How to Set Up Payroll for Your First Employee in Canada
Your first hire changes your relationship with the CRA. Once you pay an employee, you are responsible for withholding income tax, CPP contributions and EI premiums from every cheque, adding your own employer share, sending it all to the CRA on time and reporting it on a T4 at year end. Ontario adds its own rules on wages, hours, vacation and workplace insurance.
This checklist covers what to set up before the first pay day, in the order we would do it for a client, with the 2026 figures that drive the real cost of a hire. It builds on our handbook on how to do payroll in Canada, which covers the payroll cycle once it is running.
Employee or Contractor: Check Worker Status First
Before you set anything up, confirm the person really is an employee. Calling someone a contractor does not make them one. The CRA looks first at what both sides intended, then tests that intent against how the work is actually done. Its guide RC4110, Employee or Self-Employed? sets out the factors it weighs:
- Control: who decides how, when and where the work is done.
- Tools and equipment: who supplies them and who pays for them.
- Helpers: whether the worker can hire assistants or send a substitute.
- Financial risk and investment: whether the worker carries fixed costs, unreimbursed expenses or capital of their own.
- Opportunity for profit: whether the worker can earn more, or lose money, through how they price and manage the work.
If the answers point to employment, run the person through payroll from day one. If the CRA later decides your contractor was an employee, you can be assessed for the CPP and EI that should have been deducted as well as your employer share. A worker who invoices through their own corporation raises a separate issue on their side: see our guide to the personal services business rules.
Open a CRA Payroll Account on Your Business Number
Payroll runs through its own CRA program account, the payroll deductions account, which carries the letters RP. It sits on your nine-digit business number, so the full account number looks like 123456789 RP 0001. If you do not have a business number yet, you get one when you register. Our CRA business number guide explains the options.
The CRA says you must register before your first remittance is due. For a new employer that is the 15th of the month after the month you first withhold deductions. Hire someone on March 11, pay them on March 25, and the first remittance is due April 15. If you pay before the account is open, you still have to calculate and remit the deductions on time, so open the account a few weeks before the start date rather than after the first pay.
Collect the SIN and TD1 Forms Before the First Pay
Two pieces of paperwork control the first cheque.
- Social insurance number: you must ask for the employee’s SIN within three days of the day they start work, and keep a dated note of the request. If the employee does not provide it, tell Service Canada within six days of their start date. A $100 penalty can apply if you cannot show a reasonable effort to get it. If the SIN starts with 9, check the expiry date on the employee’s immigration document.
- TD1 forms: the employee completes the federal TD1 and the Ontario TD1ON before you pay them. These set the personal tax credits used to calculate income tax on each cheque. If an employee does not fill one out, deduct tax as if they claimed only the basic personal amount.
Collect direct deposit details, an emergency contact and the signed employment contract at the same time. Keep the TD1s with your payroll records, because a CRA payroll examiner will ask for them.
Ontario Employment Standards for a First Hire
Ontario’s Employment Standards Act (ESA) sets the minimum terms for most employees in the province. The rules a first-time employer most often trips over:
- Minimum wage: the general rate is $17.95 an hour from October 1, 2026, and the student rate is $16.90, according to Ontario’s minimum wage guide.
- Overtime: most employees earn 1.5 times their regular rate for every hour over 44 in a work week.
- Vacation: two weeks of vacation and at least 4% vacation pay for employees with under five years of service, rising to three weeks and 6% at five years. Our guide to vacation pay in Canada covers accrual and payout.
- Public holidays: Ontario has nine, each with its own public holiday pay calculation.
- Wage statements: on or before each pay day, give a written statement showing the pay period, wage rate, gross pay, each deduction and net pay. Email is fine if the employee can print it.
Put the job in writing. A contract covering pay, hours, duties and termination protects both sides. Employers with 25 or more employees must give new hires specific written information before their first day, and it is a sensible habit for a business hiring its first person too. You also have to give each new employee the current ESA poster within 30 days.
The ESA has no probation period as such. An employee with less than three months of service is not entitled to notice of termination. After three months the minimum is one week, and it grows with service. A probation clause in the contract only helps if it is drafted properly, which is worth a lawyer’s review.
WSIB Registration and the Employer Health Tax
Most Ontario businesses with employees must register with the Workplace Safety and Insurance Board (WSIB) within 10 calendar days of hiring their first employee. Premiums depend on your industry classification. Some industries do not have to register but can opt in. WSIB’s examples include banks, trust and insurance companies, private day cares, travel agencies, photography businesses, and barber shops and many hair salons. Construction is stricter, and owners in that industry generally need coverage even without employees. Check where you fit on the WSIB registration page before the start date.
Ontario’s Employer Health Tax (EHT) is the other provincial payroll cost. Eligible employers are exempt on the first $1 million of annual Ontario payroll, provided total payroll, including associated companies, is under $5 million. A business hiring its first employee will almost always fall inside the exemption, and you do not need to register for EHT while your payroll stays below it.
Choosing a Pay Frequency and Payroll Remittance Due Dates
The ESA requires a regular pay period and a regular pay day but leaves the frequency to you. Weekly, bi-weekly, semi-monthly and monthly all work. Bi-weekly suits hourly staff because it lines up with timesheets. Semi-monthly suits salaried staff because every cheque is the same.
The CRA’s deadlines follow the date you pay, not the pay frequency. A new employer is a regular remitter: the deductions withheld from every pay in a month, plus your employer share, must reach the CRA by the 15th of the following month. A new small employer whose monthly withholding is under $1,000 and whose compliance history is perfect may qualify to remit quarterly instead. Late remittances are penalized, and even a payment made on the due date can attract a penalty if it is not made at a financial institution. Our guide to payroll remittance due dates and remitter types sets out the full schedule.
The Employer Cost of Hiring a $55,000 Employee in 2026
A salary is not the full cost of an employee. On top of gross pay, you match the employee’s CPP contributions and pay 1.4 times their EI premiums. Using the 2026 rates from the CRA’s CPP contribution rates page and its EI premium rates page:
| Employer cost | 2026 rate | Earnings it applies to | On a $55,000 salary |
|---|---|---|---|
| CPP (employer share) | 5.95% | $3,500 to $74,600 | $3,064.25 |
| CPP2 (employer share) | 4% | $74,600 to $85,000 | $0.00 |
| EI (employer share) | 1.4 × 1.63% | Up to $68,900 | $1,255.10 |
| Ontario EHT | Exempt | First $1 million of payroll | $0.00 |
| Total on top of salary | $4,319.35 |
The CPP figure is $55,000 less the $3,500 basic exemption, times 5.95%. The EI figure starts with the employee’s premium of $55,000 × 1.63% = $896.50, then multiplies it by 1.4. So a $55,000 employee costs about $59,319 a year before WSIB premiums, benefits and equipment. At higher salaries the statutory costs cap out: the 2026 maximum employer share per employee is $4,230.45 for CPP, $416 for CPP2 and $1,572.30 for EI.
Running the First Pay Run and Keeping Payroll Records
For the first pay, work out gross pay, then deduct CPP, EI and income tax based on the employee’s TD1 claim. The CRA’s free Payroll Deductions Online Calculator (PDOC) will do the math for a single pay. Once you have more than one or two employees, payroll software is usually worth it, because it tracks year-to-date maximums, produces wage statements and prepares T4s. Our comparison of accounting software for Canadian businesses is a good starting point.
After the first run, check that net pay matches what reached the employee’s account, that the deductions and your employer share are booked to a payroll liability account, and that the remittance is scheduled before the 15th.
Then keep everything. The CRA requires you to keep paper and electronic payroll records for at least six years after the year they relate to. That includes TD1s, timesheets, pay registers and remittance confirmations.
Record of Employment and T4 Slips at Year End
Two reports bookend the employment relationship. When an employee stops working, for example after a resignation, layoff or leave, you issue a Record of Employment to Service Canada. Our guide to the Record of Employment (ROE) covers the deadlines and reason codes.
Each year, you also report every employee’s pay and deductions on a T4 slip and file the T4 Summary with the CRA by the last day of February. For the 2026 year that day is a Sunday, so the return is on time if the CRA receives it by Monday, March 1, 2027. Our T4 slip filing guide walks through the boxes and the year-end reconciliation.
Rules and figures reflect CRA guidance as of October 2026. This is general information, not advice for your situation.
Targeted Accounting has helped small businesses with payroll and bookkeeping for 10+ years. We can register your payroll account, set up your first employee, run each pay and file the remittances and T4s, so your first hire does not turn into a CRA notice. See our payroll services for small business or get in touch.
