Bookkeeping and payroll go hand in hand when running a business in Canada. While payroll ensures employees get paid on time, payroll bookkeeping ensures that the financial records are accurate, tax-compliant, and ready for audits or year-end reporting. For small businesses and growing companies alike, getting payroll bookkeeping right is a must.
In this guide, we’ll walk you through how to do payroll bookkeeping in Canada, highlight key compliance responsibilities, and recommend the best payroll software and tools to make the job easier.
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What Is Payroll Bookkeeping?
Payroll bookkeeping is the process of recording all payroll-related financial transactions, including:
Employee wages
Bonuses and commissions
Payroll taxes (e.g., CPP, EI, income tax)
Employer contributions
Benefits and deductions
Accurate payroll bookkeeping helps:
Track labour costs
Prepare T4 slips and summaries
File taxes with the Canada Revenue Agency (CRA)
Avoid penalties or audits
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✅ Steps to Do Payroll Bookkeeping in Canada
1. Set Up a Payroll System
Start by registering for:
A Business Number (BN) with the CRA
A Payroll Program Account
Workers’ compensation coverage in your province (e.g., WSIB in Ontario, WCB in Alberta)
> Tip: Set up separate payroll liability and expense accounts in your general ledger for wages, CPP, EI, income tax, and benefits.
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2. Track Gross Pay and Deductions
For every pay period, calculate:
Gross wages (hours worked × pay rate)
Statutory deductions:
Canada Pension Plan (CPP)
Employment Insurance (EI)
Federal and provincial income tax
Voluntary deductions (RRSP, union dues, benefits)
Record both employee and employer portions. For example:
If you deduct $200 in CPP from an employee, you must also contribute $200 as the employer.
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3. Record Payroll Journal Entries
Each payroll run should be recorded in your bookkeeping software or ledger with a journal entry. Example:
Debit: Wages Expense $5,000
Debit: Employer CPP Expense $250
Debit: Employer EI Expense $100
Credit: CPP Payable $250
Credit: EI Payable $100
Credit: Income Tax Payable $600
Credit: Bank (Net Pay to Employees) $4,400
> These entries help keep track of what has been paid and what’s still owed to the CRA.
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4. Remit Payroll Deductions to the CRA
Send withheld amounts and employer contributions to the CRA on your scheduled remittance dates (monthly, quarterly, or accelerated, based on business size).
> Use My Business Account (CRA) to view remittance schedules and make payments online.
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5. Reconcile Payroll Reports Monthly
At the end of each month:
Reconcile pay stubs with journal entries
Check liability account balances for unpaid payroll taxes
Match payroll records to your bank statements
This helps catch errors early and keeps your records audit-ready.
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6. Issue T4 Slips and File Year-End Reports
At year-end (by February 28), you must:
Prepare T4 slips for all employees
File a T4 Summary with the CRA
Report any taxable benefits (e.g., health insurance, car allowances)
> Many payroll software platforms generate T4s automatically.
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Best Payroll Bookkeeping Software in Canada (2025)
Managing payroll manually is risky and time-consuming. Here are some top-rated tools for payroll bookkeeping in Canada:
1. QuickBooks Online Payroll
Integrated payroll + accounting
Automatic CRA remittances
Generates T4s and ROEs
Direct deposit included
2. Wagepoint
Canadian payroll-specific tool
Handles CPP, EI, income tax remittances
T4 and T4A generation
Syncs with QuickBooks and Xero
3. Payworks
Enterprise-level payroll + HR solution
Excellent for midsize and large Canadian businesses
CRA and provincial compliance built-in
4. Rise People
Payroll + HR platform for Canadian businesses
Offers benefits administration integration
Suitable for startups and remote teams
5. Ceridian Dayforce
Ideal for large organizations
Advanced time tracking, payroll, and tax tools
Strong compliance and reporting features
> Choose software that supports CRA remittances, ROEs, and multi-province payroll rules.
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Common Payroll Bookkeeping Mistakes to Avoid
Forgetting to record employer contributions
Missing CRA remittance deadlines
Misclassifying employees vs contractors
Failing to back up payroll data
Not reconciling payroll accounts regularly
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Final Thoughts: Build Payroll Confidence with Accurate Bookkeeping
Bookkeeping for payroll in Canada doesn’t have to be complicated. With the right processes and software, you can automate compliance, reduce manual errors, and stay ahead of CRA requirements.
As your business grows, accurate payroll bookkeeping is the foundation of smooth operations, financial clarity, and employee trust.
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Need Help Setting Up Payroll Bookkeeping?
Whether you’re just hiring your first employee or scaling up across provinces, we help Canadian businesses streamline payroll, bookkeeping, and compliance. Let’s make your payroll audit-proof and stress-free.
