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Irrespective of the form of business in which you operate, if you are going to have employees then you will have to contend with payroll taxes. The brief summary that follows will give you some guidance in the rules and regulations of the various taxing authorities.
AVAILABLE PUBLICATIONS
T4001, Employer's Guide to Payroll Deductions and Remittances, covers the payroll tax reporting and withholding requirements and can be obtained through the local office of the Canada Revenue Agency (CRA) or on their website.
TAX WITHHOLDING REQUIREMENTS
Every employer is required to withhold income tax, Employment Insurance premiums and Canada Pension Plan payments from employees' pay. Calculation of the appropriate amounts and the corresponding employer amounts are determined by using the employer's guide. The funds withheld are held in trust for the government and must be remitted to Canada Revenue Agency in accordance with the regulations as specified in the guide.
OTHER TAX REQUIREMENTS
Whenever a wage payment is made, the employer must provide the employee with a statement of the gross wages and specific deductions. Use of the TD1 Form submitted by the employee and the tax tables provided in the employer's tax guides will enable you to determine the correct income tax to withhold.
Penalties and interest for failure to remit the correct amounts in a timely fashion are imposed regularly by Canada Revenue Agency
The employer must also furnish a Form T4 to each employee showing remuneration and withheld taxes for each calendar year.
The payroll tax requirements and the work related to ensuring compliance are quite cumbersome and complicated. Once a business employs more than a few people, we recommend that a qualified payroll service be used because, it has generally been our experience that the cost of the service is far outweighed by the personnel and management time required to operate the payroll system in-house.
OTHER PAYROLL CONSIDERATIONS
In addition to the rules around payroll taxes, it will be essential for an employer to understand the labour laws specific to each province in which their business operates. Failure to comply with rules such as those involving working hours, overtime pay and vacation pay can be costly. Provincial websites such as Alberta.ca have such information specific to small business.
The Canada Revenue Agency has a Payroll Deductions Online Calculator. Which can be a helpful tool for start-ups.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
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