Paying salaries to employees (or yourself) requires more than just determining the amount that you are going to pay. The Canadian tax authorities requires that employers calculate a variety of taxes on the salaries paid, remit them to the federal and provincial governments and prepare annual reports demonstrating that the calculations are correct and all salary deductions have been paid. This can be a lot of work for business owners whose time is more valuably spent generating sales and building their businesses. Luckily there are many options for small business owners to calculate their payroll and salary remittances, many of which greatly simplify the process:
1. Calculate it Manually:
The CRA provides payroll calculators that allow you to calculate your deductions based on a specific salary or wage. It allows input of payroll period (weekly, biweekly, monthly etc.) and other amounts including union dues, taxable benefits, RRSP contributions etc.
If you are paying a salary in Quebec, you will also have to calculate Quebec deductions at source using their (Quebec) payroll deductions calculator. They provide a software whichyou download to your computer.
These calculators allow you to
a) Calculate how much net salary or wage to pay the employee
b) Determine the amount of deductions at source owing to the government.
If you do decide to do your salary/payroll calculations manually, you should track your all salaries paid along with the individual categories including gross and net salary, CPP, EI, Federal taxes etc. (a spreadsheet is probably the best way to go) as you will need to prepare T4s (and RL-1s in Quebec) at the end of the year.
Another alternative is to use a free payroll calculator like the one provided by Help SME.com which provides better reporting and calculates Quebec and federal deductions all in one place. Keep in mind that you will still have to maintain a detailed schedule of amounts paid.
The manual method of calculating your payroll and deductions is best for small business owners who want to save money and have time (or a bookkeeper with time).
2. Outsource to a Payroll Provider
There are numerous payroll providers in Canada that you can outsource your payroll to. This is particularly useful when you don’t have the time and/or are more comfortable having a more knowledgeable party take care of something that is somewhat technical in nature. The downside to outsourcing is that it is more expensive.
Some Canadian payroll providers are:
ADPis perhaps the most well-known payroll provider in North America. They handle payroll of all sizes and have fairly reasonable pricing for small business with no setup fee. Each payroll run itself has a base fee of $11.50 with an additional cost for each employee of $1.00. Five employees, for example, would cost $16.50 per payroll period.
PayTrak charges a base fee of $20.00 per payroll run, plus $2.00 per person. As such 3 employees would cost $26.00 per pay run.
PayWeb is another Canadian payroll provider. They charge a $99 set up fee. Costs for a payroll run are $22.00 and each employee is approximately $1.25. They also have some add-on options including ROEs.
All of the above services include reporting, remittance of deductions at source to the CRA and preparation of year end T4s and summaries. It is however important to clarify your requirements up front to ensure that all aspects of the payroll process are covered.
3. Use Accounting Software
If you want to keep your payroll in-house there are several payroll software that allow you do your own payroll, while simplifying the process significantly. In house software requires manual set up of employees and wage rates or salaries. Once set up, you just need to enter the salaries or hours and the software calculates the rest. Cheques can be printed directly from the software or interfaced with your current accounting software. It also compiles the data fo remittance and year end reports, however the business owner is responsible for ensuring that the reports and payments make it to the CRA on a timely basis. Some software options:
Payment Evolution is a (remarkably) free software for up to five employees ( Their regular cost, for an unlimited number of employees, is $18 per month. They work in the cloud, so there is no software to download, and provide a wide array of online reporting.
Correction: I had incorrectly noted that Payment Evolution's service, for businesses with 1 to 5 employees, was free for a limited time only. They actually intend to keep it free indefinitely.
QuickBooks Payroll 2011 is a fairly cost effective solution that allows employers to calculate payroll for up to 100 employees. The cost is about $37 per month, which includes the latest version of Quickbooks Pro. Assuming that Quickbooks Pro costs about $200, the additional cost of the payroll software works out to about $20 per month or $240 annually. The software includes all the necessary payroll reporting and is quite simple to use.
Easypay costs $389 a year, allows for all standard payroll reporting options including info for ROE (Records of Employment) and interfaces with a multitude of accounting software.
Simplepay is a service that charges by the item. So while a payroll run for four employees will cost you only $8.00, you have to pay for remittance forms, ROEs,T4s etc.
4. Hire an Accountant
The final solution for employers and business owners is to hire an accountant to take care of all your payroll needs. This removes the hassle of having to deal with it yourself, particularly if you do not have an in house bookkeeper. Accountants will also ensure that all your filings and payments are kept up to date and ideally advise you about more complex payroll issues like taxable benefits etc. The downside is that accountants can be a little costlier than software or doing it yourself, however if you have an accountant already to take care of your other financial and tax needs, they will probably offer you a favourable price.
The choice of how to pay your employees depends on a variety of factors including how much control you want over the process, what you are willing to spend and your growth expectations.
Should you need help setting up or preparing your payroll on an ongoing basis do not hesitate to contact us at firstname.lastname@example.org.