How to set up and process payroll in Ontario: A guide for startups
Getting ready to set up your payroll
Before setting up payroll in Ontario, you need to register with the necessary government agencies. You will need to:
- Obtain or update your business number (BN) from Canada Revenue Agency (CRA) in order to remit statutory deductions such as income tax, employment insurance and Canada Pension Plan (CPP). When you register for your BN, you can select the services you need, including a “payroll account.” If you already have a BN, contact CRA to add the payroll account.
- Register with the Ontario Ministry of Finance to remit Employer Health Tax. Costs range from 0.98% of payroll to 1.98% of payroll, depending on the size of your payroll budget.
- Register with the Ontario Workplace Safety and Insurance Board. This registration is required within 10 days of hiring your first employee. Requirements and premiums vary, depending on your industry and work environment.
Frequency of payroll
Determine how often you will pay employees, maintaining a consistent schedule. In professional environments, the most common payroll frequency is biweekly (that is, every two weeks), but consider your business and cash-flow cycles to make sure your plan is manageable. Decide if employees will be paid to date, or a week in arrears.
Payroll scheduling options
Payroll scheduling options include:
- Weekly: This schedule is common in very small enterprises with many short-term, hourly employees
- Biweekly: This practice is most common in knowledge-based, professional environments. The schedule is consistent and easier to administer than monthly or semi-monthly payrolls, especially if staff are paid hourly
- Semi-monthly: This schedule is usually set for the fifteenth day and the last day of the month. This method can work for salaried employees. However, it is cumbersome to manage for hourly employees, as hours will vary based on the number of workdays in a given month. The room for error is significant
- Monthly: Rarely used, this timeframe may sometimes be used for more senior employees in a company, or for commissioned salespeople, where performance is calculated monthly
Processing of payroll
Payroll can be processed in-house, or by a third-party payroll provider. There are reputable payroll providers with automated services to facilitate the process.
Employees need to be paid accurately and on time, and remittances must be submitted properly. Record keeping is critical to produce year-end tax documents and Records of Employment (ROEs). This process is manageable for a small group of staff, but becomes more cumbersome as an organization grows.
Third-party payroll processing
A number of automated payroll services are available in Canada today. The most popular are ADP and Ceridian.
Costs vary based on the size and complexity of your payroll and the services required. The employer is responsible to submit accurate information to the service provider to ensure timely and accurate payroll processing.
Startups in particular can benefit from the provider’s processes, expertise and guidance. Their systems will also produce statistics, payroll journals, T4s, year-end reports and ROEs as needed.
Employee data required to process payroll
Your accountant or third-party provider will advise on the specific data you will need to process payroll. The information below highlights what details will be expected.
- Full name—matching the account where pay will be deposited
- Current address
- Social insurance number (SIN)
- Date of birth
- Date of hire
- Amounts to be paid, including wages, salaries and bonuses
- Pay type (salaried or hourly)—if paid hourly, the number of hours of work per pay period will be required
- Required deductions
If you are using a third-party provider, or if you offer benefits and/or direct deposit, you may also need to provide the following, as applicable:
- Benefit eligibility date
- Type of employee (for example, full-time or part-time)
- Charity deductions
- Registered retirement savings plans (RRSP) deductions
- Pension deductions
- Internal department names and codes
- Employee number
- Preferred language of communication
- Home phone number
- Province of residence (for tax purposes—employees are taxed based on their home address, not where they work)
- Banking information for direct deposit
- Vacation accrual per pay period
- Vacation allowable overdraw or carryover
- Standby pay
- Reduction of tax at source