Payroll Guide for Your First Hire

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PayrollYour organization has decided to hire an employee; be it a full-time Executive Director or part-time student, you will want to ensure you have taken the appropriate steps and cover all your bases.

Compensation. First and foremost, how much to pay your employee is critical. In order to attract the best candidates, you will want to offer an attractive compensation package. This will need to be weighed against the position’s roles and responsibilities, and what your organization can afford, not just this year but in the coming years as well. You do not want to fall into the trap of hiring an employee only to realize the position isn’t financially sustainable. Compensation packages can include: base salary, vacation pay, allowance for home office expenses, pension contributions, etc. Be aware, there are hidden costs! Don’t forget about payroll taxes. As an employer, you will be required to pay CPP and EI to the CRA. All of these costs will need to be determined before the job posting goes up.

Payroll Liabilities. The next step in your payroll journey is to ensure your organization is compliant with the CRA. If this is your first employee, you will need to apply for a payroll account with the CRA. This can be done online if you meet certain requirements or by completing the RC1B Business Number – Payroll Deductions Program Account Information form. The application can take several weeks to process by CRA but the organization must still remit any source deductions by the due date even if your application has not been processed. It is important to track these and remit to your local tax centre in order to avoid penalties. Employers with between $3,000 and $25,000 in average monthly withholdings are considered regular remitters and must remit monthly. Remittances are due on the 15th of the month after the month your employees are paid.

Payment Methods. You will need to consider how to pay your employee and remit source deductions. There are several ways to do this.

  1. Third party provider – Using a payroll provider like Wave Payroll or Rise makes payroll a breeze. All you need to do is enter the employee’s pay information and a bank account. They will directly deposit your employee’s pay and remit the source deductions. The deductions calculations are even done for you!
  2. Online banking – Most banks have some form of government filing and payment through their online banking. Funds are sent electronically to the CRA. If you have the option, payroll can be sent electronically as well. You will, however, need to calculate the deductions yourself (or most likely through your accounting software).
  3. Cheques – If your organization isn’t using electronic solutions, there is still the option to paper file and send a cheque for your deductions. This method is the most cumbersome as you will need to ensure remittance is processed on or before the due date which means making sure it goes out well in advance of the due date.

Annual Filing. The last piece of the payroll puzzle regarding CRA regulations is the T4 information return (summary) and T4 slips.  A T4 slip must be issued for every person who was a paid employee in the year. T4s slips must be received by employees on or before the last day of February. The T4 Summary is filed with CRA and totals all salary and withholdings your organization paid throughout the year. T4 Summary and T4 slips can be filed electronically using CRA’s web forms or mailed to your tax centre.

Now that your organization understands the background work that goes into paying employees, it is time to focus on the most important part of the hiring journey – hiring the best fit for the position and your organization.

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