Paying salaries to employees (or yourself) requires more than just determining the gross amount to be paid. The Canada Revenue Agency and Revenue Quebec require 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 better 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 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 which you 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 Quickbooks online 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 extra time (or use a bookkeeper).
2. Outsource to a Payroll Provider
There are numerous payroll providers in Canada to whom you can outsource your payroll. 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 there is a cost associated with it.
Some Canadian payroll providers are:
Wagepoint has been around for a couple of years and has gained significant traction in providing payroll services to small businesses given their transparent pricing and simplicity. Once all the company, employee and banking information has been set up, calculating payroll is very straightforward. They remit source deductions to CRA and RQ on behalf of the business and prepare/submit the T4s and RL1s at the end of the year. Note that for Quebec based businesses, the RL1 summary has to be submitted directly by the employer (this is not done by Wagepoint). Additionally the CSST return has to also be submitted manually although remittances are handled by Wagepoint. Pricing is simple at $20 per pay run + $2 per employee.
ADP is a very 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.
Ceridian is another service similar to ADP. One of the benefits of using Ceridian is that it also has an HR portal which can supplement your HR department (or even replace it for smaller businesses). Additionally Ceridian is also available internationally in the US, UK and Australia for business that have employees internationally allowing them to simplify the process.
All of the above services include reporting, remittance of deductions at source to the CRA and preparation of year end T4s and relevant summaries. As mentioned, the Quebec RL1 summary almost always has to be submitted manually by the business for which instructions and the reporting are provided by the payroll providers. It is 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 would 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 for remittance and year end reports, however the business owner is responsible for ensuring that the reports and payments make it to the CRA and RQ on a timely basis. Some software options are as follow:
Payment Evolution is a great alternative for businesses who have under 5 employees, but will potentially scale in the future. They provide a free service for under 5 employees, although employers have to remit their own monthly deductions at source and annual T4/RL1s . The benefit is that all calculations can be done on their app for which it maintains a history, provides the breakdown of deductions and source and prepares the T4s and RL1s. Business plans for business with over 5 employees start at $22 per month
Quickbooks Online can be activated for businesses who use Quickbooks online as their accounting software thereby allowing full integration of all accounting functions. Pricing is $20 + $2 per employee per month for basic payroll which requires employers to remit DAS and annual salary declarations (T4 and RL1) rather than being done by QBO. The advanced payroll, which is actually powered by Wagepoint, works exactly as described above for Wagepoint except with slightly enhanced integration.
QuickBooksDesktop includes a payroll add on for all levels of the software. Monthly pricing which includes the software (and annual updates) starts at $72 a month for 1 user and unlimited employees. The software includes all the necessary payroll reporting which has to be filed by the user/employer but is fairly straightforward.
Easypay costs $399 a year, allows for all standard payroll reporting options including info for ROE (Records of Employment) and interfaces with a multitude of accounting software.
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 already have an accountant to take care of your other financial and tax needs, they will likely include it in their total package.
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. It might make sense to start doing it manually or with a free service in the beginning and transition over to a paid service as the business grows.
This post was updated in October 2019