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Small Business Payroll Checklist: What Employers Need to Know

Are you in charge of your small business payroll? This article will help you understand how payroll for small businesses in Canada works, from the correct forms to taxation and legislation information.

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How to Pay an Employee on Your Small Business Payroll

Payroll is typically the most significant expense for a business. If you are a small business owner, you likely have endless tasks and responsibilities. In addition to that, you may likely have several questions about how to pay your employees on your small business payroll. So, without further ado, let’s dive into the details and navigate payroll components for small businesses.

1. Determine how much you will pay your employees.

To be an ethical and fair employer, paying your employees adequately is important, and knowing your business needs and financial obligations for your small business payroll is just as essential. One thing to keep in mind is that the wages or salaries you offer should be competitive and fair. However, when you determine the wages for individual roles, make sure you take other payroll obligations like commissions, bonuses, and other agreed forms of payment into consideration.

2. Collect accurate employee information and forms.

Once an employee begins working for you, you will need to collect important information such as their Social Insurance Number (SIN). Do ensure you are using the same name and number that appears on their SIN card in your employee records. Keep in mind that you are required to request an employee’s SIN within three days of their hire date, and if the employee doesn’t have a valid SIN, you must show that you’ve made reasonable efforts to obtain it. So, whether you are conducting the onboarding process for a new hire (or an existing employee being promoted or changing positions within your company), make sure you ask them to fill out all the required forms. New employees will also need to complete a TD1 and Personal Tax Credits Return Form within seven days of their start date so you can determine how much federal and provincial tax needs to be deducted from their earnings. According to the CRA, employees who do not fill out new forms may be penalized $25 for each day the form is late. The minimum penalty is $100 and increases by $25 per day to the maximum of $2,500. While this is something employees need to take care of, you should convey this information to your new hires as a responsible employer.

3. Decide on how often you will pay an employee.

To determine the pay plan for your employees, look at your SMB’s financial activity and assess what type of small business payroll makes the most sense to your cash flow. A standard payroll frequency is bi-weekly, while some payrolls occur weekly, bi-monthly, or monthly. Often employees on wages tend to get paid more frequently than salaried workers.

4. Know the proper payroll deductions.

A big part of paying an employee is knowing and implementing federal and provincial taxes on your small business payroll. You can consult the federal payroll deductions to ensure you have the correct CCP, EI, and other income tax deductions tables. As an employer, you must also acquaint yourself with the proper payments for days and events outside normal pay periods. This includes overtime pay regulations, maternity or bereavement leave laws, holiday pay, etc.

5. Legal compliance for small business payroll.

Keeping accurate payroll for small business records is also a legal requirement and makes the life of an SMB owner or accountant far easier. Here are the records you will need to keep:

  • Employees’ pay rate
  • Employees’ number of hours worked
  • Amounts paid each payday (including vacation pay or overtime pay, etc.)
  • Records of Employment (including start dates)
  • Payroll information and activities that support your annual tax filings.

There are many excellent SMB accounting software options to choose from that can help you keep track of these records in one secure place. Once you have all these requirements in place, the next step is to make sure you hire the right employees to keep your business operations running smoothly. Related: 10 Recruiting Strategies for Hiring Great Employees

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