Mohammad Hossain, CPA, CGA
Open a CRA Payroll Account
If you want to pay under a payroll system, then you must create a payroll program account with CRA. If you already have a CRA account number, then the payroll account number will be the same except the suffix would be RP0001. You may call CRA to create a payroll account.
Decide Payroll Frequency
There are different types of payroll frequency. This means how frequently you do want to pay your employee – weekly, bi-weekly, semi-monthly (twice a month), or monthly. I recommend avoiding weekly payroll because it will create a lot of work to maintain the payroll system. Bi-weekly is more popular among the companies. If you want to keep your payroll really least overwhelming, then you may choose the monthly system – usually good for the owner-employee.
Collect of Employee’s Information and Protect
This is your responsibility to collect the employee’s SIN, date of birth, and address. You must protect this information. You are responsible for not hiring an illegal employee. Ensure that any employees that have a SIN beginning with a “9” are authorized to work in Canada and that their immigration document has not expired.
Content and Retention of Employee Records
As an employer you must keep record and retain the following information for each employee – employee’s name, address and starting date of employment. This, including the hours worked by the employee must be kept for three years after the employee stopped working for the employer.
Open a WSIB account
As an employer in Ontario, you are required to pay workers’ compensation insurance for workplace safety compensation. WSIB is the regulatory body to deal with this issue. Suppose an employee got injured in your workplace and lost the ability to work for a specific period of time. Because you have paid WSIB premium so your employee will claim wage loss from WSIB. If you don’t have any WSIB account, then the employee will seek compensation from you. That’s why a WSIB account is important to avoid unlimited workplace injury liability. You can create an account using the link in WSIB’s website. The insurance premium on the gross salary and wages is determined by WSIB according to their prescribed rate.
Open a Record of Employment account
Obviously at one point after the employment the employee might cease the employment relationship with your company. In the worst-case scenario, you may have to discharge your employee. There might be some other reasons for discontinuation of employment like maternity/paternity leave, lay off, etc. Whatever is the case, after the cessation of employment you must issue a Record of Employment (ROE) to Service Canada and to the employee. To do this, you have to open an ROE account.
Know the Basic Labour Law
It would be a very smart act of you if you know some basics of the employment act. You’ll find plenty of information on the Ministry of Labour website. Some very basic information about the employment law include minimum wage, workplace health and safety, holiday pay, workplace harassment, etc.
Understand Effective Rate
Suppose you are hiring at $20 per hour. Your employment cost would be more than $20 per hour. Following are the additional costs you must pay per employee.
a. Canada Pension Plan (CPP) and Employment Insurance (EI) by the employer: It is mandatory that the employer contributes CPP and EI on an employee’s gross earnings. For 2022, the rates are 5.70% for CPP and 1.58% x 1.4 for EI.
b. Vacation pay: In Ontario, the employer has to pay a mandatory vacation pay of 4% on the gross earnings.
c. WSIB premium: As I discussed earlier, the employer has to pay WSIB premium at a
certain rate. Let’s assume, this rate is 1%.
d. Holiday pays: Because you must pay the employees for the holidays, the cost will increase the effective rate, approximately by 1.15%.
Now, we can determine the effective rate for your employee as follows:
Effective rate per hour = Actual rate + Additional Costs (approx.)
= $20 + (14% x $20) = $ 22. 80
The 14% additional cost is a rough estimate, which will vary depending on the calendar year and the type of the business. However, the lesson is, when you think about hiring an employee, always keep in mind that you have to incur extra 14% for some mandatory expenses.
Management of the Payroll System
Management of payroll is a professional task which is time consuming and expensive. If you have the budget for this, let it be done by a professional. However, if you have just one or two employees, then I recommend getting some training on youtube about management of payroll. You can use CRA’s online payroll calculator (you’ll find the link in my website under the “Resources” section). But remember that it is easy to mess up with the payroll numbers. Be cautious.
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