Items you will need
- Payroll account
- Tax forms
As an employer, it is your responsibility to deduct employment insurance (EI), Canada Pension Plan (CPP) and income tax payments from all payroll cheques issued and remit these payments, along with your share of the premiums, to the Canadian Revenue Agency. You will also have to file a return of the employee's income and deductions to the CRA annually so that your employees will be eligible for EI, should they need it, as well as CPP payments and income tax returns.
Open a payroll account with the CRA. Payroll accounts are 15-digit accounts that businesses or employers use in dealings with the CRA. The numbers contain a 9-digit Business Number, followed by two letters that identify the type of account, and four numbers to denote the specific account. You can register for a BN and open a payroll account with the CRA online, by phone or by mail. See references for links. You will need to authorize contacts, either employees or outside accounting or legal firms, to discuss payroll account issues with the CRA.
Record Social Insurance Numbers (SIN) and fill out Personal Tax Credits Return (T1) forms for all new employees you hire. You will need this information to accurately deduct taxes, and as proof that your employees are legal to work in Canada. If you cannot get their SIN or T1 form immediately, you are still responsible for deducting their taxes.
Calculate EI deductions and hold them in a separate account from your operating business account. You will need to remit these deductions to the Receiver General. The current EI payment rate for 2011 is 1.78% of every dollar to a legal maximum of $44,200 earned per year for a maximum employee contribution of $786.76. In 2010, the rate was 1.73% on every dollar up to $43,200. As an employer, you are responsible for paying 1.4 times the premium withheld for each employer. In 2011, the maximum employer contribution is $1,101.46; up from$1046.30 in 2010.
Calculate CPP deductions. Any employee over the age of 18 but under 70 must make CPP payments on every dollar they are paid. The current rate for CPP contributions as of 2011 is 4.95% on every dollar up to $48,300, for a maximum annual contribution by the employee of $2,217.60. Hold these deductions in your payroll account to remit to the Receiver General.
Calculate and deduct income taxes. Income tax needs to be deducted from every cheque written to your employees. Since you have to deduct both federal and provincial income taxes, the rates and methods of deducting taxes vary depending on the province or territory of employment. Deductions are calculated as a dollar amount that varies depending on the pay for that period and according to federal tax codes. The CRA offers comprehensive income tax deduction tables on their website, as well as access to tax and employee record forms (T1, T4, T4032 etc).
Hire an accountant with experience in dealing with payroll and deductions to handle these processes. This is especially important if your business is growing.
You must follow all procedures and remit all taxes deducted to the CRA or you or your company may face penalties or interest charges.
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