How To: Payroll for Small Business in Canada

By: Updated: October 21, 2020

After hiring your first employee, there are some additional steps to take as a business owner – one of them being payroll. For a first-time business owner, the task of paying employees on time and up to employment standards can be daunting. While large corporations may have their own HR team to manage payroll, this is often not the case for many mom and pop shops.

Before you hire your first employee, think about this:

Employees will typically enter into a contract or agreement with the employer that must follow both provincial and federal standards of employment. Some particularly important things to note are:

  • Minimum wage changes
  • Vacation and termination pay
  • Statutory holiday pay
  • Standard vs overtime pay structure

On top of salary and/or hourly wage, your agreement should highlight employee benefits, work schedule (and hours), responsibilities, bonuses, and any probationary period.

Additionally, it’s important for the employer to understand which employee benefits are taxable (such as a Wellness Spending Account) and which are tax free (such as a Health Spending Account).

For specific rules such as maximum time between payment, see the Employment Standards Overview on this page. Keep in mind, this can differ between provinces.



For some industries where workers are unionized, there are additional standards of employment. If you happen to be in one of those industries, expect workers to ask remittance in some of their wages towards the union (dues).


How can a Small business payroll online?

Today, you will find many small businesses are opting to do payroll through an online software or service. The type of system and provider you choose will largely depend on several factors such as the number of employees, types of employees (regular salaried, hourly pay, commission, or contractors) and the frequency of overtime pay or employee expense claims.

The automated payroll system will be able to do these things and more:

  • Calculate federal and provincial deductions such as EI and CPP
  • Generate year end T4 on time and accurately
  • Meet employment standard for terminations and overtime
  • Provide direct deposit payroll over paper cheque

It may seem complicated, but these online platforms can run payroll in a matter of minutes, deliver quarterly and annual reports, and calculate payroll taxes automatically. Additionally, the top performing platforms are cloud-based, meaning they remove the need to manually enter data.

Simply google "Small Business Payroll Platform" and you will be able to view the competitors but remember to do your research and that many articles out there can be biased toward one provider. 


Besides accurate and timely payroll, what should a Small Business provide employees?

I’m sure most small businesses have spent time figuring out how to provide health and dental benefits to employees. While traditional insurance may seem useful at first glance, it is one of the worst options for small business because it is expensive and ineffective. That’s why Health Spending Accounts were created (a CRA-compliant alternative). It allows for a 100% tax free reimbursement to employees and a business expense for the employer. It lets employees choose when and where to spend the funds (as long as it is an eligible HSA expense).

Download Beginner's HSA Guide for a small business with employees




Related Reading:

What employee benefits do millennials want?

What employee benefits should you offer?

Employee benefits vs. Independent contractor

Top 24 FAQ for HSA employee benefits 


How to write off 100% of your medical expenses

Are you an incorporated business owner with no employees? Learn how to use a Health Spending Account to pay for your medical expenses through your corporation: 

Download the HSA Guide for Incorporated Individuals

Do you own a corporation with employees? Discover a tax deductible health and dental plan that has no premiums:

Download the HSA Guide for a Business with Staff

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