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.

Employers should be aware that Social Insurance Numbers (SINs) are part of the information typically collected from new employees. It’s helpful to understand the general requirements around collecting this information. 

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 usually complete forms like a TD1 and Personal Tax Credits Return Form to indicate how much federal and provincial tax should 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.

Employers may want to familiarize themselves with payroll practices for days and events outside normal pay periods, such as overtime, leave, and holiday pay, to support accurate recordkeeping. 

5. Legal compliance for small business payroll.

Maintaining clear payroll records can help businesses manage payroll efficiently. Common records include: 

• Employee pay rates
• Number of hours worked
• Payments made each payday (including vacation or overtime pay)
• Employment start dates
• Payroll information that supports 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