Published by Easy Tax Canada | Serving clients across Canada, with offices in Mississauga and Brampton, Ontario
The moment you hire your first employee in Canada, you take on a new role: CRA payroll account holder, source-deduction collector, and year-end slip filer. Payroll compliance isn’t optional, and the penalties for getting it wrong — from late remittances to missed T4 filings — add up fast, and can even become a director’s personal liability. Here’s what every Canadian small business owner needs to know for 2026.
Step 1: Open a CRA Payroll Program (RP) Account
Before your first pay run, you need to register a payroll program account under your business number with the CRA. This is what allows you to legally withhold and remit deductions on behalf of your employees.
Step 2: Understand the Three Mandatory Source Deductions
Every Canadian employer must withhold three amounts from employee pay each period and remit them to the CRA:
- Canada Pension Plan (CPP) — For 2026, the contribution rate remains 5.95% on pensionable earnings, split equally between employer and employee, plus the additional CPP2 tier on higher earnings bands.
- Employment Insurance (EI) — For 2026, the employee premium rate is 1.63% per $100 of insurable earnings (1.30% for Quebec residents under QPIP), with maximum insurable earnings rising to $68,900. Employers pay 1.4 times the employee rate.
- Federal and provincial income tax — Withheld based on each employee’s TD1 form declarations and the applicable tax tables.
Most small businesses calculate these using payroll software (QuickBooks Payroll, Wagepoint, ADP, Payworks) or the CRA’s free Payroll Deductions Online Calculator (PDOC), which is updated every January.
Step 3: Know Your Remittance Schedule — and Don’t Miss It
How often you remit depends on your Average Monthly Withholding Amount (AMWA) from two years prior. New small businesses are typically “regular remitters,” paying monthly, but larger employers may be required to remit more frequently. The CRA’s remittance penalties are automatic and escalate quickly:
- 3% if payment is 1–3 days late
- 5% if 4–5 days late
- 7% if 6–7 days late
- 10% if more than 7 days late, or for a second late remittance within the same calendar year
These penalties apply to your total remittance — CPP, EI, and income tax combined — so even a small business with a handful of employees can face a significant penalty from a single missed deadline.
Step 4: File T4 Slips and the T4 Summary on Time
Every employer, even one with a single employee, must issue a T4 slip and file a T4 Summary with the CRA by the last day of February each year (for the 2025 tax year, the deadline falls on March 2, 2026, since February 28 is a Saturday). Late T4 filings carry a penalty starting at $10 per slip per day, up to a maximum of $7,500 — a cost that scales quickly for businesses with several employees.
Step 5: Issue a Record of Employment (ROE) Whenever Someone Leaves
Any time an employee has an “interruption of earnings” — termination, layoff, resignation, or a reduction in hours below 60% of their normal weekly earnings — you’re required to issue a Record of Employment. Electronic ROEs must generally be filed within 5 calendar days of the end of the pay period in which the interruption occurred. Failing to file blocks the former employee’s EI claim and can result in penalties.
Common Payroll Mistakes That Trigger CRA Attention
- Worker misclassification — treating someone as a contractor when the CRA would consider them an employee based on control, tools, and risk of loss. This can trigger retroactive CPP/EI assessments.
- Outdated payroll tables — failing to update your system for the current year’s CPP, CPP2, and EI rates.
- Overlooked taxable benefits — company vehicles, cell phone allowances, and group benefits that should be added to taxable income but often aren’t.
- Multi-provincial employees — different provinces have different tax tables and, in Ontario, additional obligations like Employer Health Tax (EHT) and WSIB premiums once you have employees.
Why Directors Should Take Payroll Compliance Personally
Under the Income Tax Act, directors of a corporation can be held personally liable for unremitted CPP, EI, and income tax deductions if the business falls behind. This is one of the few areas of Canadian tax law where the corporate veil doesn’t fully protect an owner — which is exactly why payroll deserves the same attention as filing your corporate tax return.
Let Easy Tax Canada Handle Your Payroll
Between remittance schedules, T4 deadlines, ROE filings, and provincial variations, payroll is one of the most time-sensitive parts of running a business — and one of the easiest to get flagged for during a CRA review. Easy Tax Canada provides full-service payroll support for small and growing businesses across Canada, backed by a team with over 15 years of hands-on CRA audit and collections experience.
Visit us in person at our Mississauga or Brampton office, or work with our team remotely — we support employers across the country.
Ready to take payroll off your plate? Contact Easy Tax Canada or explore our Payroll Services.