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Setting Up the Payroll System For Your Small Business

When it comes to paying your employees, many small business owners find themselves overwhelmed with what can be a simple task.

 Decide the method of how you will calculate and Pay employees 


Quick books and Sage have payroll modules that are pretty great.  It allows you to use time sheets so you can split your employees time by job  project or location.  It does job costing by employee as the payroll is being created.  Your employee uses an app and logs time which is later used IN THE PAYROLL MODULE.  You can have your employee paid directly by interact debit automatically if you choose that option. I suggest if you are not familiar with payroll , have a professional bookkeeper set up your payroll and help out with the first few payroll runs.  This software will create payroll stubs, T4 and remittances that are due to the government.  


You can decide to outsource this task to your bookkeeper or to an  outsourcing company.   The set up is important.  If you do not have the software or want to take on that task outsource payroll.    Your bank offers payroll outsourcing as does other companies like Ceridian. You simply provide them the information once on each employee, then provide the hours and they take care of the rest.


If you decide to do it manually the CRA has a payroll calculator to help you.  You can used excel - use the CRA payroll calculator and at the end of the year download and manually prepare T4's

Download manual T 4 

Use the Payroll Calculator Online 

Information you will need on new employees 

Information from Employee ?  Have your employee give you a deposit slip from their bank if you want to set up automatic payments or use an out sourcing company. You will  need to get a TD1, Personal Tax Credits Return Form within seven days of their start date so you can determine how much federal and provincial tax needs to be deducted from their earning

Download the TD1 Form 

Make sure you have a letter to the new hire concerning company rules, what their position will be , rate of pay , frequency of pay, holidays, hours and anything that will help them start off on the right track. 

Employee or Sub contract position?

Keep in mind that if you have a subcontractor they will be treated differently than an employee.  You do not need to take off deductions for Employment Insurance premiums and Canada Pension Plan contributions and Income Tax.  They submit an invoice to you and 

it is paid as you would any other vendor.  If you misclassify your employees as contractors, and don’t make the appropriate deductions or include their remuneration in your provincial payroll tax totals, you may be required to pay significant penalties, interest, and legal fees, in addition to the outstanding payroll deductions.

How can you decide sub contractor or an employee

Revenue Canada has a list of conditions and will make a ruling if they are employee or sub contractor.  They will want to see that they have other clients and not just you.  They will look at who defines the hour of work ? They may look and see if company guideline have to be followed.

 For example can this subcontractor work for anyone else, even one of your competitors?  

Revenue Canada on The sub contractor TEST 

Stay compliant with employment standards

When you’re setting up payroll for your small business, you’ll need to comply with your province’s employment laws. Accomplishing this can become increasingly complex as you hire more people. You’ll need to consider overtime rules, holiday pay entitlements, leave laws, and more. Many businesses will choose a payroll solution that helps them automate their policies and business rules so they can worry less about errors or inaccuracies. Employment standards typically set minimums around:

Pay statements and pay frequency

Minimum wage and overtime

Vacation pay and holiday pay

Hours of work and breaks

Visit Employment standards for Ontario 


 Keep accurate payroll records

From an HR and payroll perspective, keeping employee records up to date is a legal responsibility. You’ll need to keep a record of employees’ rate of pay and the hours worked. You’ll also need to keep a record of amounts paid each payday including overtime, vacation pay, and holiday pay.

Keeping records to support year-end tax filings and the issuance of Records of Employment is essential. It’s recommended that employers put all employee records in a central HR system for ease of access. You need to have a daily list of what days what employees were in and their hours. 

 Choose the right payroll processing option for your business

Choosing the right payroll processing solution for your small business is critical to managing payroll accurately and efficiently. There are a few different approaches to consider when deciding on a payroll solution. The first option is processing payroll in-house, either manually by a trained professional or using payroll software. Another option is choosing to outsource payroll to a trusted partner to facilitate the processing end-to-end. As a SMB owner, it’s critical to get the payroll basics right so you can free up time to focus on growing your business.

Call us to Learn more about the benefits of having experts manage your small biz payroll

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