Hiring your first employee in Canada — whether you run a small business in Ottawa, Kanata, or anywhere else in the country — means you become a CRA payroll account holder, a source-deduction collector, and a year-end T4 issuer all at once. Getting small business payroll in Canada right protects you from late-remitting penalties (which start at 3% and climb to 20% of the missed amount), missed CPP and EI contributions, and the personal director liability that comes when a corporation falls behind.
This step-by-step 2026 guide walks you through opening a CRA payroll program account, calculating each pay run, remitting on time, and filing year-end slips — written for owner-operators and small business managers, not payroll specialists.
Table of Contents
- Step 1: Open Your CRA Payroll Program Account (RP)
- Step 2: Confirm Employee vs Contractor Status
- Step 3: Calculate CPP, EI and Income Tax Deductions
- Step 4: Remit to the CRA on the Right Schedule
- Step 5: File T4s, T4 Summary and ROEs
- Step 6: Handle Provincial Payroll Items (Ontario WSIB, EHT)
- Common Mistakes and Penalties to Avoid
Key Takeaways
- To set up small business payroll in Canada, open a CRA RP payroll program account under your existing business number — most owners can do it in MyBA in under 15 minutes.
- Source deductions you must withhold from every paycheque: federal and provincial income tax, employee CPP contributions, and employee EI premiums — plus your employer share of CPP and 1.4× the employee EI.
- Remit by the 15th of the month after the pay period for regular small employers. Larger employers remit twice or four times a month.
- T4 slips and the T4 Summary are due to the CRA and to employees by the last day of February each year.
- Ontario small businesses must also register for WSIB and may owe the Employer Health Tax (EHT) once Ontario payroll passes the exemption threshold.
Step 1: Open Your CRA Payroll Program Account (RP)
A CRA payroll program account is the “RP” suffix on your business number — for example 123456789 RP 0001. You need it before your first pay date. You can register online through CRA My Business Account, by phone at 1-800-959-5525, or by mailing Form RC1.
Have the following ready when you register:
- Your business number (BN) — if you do not have one, the same registration process issues it
- Legal name and trade name of the business
- Mailing and physical addresses
- Type of business (corporation, partnership, sole proprietorship)
- Estimated first pay date and estimated annual remuneration
- Pay frequency (weekly, bi-weekly, semi-monthly, monthly)
- Owner’s SIN (for sole proprietorships) or business directors’ SINs (for corporations)
The CRA issues the RP account immediately for online registration. Keep this number on file — you will use it on every remittance and on every T4 slip you issue.
Step 2: Confirm Employee vs Contractor Status
Before you put anyone on payroll, confirm they are actually an employee and not an independent contractor. The CRA uses a multi-factor test that looks at control, ownership of tools, chance of profit and risk of loss, integration into your business, and the intent of both parties. Misclassifying a worker is one of the most expensive payroll mistakes in Canada — if the CRA decides your “contractor” was an employee, you owe back source deductions, employer CPP, employer EI, and interest, all the way back to day one.
When in doubt, request a CRA ruling using Form CPT1. If you genuinely have contractors rather than employees, our guide on contractor tax and accounting services covers the other side of the equation. And if you mix the two on the same crew, our team can help you build a clean separation that holds up to a CRA audit.
Step 3: Calculate CPP, EI and Income Tax Deductions
Every paycheque has three mandatory deductions on the employee side and matching employer contributions. The amounts change every January and now have two CPP tiers since the second-additional CPP contribution (CPP2) kicked in.
Employee deductions (withheld from gross pay):
- Federal and Ontario income tax — based on the employee’s TD1 forms (federal and provincial)
- CPP base contribution — 5.95% of pensionable earnings between the basic exemption ($3,500) and the first earnings ceiling (YMPE)
- CPP2 second-additional contribution — 4% of pensionable earnings between the YMPE and the second earnings ceiling (YAMPE)
- EI premium — applied to insurable earnings up to the maximum insurable earnings amount
Employer contributions (paid in addition to gross wages):
- Matching CPP base — 5.95%
- Matching CPP2 — 4%
- EI premium at 1.4× the employee rate
The simplest way to calculate each pay run is the CRA Payroll Deductions Online Calculator (PDOC), updated each January at canada.ca. Most accounting software — QuickBooks Online Payroll, Wave Payroll, Wagepoint, ADP, Ceridian — automates the same math and files the T4s for you.
Hiring your first employee in Ottawa and want someone to set the payroll account up for you, file your first remittance, and walk you through TD1s, ROEs and T4s? BBA Tax does full payroll onboarding for under $1,000 in most cases. Book a free 15-minute call and we will scope it for your business.
Step 4: Remit to the CRA on the Right Schedule
How often you have to remit source deductions depends on your average monthly withholding amount (AMWA) from two calendar years ago.
| Remitter type | AMWA (2 years ago) | Remittance deadline |
|---|---|---|
| Regular (most small businesses) | Less than $25,000 | 15th of the month after the pay period |
| Quarterly (eligible new small employers) | Up to $1,000 monthly average and clean compliance history | 15th of the month after each calendar quarter |
| Accelerated Threshold 1 | $25,000 to $99,999.99 | By the 25th and the 10th — twice a month |
| Accelerated Threshold 2 | $100,000 or more | Within 3 working days of each pay period |
Most new Ottawa small businesses are regular remitters for at least the first two years and can pay through online banking by selecting “Federal — Payroll Deductions — Regular/Quarterly” as the payee.
Late remittances earn an automatic 3% penalty if up to three days late, escalating to 10% after seven days, plus 20% if it is a second offence in the same calendar year. Interest accrues daily at the CRA prescribed rate.
Step 5: File T4s, T4 Summary and ROEs
By the last day of February each year you must:
- Issue a T4 slip to every employee who was on payroll at any time during the previous calendar year
- File the T4 Summary with the CRA
- Reconcile what you remitted during the year against what the T4 Summary says you should have remitted — and pay any balance owing
Separately, whenever an employee leaves — voluntarily or otherwise — you must issue a Record of Employment (ROE) within five calendar days of the end of the pay period in which the interruption of earnings occurred. ROEs are filed through the ROE Web portal at canada.ca; do not give the paper copy to the employee unless you cannot file electronically.
If you run multiple business numbers or your bookkeeping is shaky, our monthly bookkeeping service takes the year-end T4 reconciliation off your plate entirely.
Step 6: Handle Provincial Payroll Items (Ontario WSIB, EHT)
Federal source deductions are only half the story. In Ontario — including Ottawa, Kanata, Orleans and Nepean — most employers also owe two provincial items:
- WSIB (Workplace Safety and Insurance Board) premiums: required for most industries the moment you hire your first employee. Register at wsib.ca, then remit quarterly or monthly based on your assigned schedule. Construction has its own mandatory coverage rules.
- Employer Health Tax (EHT): Ontario charges EHT on payroll above an annual exemption (currently $1 million for private-sector employers). If you are below the threshold, you still file an annual return showing nil. Above the threshold, monthly instalments may apply.
Other provinces have their own equivalents (Manitoba HE Levy, Quebec QPIP/QPP/CNESST, BC EHT). If you employ remote workers across provinces, each province’s payroll rules apply to those employees and you may need to register in more than one.
Common Mistakes and Penalties to Avoid
- Paying yourself as a dividend instead of payroll and assuming “no payroll needed”. Dividends from your own corporation are reported on a T5, not a T4, but the moment you hire anyone else, the full payroll machinery kicks in.
- Forgetting to remit the employer portions of CPP and EI. The employer share is on top of the employee deduction, not subtracted from it.
- Using a sub-account or wrong RP suffix. Each separate payroll grouping gets its own RP suffix; sending Account 0001 money to Account 0002 triggers reconciliation headaches.
- Treating bonuses and commissions as regular pay. CRA has separate withholding tables and bonus methods; using regular tax tables on a one-time bonus often over-withholds and frustrates employees.
- Missing the February 28 T4 deadline. Late T4 penalties start at $100 per slip and escalate to $7,500 per slip for repeat offenders.
- Mixing personal and business cash on payroll. If you have not already separated the two, start with our guide on separating personal and business expenses before you run your first pay.
Why BBA Tax Is the Right Choice for Your Small Business Payroll
BBA Tax is an Ottawa-based accounting firm that has been setting up and running payroll for Eastern Ontario small businesses for over a decade. We have onboarded restaurants in the Glebe, trades in Kanata, IT consultancies in downtown Ottawa, and retail shops in Orleans — each with different pay frequencies, benefit structures, and provincial wrinkles.
What we do for new payroll clients: open the CRA RP account, register for WSIB and EHT, configure QuickBooks Online Payroll or Wagepoint, train you on running your first pay, file the first remittance for you, and stay on call for the first 90 days of T4 and ROE questions. We also clean up payroll for businesses that have fallen behind — we have negotiated several CRA payroll trust assessments down to manageable instalment plans without the director ever being personally pursued. If you need broader help, our corporate tax services wrap around payroll for owner-managed companies.
We serve clients in Ottawa, Kanata, Orleans, Nepean and Gatineau primarily, with secure-portal service across Canada. Email and Microsoft Teams responses inside one business day, every day.
Ready to set up your small business payroll the right way — without the late-remittance penalties? Call BBA Tax at (613) 555-1234 or request your free consultation online. We will get your CRA RP account opened, your remittance schedule confirmed, and your first pay run audited before the cheques go out.
Conclusion
Small business payroll in Canada looks intimidating from the outside, but it is really a six-step rhythm: open the RP account, classify your worker, calculate the deductions, remit on schedule, file the year-end slips, and handle the provincial layer. Get those right and you will avoid almost every penalty the CRA can issue against an employer. Outsource the pieces you are not comfortable with — the cost of a payroll service is always less than the cost of one missed remittance.
Frequently Asked Questions
How do I set up payroll for my small business in Canada?
Open a CRA payroll program account (RP) through My Business Account or Form RC1, register for WSIB and any provincial payroll taxes, collect a signed TD1 from each employee, calculate CPP, EI and income tax deductions using the CRA’s Payroll Deductions Online Calculator, and remit the withholdings by the 15th of the following month.
What is the deadline for CRA payroll remittances?
Regular small business remitters with average monthly withholdings under $25,000 must remit by the 15th of the month after the pay period. Accelerated remitters with higher payroll have shorter deadlines: twice a month for Threshold 1, and within three working days of each pay for Threshold 2.
Do I have to pay CPP and EI for my own corporation’s salary?
Yes for CPP if you draw a salary from your own corporation — the corporation withholds and matches just like for any other employee. EI is generally optional for controlling shareholders (those who own more than 40% of voting shares), who are deemed not to hold insurable employment. Confirm your status with the CRA before stopping EI deductions.
What is the difference between an employee and a contractor in Canada?
The CRA looks at control over how the work is done, who supplies the tools, who bears the financial risk, how integrated the person is into the business, and the intent of the relationship. A worker who follows your schedule, uses your tools, and only works for you is almost always an employee, regardless of what the contract says.
When do I have to issue T4 slips to employees?
By the last day of February each year. The same deadline applies to filing the T4 Summary with the CRA. Issuing late earns a per-slip penalty starting at $100 and rising to $7,500 per slip for repeat offenders.
Do I need WSIB coverage as a small business in Ontario?
Most Ontario employers must register with WSIB the moment they hire their first employee. Some industries are mandatory-coverage even with no employees (most construction). A few sectors are exempt; confirm yours at wsib.ca before assuming you do not need to register.
