arises under s. 227.1; see directors' liability.
The practical implication is blunt: payroll source deductions are never a source of short-term cash. If the account is tight, the money to remit has to already be set aside. Treat it exactly the way you should treat GST you've collected — as somebody else's money passing through your account.
T4s, and the penalties for missing them
By the last day of February each year you must file the T4 information return with the CRA and give each employee their copy — for the preceding calendar year, regardless of your fiscal year-end.
The penalties are structured to punish delay rather than error. Failing to give an employee their slip on time can draw $25 per day per slip, minimum $100, maximum $2,500. Late filing with the CRA carries its own penalty scaled to the number of slips, minimum $100.
Source: CRA, When to file information returns and the Employers' Guide — Filing the T4 Slip and Summary (RC4120). The underlying obligation is in Income Tax Regulations, s. 200(1).
Before you file, reconcile: total the year's T4s and confirm they agree to what you actually remitted. A difference means either a missed remittance or a slip that's wrong, and it's far cheaper to find it in February than to have the CRA find it later.
What the CRA doesn't tell you about
Federal payroll is only part of it. Each province adds obligations the CRA has nothing to do with, and nobody sends you a welcome letter about them.
- Workers' compensation. Registration is mandatory for most industries. Premiums are a percentage of assessable payroll at an industry-specific rate, and rates vary enormously — an office is a fraction of a roofing crew.
- Employer health tax. Ontario's EHT exempts the first $1 million of Ontario payroll for eligible private-sector employers, with a top rate of 1.95% above that — so most small employers pay nothing but should still know the threshold exists. British Columbia and Manitoba run comparable taxes with their own thresholds.
- Employment standards. Minimum wage, overtime, statutory holidays, vacation pay and entitlement, termination notice, and required records — all provincial. Vacation pay for hourly employees is typically an additional percentage of wages, paid on top.
- Quebec. A different system end to end: QPP instead of CPP, the Quebec Parental Insurance Plan, a lower federal EI rate, Quebec source deductions, an RL-1 slip alongside the T4, and remittances to Revenu Québec as well as the CRA.
Source: Government of Ontario, Employer Health Tax — tax exemption. Other provincial requirements vary; check your own province's workers' compensation board and employment standards authority.
Omar's summer
Meet Omar, who runs Pinehurst Auto Detailing in Windsor, Ontario. Two bays, growing steadily, and by his third summer he genuinely needed help. He hired a full-time detailer at $46,000.
He did the sensible-seeming thing: opened a payroll account, ran the numbers through free software, and paid his employee properly every two weeks. Deductions were calculated correctly. Net pay was right. The employee had no complaints.
What Omar did with the withheld money was the problem. It sat in the operating account, and the operating account is where he paid for supplies, rent and equipment. Some months he remitted on the 15th. Some months, when a slow week hit, he remitted late — a few days, then a couple of weeks, then not at all for a stretch in the autumn.
By the following February he was roughly $7,400 behind on remittances, plus penalties and interest. And because Pinehurst was incorporated and he was its sole director, the amount wasn't just the company's problem.
He never thought of it as spending someone else's money. On the bank statement it looked exactly like his own.
He also hadn't budgeted the employer side properly. On $46,000 the mandatory CPP and EI added roughly $3,580, and his workers' compensation premium added more on top. He'd priced the hire at $46,000 and was actually spending well past $50,000.
What should have happened
One separate bank account, and a transfer on every pay run. The moment payroll is processed, the employee's withholdings plus the employer's CPP and EI move out of the operating account into a holding account, and the 15th becomes a transfer rather than a decision.
That's it. It costs nothing, takes about a minute per pay run, and it removes the only real way this goes badly wrong. Omar does it now, and he priced his second hire at loaded cost rather than salary.
Set it up once, then never touch the money
The technical side of payroll is largely handled by software. What software can't do is stop you spending the withholdings, budget the loaded cost of the hire, or register you with your provincial workers' compensation board.
So: get the employee-versus-contractor call right, open the RP account before the first payday, collect the TD1s, budget the real cost rather than the salary, move the trust money out of your operating account the day you run payroll, and put the last day of February in the calendar for T4s. Do those six things and payroll becomes routine.
About to hire, or already behind?
Payroll setup is quick to do properly and painful to unwind. A 15-minute call is enough to get the structure right — or to map out a plan if remittances have already slipped.
Book a Free 15-Minute CallThis article is for informational purposes only and does not constitute tax, legal, or accounting advice. Payroll rates, ceilings and thresholds change annually, and employment standards and workers' compensation requirements differ by province. The 2026 figures cited were current at the time of writing and the examples are illustrative. Confirm current rates with the CRA and consult a qualified professional about your own payroll.
Primary sources, linked so you can read and interpret them yourself. Government links open on official Government of Canada and Government of Ontario websites.
- CRA — CPP contribution rates, maximums and exemptions and CPP2 rates and maximums
- CRA — EI premium rates and maximums
- CRA — Types of remitters and When to remit (pay)
- CRA — Employers' Guide — Payroll Deductions and Remittances (T4001) and Filing the T4 Slip and Summary (RC4120)
- Income Tax Act — s. 153 (withholding at source) and s. 227(4) and (4.1) (deemed trust); Income Tax Regulations — s. 200(1) (information returns)
- Government of Ontario — Employer Health Tax exemption
- Related reading: Employee or Contractor?, T4 vs. T4A, Can a Sole Proprietor Have Employees?, and Directors' Liability
Rodney Maiato is the founder of CDL Accounting Solutions, a remote bookkeeping practice helping Canadian incorporated small businesses keep clean, audit-ready books without the year-end scramble. He brings 15+ years in accounting — from junior accountant to assistant controller, where he managed a team of 7 and oversaw the books of 25+ companies, plus payroll for 100+ employees across several provinces — and is a Payroll Compliance Professional (PCP) Candidate with the National Payroll Institute. He also builds the automation behind CDL, including its text-in receipt intake system.