Answers · Topic 5 of 10
Payroll and Contractors answers.
Hiring in Ontario: employee versus contractor, remittances, WSIB, EHT, tips, vacation pay, T4s and what an employee really costs. 20 questions, each answered in the first paragraph.
By the AnalytIQ Accounting team · Last reviewed: September 6, 2026
Can a sole proprietor hire employees in Canada?Yes.Can I pay my children or spouse a salary from my business?Yes, a business can pay a spouse or child a salary, and the CRA generally accepts the deduction as long as the work performed is genuine, the pay is reasonable for the type and amount of work done, and the payment is actually made rather than just recorded on paper.Do I need WSIB coverage for my Ontario business?Your business must register with the WSIB within 10 days of hiring your first worker if it operates in an industry Ontario classifies as mandatory.Employee or contractor: how does the CRA decide?The CRA weighs the overall working relationship using a set of common law factors: who controls how, when, and where the work is done; who owns the tools and equipment; whether the worker has a genuine chance of profit and risk of loss; and how integrated the worker is into the business.How and when do I issue T4 slips?Every employer must issue a T4 slip to each employee who received employment income, taxable benefits, or had CPP, EI, or income tax withheld during the calendar year, and file those slips with the CRA together with a T4 Summary by the last day of February following the year.How do I pay a US contractor from a Canadian business?If the US contractor performs all their work from the United States, you generally pay them like any other vendor invoice: there is no Canadian tax to withhold and no T4A to issue, since Canadian contractor information-return rules are built around payments to Canadian residents.How do I run payroll for tipped employees in Ontario?Tips split into two categories with very different payroll treatment.How do I set up payroll for my first employee in Ontario?You need a CRA payroll (RP) account, a completed federal and Ontario TD1 form and Social Insurance Number from the employee, and a payroll system that calculates CPP, EI, and income tax deductions correctly.How does vacation pay work in Ontario?Under Ontario’s Employment Standards Act, most employees earn at least two weeks of vacation time and vacation pay equal to 4% of gross wages once they complete a year with an employer, rising to three weeks and 6% after five years with the same employer.How is statutory holiday pay calculated in Ontario?Ontario’s Employment Standards Act calculates public holiday pay with a formula: total regular wages plus vacation pay earned in the four work weeks before the holiday, divided by 20.What are the penalties for late payroll remittances?The CRA charges an escalating penalty on late source deduction remittances: generally 3% if the payment is one to three days late, 5% for four or five days, 7% for six or seven days, and 10% for anything more than seven days late or never remitted at all.What does an employee really cost an employer in Ontario?An employee costs more than the salary or hourly wage posted in a job listing, because the employer also pays CPP contributions, an additional CPP2 amount on higher earnings, EI premiums at 1.4 times the employee rate, vacation pay of at least 4% or 6% of wages, statutory holiday pay, and, depending on the business, WSIB premiums and the Employer Health Tax.What employee benefits are taxable in Canada?Most benefits an employer provides beyond salary are taxable to the employee unless a specific CRA exception applies.What is a Record of Employment and when do I issue one?A Record of Employment, or ROE, is the document employers must issue to Service Canada whenever an employee has an interruption of earnings, most often a layoff, resignation, or dismissal, so that person can apply for Employment Insurance benefits.What is a T4A and which contractors get one?A T4A is an information slip that reports amounts paid to a self-employed individual or unincorporated contractor for services, using box 048, along with other payments such as pension income, scholarships, and certain commissions.What is a T5018 and which contractors have to file it?A T5018, the Statement of Contract Payments, is filed by businesses primarily engaged in construction to report payments made to subcontractors for construction services.What is CPP2 and how does it affect payroll?CPP2 is the second additional Canada Pension Plan contribution, in effect since 2024, charged on earnings that fall between the regular yearly maximum pensionable earnings (the YMPE) and a higher ceiling called the YAMPE.What is the Ontario Employer Health Tax and who pays it?The Employer Health Tax, or EHT, is a payroll tax that Ontario employers pay on the total remuneration they pay to employees who work at or report to a permanent establishment in the province, at rates that scale up to 1.95%.When are payroll remittances due to the CRA?Most small employers are regular remitters and must send CPP, EI, and income tax deductions to the CRA by the 15th of the month following the month they were withheld.Which payroll software should a Canadian small business use?For most small Ontario businesses, we look for payroll software that auto-calculates and remits CPP, EI, and income tax; files T4s and ROEs electronically; handles Ontario WSIB premiums and Employer Health Tax where applicable; and connects directly to your accounting system rather than requiring manual re-entry.
Where we do the work
Rules at a glance · Payroll and Contractors
Not sure which applies to you? Get a free proposal or book 15 minutes.
Key formRP account + TD1Register a payroll (RP) account and collect a completed TD1 and TD1ON before the first cheque.
Key deadlineRemit by the 15thRegular remitters send CPP, EI and income tax withheld by the 15th of the following month.
Watch forEmployee vs contractorThe CRA weighs control, tools and chance of profit or loss over what any contract says.
ThresholdEHT exempt to $1MOntario Employer Health Tax applies only to payroll above the $1,000,000 exemption.
What we take off your plate
Payroll for small business owners, handled.
- RP account, TD1 forms and a remittance schedule set up before payday
- T4, T4A and T5018 slips filed on time, contractor status called right
- Wagepoint or QuickBooks Payroll set up and run on schedule
- CRA source deductions remitted by the 15th
- T4s, T4As and ROEs filed without a February scramble
- WSIB and Ontario EHT tracked alongside payroll
Mistakes we fix
Three things that go wrong for small business owners.
- Treating a worker as a contractor when the CRA’s control and tools test says employee
- Skipping the T5018 for construction subcontractors paid more than $500 in a year
- Filing a payroll remittance a few days late and taking the full escalating penalty
Recognise one? Book a call and we will tell you what it is costing you.
How we can help · Payroll and Contractors
Where we do the work.
Fixed fees, quoted after a short discovery call. Canadian and US filings under one roof.
PayrollCPP, EI and income tax remitted on schedule, with T4, T4A and T5018 slips filed on time.Payroll →BookkeepingPayroll runs reconciled to the bank and coded so year-end ties out without surprises.Bookkeeping →Tax servicesEmployee-versus-contractor calls made before the CRA makes them for you at audit.Tax services →
Free proposal
A fixed fee for your payroll, in writing.
- Tell us about your business. The form takes about a minute.
- A short discovery call. Fifteen minutes to confirm what you need.
- A fixed fee in writing. We reply within one business day. No hourly surprises.
- Canadian and US filings under one roof
- Cloud-first: QuickBooks Online, Dext, Wagepoint
- Brampton, Ontario, with clients across Canada and the US
Answers
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