Payroll in Ontario: A Practical Guide to Your Obligations as an Employer

Quick Answer: Ontario employers must open a CRA payroll program account and deduct income tax, CPP contributions, and EI premiums from employee pay. They must remit those deductions, plus the employer’s CPP and EI share, to the CRA by the required due date, which for most small businesses is the 15th of the following month. Employers must also issue T4 slips by the end of February, issue Records of Employment when employment is interrupted, comply with Ontario’s Employment Standards Act, and consider WSIB and Employer Health Tax obligations.

Hiring your first employee is a milestone. It also introduces one of the most detailed and deadline-driven areas of business compliance: payroll. Mistakes can lead to penalties, unhappy employees, and in serious cases, personal liability for directors. This guide covers what Ontario employers need to know.

Step 1: Register for a CRA Payroll Account

Before paying your first employee, you need a payroll program account (an “RP” account) with the CRA, linked to your business number. You will use it to remit source deductions and file information returns.

Step 2: Understand Source Deductions

Each pay period, employers must deduct:

  • Income tax: federal and Ontario, based on employee earnings and their TD1 personal tax credit forms.
  • Canada Pension Plan (CPP) contributions: including the second additional CPP contribution (CPP2) on earnings above the first earnings ceiling.
  • Employment Insurance (EI) premiums.

Employers must also pay their own share: an equal CPP contribution and EI premiums at 1.4 times the employee amount (subject to reduced rates for qualifying plans).

The CRA publishes rates and maximums each year, and they change annually. Payroll software and the CRA’s Payroll Deductions Online Calculator (PDOC) help calculate them correctly.

Taxable Benefits

Not all compensation arrives as a paycheque. Benefits such as a company vehicle available for personal use, certain gift cards, employer-paid group life insurance premiums, and some allowances may be taxable. They must be included in the employee’s income and, in many cases, subject to source deductions.

Step 3: Remit on Time

Deductions must be remitted to the CRA by their due date. For most small businesses (regular remitters), remittances are due by the 15th of the month after the month the employees were paid. Businesses with smaller average monthly withholdings may qualify to remit quarterly. Larger employers must remit more frequently.

Late or missed remittances can lead to penalties that escalate with repeated failures, plus interest. Source deductions are held in trust for the government, and in certain circumstances, directors can be held personally liable for unremitted amounts. It is one of the areas the CRA takes most seriously.

Step 4: Year-End Slips and Summaries

T4 slips and the T4 Summary must be filed with the CRA, and T4 slips given to employees, by the last day of February following the calendar year. Late filing carries penalties that increase with the number of slips.

Employers who file more than a set number of information returns must file electronically.

If you pay contractors rather than employees in some situations, other slips or reporting may apply.

ontario-payroll-guide

Step 5: Records of Employment (ROEs)

When an employee has an interruption of earnings, for example if they quit, are laid off, go on maternity or parental leave, or go on sick leave, the employer must issue a Record of Employment to Service Canada within the required timeframe. The ROE determines the employee’s eligibility for EI benefits, so accuracy matters.

Ontario-Specific Obligations

Employer Health Tax (EHT). Ontario levies EHT on employer payrolls. Eligible private-sector employers receive an annual exemption, currently $1 million of payroll, so many small businesses pay no EHT. Once payroll passes the exemption, EHT applies, and associated employers must share the exemption.

Workplace Safety and Insurance Board (WSIB). Many Ontario employers must register with WSIB and pay premiums based on insurable earnings and industry classification. Some industries are exempt, but coverage is mandatory for most.

Employment Standards Act (ESA). The ESA sets minimum standards including:

  • Minimum wage (adjusted each year)
  • Overtime pay after 44 hours per week for most employees
  • Vacation time and vacation pay, generally 4% of wages, rising to 6% after five years of employment
  • Public holiday pay
  • Pay statements (pay stubs) with required information
  • Rules on deductions from wages
  • Termination notice or pay in lieu

Employee vs. Contractor: Get the Classification Right

Treating a worker as an independent contractor avoids source deductions, but the CRA looks at the actual relationship, not the label in a contract. Factors include control over how and when work is done, who provides the tools, the chance of profit and risk of loss, and how integrated the worker is into the business. Misclassification can lead to assessments for unremitted CPP and EI, plus penalties and interest.

Common Payroll Mistakes

  • Paying employees before opening a payroll account
  • Remitting late or skipping remittances when cash is tight
  • Using outdated rates at the start of a new year
  • Forgetting taxable benefits
  • Miscalculating vacation pay
  • Missing the T4 deadline
  • Issuing ROEs late or with errors
  • Misclassifying employees as contractors

How Solstice Partners Helps With Payroll

Solstice Partners provides payroll support for small businesses across Toronto and the GTA. We can set up your payroll account, calculate and process pay, handle CRA remittances, prepare T4s and ROEs, and keep payroll connected to your bookkeeping so your records reconcile at year-end. For owner-managers, we can also help decide the right mix of salary and dividends.

Frequently Asked Questions

When are payroll remittances due in Canada?
For most small businesses, by the 15th of the month following the month employees were paid. Some qualify for quarterly remitting, while larger employers remit more often.

When are T4 slips due?
By the last day of February following the calendar year.

Do I have to pay Employer Health Tax in Ontario?
Eligible private-sector employers are exempt on the first $1 million of annual payroll. Above that, EHT applies.

What is vacation pay in Ontario?
Generally at least 4% of wages, increasing to 6% after five years with the same employer.

Can directors be personally liable for unpaid payroll remittances?
In certain circumstances, yes. Unremitted source deductions can become the personal liability of directors.

How do I know if a worker is an employee or contractor?
The CRA looks at the actual working relationship, including control, tools, financial risk, and integration into the business, rather than the contract’s label.

Want payroll off your plate? Contact Solstice Partners to discuss payroll support.

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