- If your business already has a CRA Business Number (most incorporated businesses do, and many sole proprietors get one when they register for HST), you add a payroll program account to it.
- Before you calculate a single deduction, you need: - A completed federal TD1 form (Personal Tax Credits Return) - A completed TD1ON, the Ontario equivalent - The employee's Social…
- Every payroll run, you're required to withhold three things from an employee's gross pay: 1.
Hiring your first employee is a milestone — and a compliance deadline. The moment someone joins your business on payroll rather than as a contractor, you take on legal obligations to the CRA that didn't exist when it was just you. Setting up payroll correctly from day one saves you from a messy correction later, and from the CRA's attention.
None of the individual steps are complicated. What trips up new employers is not knowing the order, or assuming a step is optional when it isn't. This guide walks through what needs to happen before that first paycheque goes out.
Step 1: Register for a CRA Payroll Program Account
If your business already has a CRA Business Number (most incorporated businesses do, and many sole proprietors get one when they register for HST), you add a payroll program account to it. If you don't have a Business Number yet, you'll set one up as part of this step.
Do this before your employee's first day, not after their first paycheque. You need the account number to be in place before you can properly withhold and remit source deductions.
Step 2: Collect the Right Information From Your New Employee
Before you calculate a single deduction, you need:
- A completed federal TD1 form (Personal Tax Credits Return)
- A completed TD1ON, the Ontario equivalent
- The employee's Social Insurance Number
- Their full legal name and current address for T4 and Record of Employment purposes
These forms tell you how much tax to withhold based on the employee's personal credits. Keep them on file — the CRA can ask to see them.
Step 3: Understand What You Must Withhold
Every payroll run, you're required to withhold three things from an employee's gross pay:
- Income tax (federal and provincial, combined)
- Canada Pension Plan (CPP) contributions
- Employment Insurance (EI) premiums
You then remit the withheld amounts to the CRA — along with the employer's own matching share of CPP and EI, which comes out of your business, not the employee's pay. These withheld amounts are treated as held in trust for the CRA from the moment they're deducted, which is a legal responsibility, not just an accounting entry.
Payroll software or a payroll service provider will calculate the correct withholding amounts for you based on the employee's pay, province of employment, and TD1 information; get the calculation method reviewed by an accountant or payroll professional before your first pay run if you're doing it manually.
Step 4: Choose (or Get Assigned) a Remittance Schedule
The CRA assigns new employers a remittance frequency based on how much they withhold. Most new, smaller employers start on a standard monthly schedule, remitting by a set deadline after each month's payroll. As your payroll grows, the CRA may require more frequent remittances.
Missing a remittance deadline isn't a minor administrative slip — late or unremitted source deductions attract interest and penalties, and the CRA prescribes the interest rate on outstanding amounts and updates it periodically, so don't assume last year's rate still applies (verify the current rate before estimating what a late remittance would cost you).
Step 5: Know Your Other Payroll-Adjacent Obligations
A few other duties tend to surface around the same time as your first hire:
- Ontario Employer Health Tax (EHT): a payroll-based tax that applies to many Ontario employers, with an exemption available to some smaller employers. The exemption rules change from time to time, so confirm your specific obligation with the Ministry of Finance or your accountant rather than assuming last year's treatment still applies.
- Workplace Safety and Insurance Board (WSIB) coverage: most Ontario employers must register, separately from your CRA payroll account.
- Record of Employment readiness: you'll need to issue one if the employee's employment is ever interrupted — worth understanding before you need it under time pressure.
Common First-Time Employer Mistakes
- [ ] Paying an employee before the payroll account is set up
- [ ] Treating someone as a "contractor" to skip payroll obligations, when the working relationship actually looks like employment
- [ ] Missing the first remittance deadline because it wasn't calendared
- [ ] Not keeping TD1 forms or payroll records on file
- [ ] Assuming EHT or WSIB doesn't apply without checking
Frequently asked questions
Do I need a separate payroll account for each employee?
No. One payroll program account covers all your employees; you report each one's earnings and deductions separately within that account.
Can I run payroll myself without software or a bookkeeper?
Technically yes, but the calculations for tax, CPP, and EI need to be accurate every pay period, and errors compound. Most new employers use payroll software or a payroll service specifically to avoid remittance mistakes.
What if I hire someone partway through the month?
You still need the payroll account and withholding calculations in place for their first pay period — there's no grace period tied to when in the month someone starts.
Is a part-time or casual employee treated differently for payroll setup?
The registration and withholding obligations are largely the same; some CPP and EI rules can differ based on hours, earnings, or age, so it's worth confirming the specifics for that worker's situation.
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