Payroll Setup: Hiring Your First Employee
Hiring your first employee is a sign your business is growing and things are going great. But before you can go and hire that first employee, you have to be careful about all the different rules and regulations concerning hiring your first employee. If you fail to set up your payroll system properly or you miss remittances, that liability ultimately will fall on you as the business owner.
In this blog post, we’ll talk about hiring your first employee and how to make it much simpler.
Setting Up Payroll
So, if you’re already in business, you should already have a business number, whether you’re incorporated or a sole proprietor, you would have a nine digit business number.
Considering you already have a business number, remember that doesn’t mean you’re registered for all of the CRA accounts, such as a payroll account or a GST account. You need to register individually for these accounts.
For payroll, you’ll need to set up a payroll account. So this would be the same nine digits but followed by RP0001. Now, you can set up a payroll account online. CRA has a system where you can register for new accounts easily online. Or, if you prefer, you can also call CRA on their general business line and do it over the phone.
Get Basic Information
If you’ve interviewed and found the right person for the job, There’s a few things you need to do. One is to get their basic information such as their legal name, their social insurance number , and their address.
And then next you also need to get them to complete a form, a TD1 form. So this will tell you how much income taxes to deduct off their paychecks. Employees have three deductions off of each paycheck. These are:
- Income tax
- Canadian Pension Plan (CPP)
- Employment Insurance (EI)
So Income Tax, this one’s pretty obvious. So this is how much income tax to deduct off of their paychecks. And to figure this out, CRA has an online payroll, it’s actually called CRA’s Online Payroll Tool Calculator. You can check that out for different wages,salaries, and how much taxes you should deduct
Any workers or employees between the ages of 19 and 69 need to contribute to CPP. For 2023. The rate is 5.95% on earned income between $3500 and $63,100.
So, the employee has to pay 5.95% off their paycheck and the employer also needs to match that by 5.95% and remit that to the government.
REMEMBER: It’s the employer’s duty to remit both the employer and the employee’s portion to the government.
If you’ve ever been laid off, you may have been sent cheques while you were looking for that next job. The system is designed to help you stay on your feet while you’re in that tough transitional phase. Employees have to contribute into EI off of every single paycheck as well.
So for 2023, EI rates are 1.63% of earned income between $3,500 and $61,500 that is for the employee and that comes off their paycheck. The employer is also required to match EI contributions at 1.4x whatever the employee’s portion is.
And again, sounding like a broken record, the employer is responsible for sending the EI payments for both the employee and the employer to the government and on time.
There’s one last filing we need to do, the T4. If you’ve ever had a job, you would have received a T4 from your employer. This states total income earned in the calendar year, your CPP deductions, EI deductions.
So what happens is the employer, we’re looking at this from the employer side of things, the employer needs to file one of these for each single employee they had in the year and then see CRA is going to match those deductions that you said you took to the payments you made to CRA. Now this year, there’s been a lot of payroll audits that we’ve seen just because people may have missed a payment or the numbers don’t match.
When You Do You Remit?
If you are a brand new company and you’re running payroll for the first time, you would be considered a regular remitter.
What that means is you need to remit these taxes by the 15th of the following month.
So let’s take a look at an example, it’s the month of August and you ran payroll for your staff twice; August 15th they got paid and then they got paid again on August 31st.
So, the CPP, the EI, and the income tax for both those pay periods need to be paid to the government before the 15th of the following month. For August, those remittances need to be paid by September 15th.
So it’s super important you’re on top of this every single month. Otherwise you’re going to face unnecessary penalties and fines that do add up fast.
Useful Payroll Software
Now if this sounds confusing and tiresome and how am I going to make all these calculations? Luckily, we live in a world of awesome technology and there’s apps that can help us with this.
Our favorite, the one that we recommend, the one that we use is called Wagepoint.
The reason we love Wagepoint so much, it’s easy to set up and it’s easy to run. So normally for our clients, we set the system up for them and then we train them on how to run it themselves going forward, saving them a little bit of money.
So why Wagepoint? First of all, for your employees, once you run payroll, it gets the final numbers for you. It does the calculations automatically if it’s been set up correctly, it’ll pay your employees direct deposit based on the schedule you set up.
And then even, even better is that it pays CRA on your behalf too. So it’ll direct deposit from your corporate account and pay CRA without you having to do anything extra. You’ll never have a late filing fee. You’ll never have, you know, interest charges that are unnecessary because Wagepoint takes care of all that for you.
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