Your businesses has grown and now it's time to hire your first employee. Congrats, this is a big step in owning your business, but it can be a bit intimidating if you don't know where to start. As an employer you have some responsibilities to ensure you are compliant with Canada Revenue Agency (CRA) so I wanted to share with you some of those requirements.
First step is to open a payroll account in order to identify yourself with (CRA), this should be done before your first payment of source deductions are due. You will be assigned a 15 character account number that you will use to remit the payroll withholding taxes and filing T4's to CRA. If you already have a business number the first 9 digits are the same number followed RP and ending with 0001(or 0002 depending if you need more than one payroll account). To open your payroll account you can contact CRA by phone, mail, fax or with the Business Registration Online feature on their website. The process only takes a couple of minutes and very easy to do. If you hire employees, but do not open a payroll account for a couple of months, this means your payroll deductions are late. This will result in penalties and interest so it is best to avoid those by opening up your account right off the bat.
As you hire employees you need to collect some specific information from your employees. This information is required for filing and tax withholding purposes. The required information includes Social Insurance Number, Address and have them filled out the form TD1, Personal Tax Credits Return. This form is used to determine the amount of tax that should be deducted from your employees paycheque.
When you pay your employee you must withhold the appropriate amount of deductions such as CPP, EI and taxes from their pay cheque. You will be able to determine the amounts with your accounting software or by using the Payroll Online Deduction Calculator on the CRA website. The employees money that you withhold will have to be remitted to the government, plus the employers portion of CPP and EI to CRA. These payroll remittances are due by the 15 of the following month in which the employee was paid. It is important to remember that the money you withhold from an employees paycheck is not your money and you are required to legally submit it to the government. As a director of your company you are financial responsible for paying those remittances if your company can't pay it. If you do not remit your source deductions on time then CRA will assess you interest and penalties of 3% - 10% depending on how late the remittance is.
At the end of the calender year you are required to prepare T4's for your employees and file them with CRA. The T4's show the total amount you paid your employees and the deductions withheld and remitted to CRA on their behalf. These slips are filed so that your employees can file their personal tax return and for CRA to ensure you have been compliant with your payroll. The T4 slips are due by the end of February for the period January - December. If your information return is not filed by the end of February then you will owe a penalty of between $100 - $7,500 depending on the number of information slips you need to file.
If you get to a point where you have a lot of employees or you do not have the time to prepare the payroll each month, there are some great payroll services providers who do a great job. Some of them include ADP, Ceridian, Payworks, Payweb etc. These services charge a fee to process your payroll and file your T4's at the end of the year. To some people the fee for this service is well worth not having to deal with the details of payroll each pay period.
The last thing I want to point out is to make sure you keep all your records. If there is ever a dispute you want to be able to provide backup to support the transactions. Also, when an employee leaves, you must prepare them a Record of Employment (ROE). This is important because it is used to determine it the employee will receive EI benefits or not.