Processing payroll in Canada involves more than just paying employees. It requires staying compliant with CRA regulations, calculating deductions accurately, and remitting payroll taxes on time. Whether you’re a small business owner, HR manager, or accountant, this guide walks you through the entire payroll process in Canada for 2025.
Step 1: Register for a CRA Payroll Account
Before paying employees, you need to register for a payroll account with the Canada Revenue Agency (CRA). This account allows you to deduct and remit payroll taxes.
To register, visit the CRA Business Registration portal and apply for a Payroll (RP) Account linked to your Business Number (BN). If you already have a BN, simply add a payroll account through the CRA My Business Account.
Step 2: Collect Employee Information
Before processing payroll, ensure you have the necessary details from your employees:
- Social Insurance Number (SIN) for tax reporting.
- Banking details for direct deposit payments.
- TD1 forms (federal and provincial) to determine tax deductions.
Employees should complete TD1 forms when they start a new job or if their tax situation changes. Keeping this information up to date ensures accurate payroll calculations.
Step 3: Calculate Gross Pay
The total earnings before deductions are considered gross pay. The calculation varies depending on how employees are paid:
- For hourly employees, multiply the hourly rate by the number of hours worked.
- For salaried employees, divide the annual salary by the number of pay periods in the year.
If employees earn overtime, bonuses, or commissions, add these amounts to the gross pay before moving to deductions.
Step 4: Deduct Payroll Taxes and Contributions
In Canada, employers must deduct and remit payroll taxes, including Canada Pension Plan (CPP), Employment Insurance (EI), and federal/provincial income tax.
The CPP contribution rate for 2025 is 5.95%, with a maximum annual contribution cap. Employees and employers contribute equally. The EI premium rate is 1.63%, and employers contribute 1.4 times the employee’s EI deduction. Income tax is calculated based on federal and provincial tax brackets, which vary by earnings and location.
To ensure deductions are correct, use the CRA Payroll Deductions Online Calculator, which helps calculate tax amounts automatically.
Step 5: Determine Net Pay
Net pay is the amount employees receive after payroll deductions. To calculate it, subtract CPP, EI, and income tax from the gross earnings. If there are additional deductions, such as company benefits or union dues, subtract those as well.
Employees receive their net pay through direct deposit or cheques, depending on your company’s payment method.
Step 6: Remit Payroll Deductions to the CRA
Employers must remit the deducted amounts to the CRA on time. The remittance schedule depends on the size of your business:
- New or small businesses usually remit payroll taxes monthly.
- Larger or more established employers may need to remit payments bi-weekly or weekly.
CRA offers online payment options, including CRA My Business Account, online banking, and pre-authorized debit, making the remittance process easier.
Step 7: Provide Pay Stubs and Maintain Records
Every payday, employers must issue detailed pay stubs showing gross earnings, deductions, and net pay. Keeping clear records of payroll transactions is required for at least six years to comply with CRA audits.
Good payroll software can automatically generate and store pay stubs, helping businesses maintain compliance and streamline record-keeping.
Step 8: File T4 Slips at Year-End
At the end of each tax year, employers must issue T4 slips to employees and submit them to the CRA. The T4 slip outlines the total earnings and deductions for the year.
The deadline for T4 submission in 2025 is February 28, 2026. Employers can file these slips electronically through CRA My Business Account.
Best Payroll Software to Simplify the Process
Many businesses use payroll software to automate tax deductions, pay employees on time, and generate T4 slips effortlessly. Some of the best payroll software options for 2025 include:
- QuickBooks Payroll – Ideal for small businesses looking for an all-in-one payroll and accounting solution.
- Wagepoint – Great for startups and freelancers who need simple, CRA-compliant payroll processing.
- Ceridian Dayforce – A powerful solution for mid-to-large businesses that integrates payroll with HR management.
Using payroll software ensures compliance, saves time, and reduces errors when calculating taxes.
Final Thoughts: Keep Payroll Simple and Compliant
Running payroll in Canada may seem complex, but by following these eight steps, businesses can ensure employees are paid accurately and on time while staying compliant with CRA regulations.
By registering for a payroll account, calculating deductions correctly, and using automated payroll solutions, employers can streamline payroll processing and avoid costly penalties.
