How do I set up payroll for my first employee in Ontario?

Opening the payroll account comes before the first paycheque

If your business already has a Business Number from incorporating or registering for GST/HST, you add a payroll (RP) account to that same number through the CRA's Business Registration Online service or by phone. This account is what you use to remit deductions and file T4 slips, and it needs to be open before you issue a first paycheque, not after. Businesses that have not yet registered a Business Number at all can open both at the same time; see our page on incorporation and compliance if that step has not happened yet.

Once the account is open, the CRA assigns a remittance schedule based on your expected withholding amounts, which we cover in more detail in our answer on when payroll remittances are due. Most new small employers start as regular remitters, paying by the 15th of the month following each pay period.

What you collect from the employee before day one

Every new employee completes a federal TD1 and a provincial TD1ON form, which tell you which personal tax credits to apply when calculating how much income tax to withhold from each pay. Without a completed TD1, you must withhold at the basic rate with no credits applied, which usually over-withholds and creates an unnecessary refund situation for the employee at tax time.

You also need the employee's Social Insurance Number, confirmed directly from the card or a government letter rather than taken verbally, since an incorrect SIN causes T4 filing problems later. Collect banking details for direct deposit and confirm the employee's legal name matches CRA records, since mismatches are one of the more common reasons a T4 gets kicked back or delayed.

Choosing a system to run the numbers

Manually calculating CPP, EI, and income tax withholding by hand is possible but error-prone, and most small businesses move to a payroll platform from the start rather than learning that lesson after a mistake. Tools such as Wagepoint or QuickBooks Online Payroll calculate deductions automatically, generate pay stubs, remit source deductions on your behalf, and produce T4 slips at year end.

• The system needs to know the employee's TD1 credit amounts, pay frequency, and CPP/EI exemption status if any applies.
• Confirm the platform remits directly to the CRA on your schedule, or that you understand exactly what you are responsible for submitting yourself.
• Keep pay stubs and remittance confirmations organized from the first pay run, since reconstructing early records later is far more work than filing them as you go.

WSIB, EHT, and the ESA basics you cannot skip

Most Ontario employers must register for WSIB coverage within 10 days of hiring their first worker if their industry falls under mandatory coverage, which includes construction and most goods-producing and service industries. See our answer on whether your business needs WSIB coverage for how to check your industry's status; construction employers should also see our construction payroll page, since the rules there apply even to sole operators in many cases.

Ontario's Employer Health Tax applies to your payroll once total Ontario remuneration crosses the exemption threshold, which sits at $1,000,000 for eligible private-sector employers as at the time of writing; confirm the current exemption amount with Ontario's Ministry of Finance since it is periodically reviewed. A single new employee rarely pushes a small business over that line on its own, but it is worth knowing the threshold exists before payroll grows. Our answer on the Ontario Employer Health Tax covers registration and filing in full.

The Employment Standards Act sets the floor for minimum wage, vacation entitlement, and public holiday pay, and none of it is negotiable downward even with the employee's agreement. Confirm the current Ontario minimum wage rate before setting a starting pay rate, since it changes periodically and a rate that was compliant last year may not be this year.

Setting pay frequency and getting the first pay run right

Ontario employers can choose weekly, biweekly, semi-monthly, or monthly pay periods, but whatever frequency you pick, the Employment Standards Act requires a regular, established pay period and pay day that employees can rely on. Biweekly is the most common choice among small employers because it lines up cleanly with most payroll software's default settings and keeps the gap between a worker's first day and their first paycheque reasonably short.

Before running the first pay, confirm the employee's hourly rate or salary against the current Ontario minimum wage, calculate any statutory holiday that might fall inside the first pay period, and double check that CPP and EI exemption status, most commonly relevant for workers under 18 for CPP, has been set correctly in the software. A first pay run with a wrong exemption flag or an outdated minimum wage figure is one of the more common early mistakes, and it is far easier to fix before the money moves than after.

What happens after the first few pay periods

Once payroll is running, your ongoing responsibilities are remitting source deductions on schedule, keeping pay records for at least the CRA's required retention period, and issuing a T4 slip to the employee and the CRA by the end of February following each calendar year. If the employment ever ends, you generally need to issue a Record of Employment; our answer on when a Record of Employment is required explains the timing.

New employers sometimes assume payroll is a one-time setup task, but it is really an ongoing compliance cycle with deadlines every pay period, every month, and every year end. Missing a remittance date even once triggers penalties, which we cover in our answer on payroll remittance due dates.

How we set up payroll for first-time employers

We open the CRA payroll account, configure the payroll software, and confirm the TD1 forms and remittance schedule are correct before the first pay run, so nothing has to be corrected retroactively once numbers have already gone out. Our payroll services page covers ongoing remittance filing, T4 preparation, and the WSIB and EHT registrations that come with hiring your first employee, so you are not tracking four separate deadlines on your own.

Source: CRA — Payroll.