How to Manage Payroll – 15 mins

Payroll & Employee Cost Specifics

There can be a lot of details to sort out as you get your business set up to pay employees. Once you have good systems set up though, this process is relatively straight forward. 

Use this list to get you started and make sure to check with your accountant when making decisions about how and how much and when you will pay your employees. 

    • Keep a separate file for each employee. In this space make sure to keep track of the employee’s:
      • Hire date, wages, address, social insurance number, T4s
    • Ask your employee to fill out their T1 forms. There are two T1 forms – one for the federal government and one for the provincial government. They look similar but both need to be filled out! 
      • The federal one allows the employee to choose if they want to deduct additional federal taxes from each pay period (to avoid paying a larger amount when they file their taxes)
    • Decide your pay period. It can be whatever period that you like and works for your business (e.g. monthly, semi-monthly, weekly). 
      • It will likely be easiest for you if you pay a few days after the period you are considering so that you have a bit of time to set up the payment. For example, the pay period could be Wednesday to Wednesday and then you send the payment on Friday.
    • Use the CRA Payroll Deductions Calculator to calculate the full payment amount for each pay period. Here are a few tips to help you navigate this calculator:
      • For the calculation type, choose “salary”
      • Vacation pay is typically 4% of the wages but make sure to check your provincial regulations about this. It is easiest for you as an employer to pay out vacation time in each pay period and then when the employee takes vacation, they have already been paid for that time. 
      • The salary calculation result shows you the breakdown of all the deductions. The upper bold number is the total cost for that employee’s pay period and the lower bold number is the amount that you actually send to the employee. 
        • The difference between these two numbers (total deductions) is what you are expected to pay to the federal government when you submit your taxes (finish your tax year). The total deduction includes your matching contribution to the employees Canada Pension Plan (CPP) as well as 1.4 times the employees contribution to Employment Insurance (EI).
    • Set up a payroll account with the CRA. This account will allow you to pay the deductions for each employee.
      • Your payroll number is your farm GST number
        • This payroll number is permanently attached to your business. If you decide to not hire employees for one year then you can put your payroll on hold. 
      • Most small businesses submit payroll remittance annually but you can also pay them quarterly, monthly, or every pay period.
        •  For each pay period and each employee, take the taxes you owe (see calculation above) and put that money in a savings account. You will have to pay the full sum when you submit taxes and this can be a large amount of money so make sure to save up throughout the year and don’t be tempted to spend it!
        • If your employees are seasonal make sure to note that in your business CRA account so that you’re not expected to submit remittance when you don’t have any employees.
      • You can pay these deductions through your banking institution directly – either in-person or online. You will need to provide
        • Total gross payroll (before any deductions)
        • How much you’re remitting (total deductions)
        • How many employees you had in that pay period
        • The time period that you’re remitting
  • Consider how you will keep track of employee costs. 
      • Many people have a spreadsheet for each year where they keep track of wages and deductions. 
      • While you can pay for a payroll software, if you only have a few employees with seasonal employment then it is likely not worth the cost of a payroll software. Make sure to consider your options and the total cost when you look at softwares.
  • Decide if and how employees will pay for room and board. There are two options – either you deduct these costs directly from payroll or handle this agreement and payment separately. 
      • Regulations exist provincially about the allowable conditions and deductions for room and board so make sure to find out what is allowed in your province and how these costs factor into your taxes. If you deduct room and board from payroll then the employee’s housing is tied to them working on the farm.
      • Many people separate payroll and tenancy separately – so you pay your employees for their work and then they pay you separately for lodging. This arrangement would require a separate lease agreement and the housing agreement is independent of whether they work on the farm or not.
  • Ensure you send employees their T4 Slips. When you have employees, you will be required to generate a T4 slip for the calendar year of employment. The employees need these forms to submit their own taxes by the end of April so you need to provide them early in the year.