Your first employee: the accounts, the math, the paperwork

Hiring your first employee opens accounts before it costs money. The corporation needs a payroll account with the CRA open before the first pay date, and in most provinces a workers’-compensation account once anyone is working for you. Then the cost, which is not the wage: on top of every dollar of pay the corporation owes its own CPP contribution and its own EI premium, a workers’-compensation premium calculated on a different earnings base, and in some provinces a payroll levy once total payroll clears an exemption. Budget the salary and you have budgeted most of the number, not all of it.

Whether the person is an employee at all comes first, and an invoice does not settle it. The payer’s side of that test is its own guide. This one assumes you have answered it and the answer was employee.

The payroll account opens before the first pay, not before the first remittance

Your corporation’s CRA accounts all hang off one business number with a two-letter program code. Payroll is the RP one, opened when the corporation first pays salary or a taxable benefit to anyone, including you.

There are two starting positions. If you have been on salary yourself, the account already exists and a first employee changes what runs through it rather than what you have to open. If you have been paying yourself dividends, this is a new registration, and the timing matters more than owners expect — the clock on the first remittance runs from the pay date, not from the day the account finally opened. Registering early has the opposite cost, since an open program account generally carries a filing expectation whether or not anyone was paid.

Two things get collected from the employee on or before the first pay, and both are harder to chase afterwards:

• A social insurance number. The obligation is to make a reasonable effort to obtain one, and it carries its own charge where you don’t.
• TD1 forms, federal and provincial. They are what tells you how much income tax to withhold; where none is filed, withholding generally defaults to the basic personal amount, and the employee finds out in April.

What you withhold was never the corporation’s money

Source deductions are the income tax, CPP and EI withheld from each pay, plus the corporation’s own contributions on top. The employer’s CPP matches the employee’s; its EI premium is a CRA-set multiple of the employee’s.

That EI line is where an owner-only payroll and a real one part company. An owner who controls the corporation is generally not insurable, so if yours has only ever paid you, EI has never appeared on a remittance. A first arm’s-length employee is insurable, and both halves of it start with them.

When the remittance is due depends on your remitter type, which the CRA assigns from your average monthly withholding over a look-back period. A small new payroll can qualify to remit quarterly; most owner-managed payrolls are regular remitters, with a month’s withholdings due by the 15th of the following month. The full remitter mechanics, including the accelerated schedules that arrive with size, sit in the restaurant payroll guide and apply identically to a payroll of one.

The money withheld is held in trust — collected on the CRA’s behalf and never the corporation’s. The penalty for missing the date is charged on the amount not remitted rather than on the tax you eventually owe, it escalates for repeat failures, and a director can be assessed personally, which is why collection starts sooner here than on income tax.

The accounts that are not the CRA’s

Workers’-compensation premiums sit outside the CRA entirely. WSIB in Ontario, CNESST in Quebec, the equivalent board in your province: each has its own account, its own schedule and its own definition of assessable earnings — not the base you used for the CRA remittance. Rates follow industry classification, so the same wage costs a roofing company and a design studio different amounts. Registration is generally required once you have a worker in a covered industry, and each board sets its own window for doing it. You are generally not automatically covered by your own corporation’s account; personal coverage is a separate election.

The provincial payroll levy is the one that often does not apply. Ontario’s employer health tax charges payroll above an exemption threshold, and several provinces run comparable levies under different names, thresholds and bases; Alberta and Saskatchewan run none at all. A single employee generally sits below the exemption where one exists, which makes this an account to confirm rather than open — and to re-check the year you hire the third person. Quebec changes the federal layer as well: QPP instead of CPP, withholding to Revenu Québec, parental-insurance premiums.

Employment standards are the fourth thing and not an account at all. Vacation pay, statutory holidays, notice on termination: provincial law, a real cost, and not something we file.

A worked example: C$60,000, and what actually leaves the bank

Illustrative, round numbers, December 31 year-end, one employee hired in January at C$5,000 a month. No rates are applied — the point is which amounts move, and when.

On each pay date the employee receives C$5,000 less income tax withheld, less the employee’s CPP contribution and EI premium on the pensionable and insurable portion of the pay. The corporation’s cost is neither of those numbers. It is the full C$5,000 plus its own CPP contribution, which matches the employee’s, plus its own EI premium at the CRA’s multiple.

Then the timing. The wage leaves the bank on pay day. Everything withheld, plus the employer’s share, leaves by the 15th of the following month — so January’s pay produces a February 15 remittance. For six weeks the corporation holds money that looks like cash and is not.

Off to one side, on their own calendars: a workers’-compensation premium on assessable earnings, which will not equal C$60,000, and the provincial payroll levy only where the payroll clears the exemption.

At year-end the corporation deducts the C$60,000 and its own CPP and EI on top, all of it against active business income. The T4 reports the wages with the employee’s share of each deduction in its own box. The wage was C$60,000. The payroll cost more than that, by an amount set by rates that change every January.

The first T4 season runs on the calendar year, whatever your year-end is

One employee still means a T4 — the slip reporting employment income — filed with the CRA and given to the employee by the last day of February for the calendar year just ended, with a per-slip penalty on late information returns. The deadline table has the date.

The seam that catches first-time employers is the calendar. Your corporation may close its books on June 30; the slip covers January to December regardless, and it is due months ahead of the T2 that will report the same wages. The filing calendar has to carry both.

Then the arithmetic. The T4 summary has to agree with twelve months of remittances, and where it doesn’t the CRA’s pensionable and insurable earnings review returns the difference, usually on someone whose pay changed mid-year. A stale address and a missing SIN cost almost nothing to fix in December. And if the employee leaves, that is a Record of Employment to Service Canada rather than anything to the CRA, on a clock of its own.

What Cadence does

We open the payroll account when the hire is real rather than when the plan is, and put the remitter schedule and the first remittance date on the same filing calendar as your GST/HST returns and corporate instalments. Before any of that we run the contractor-versus-employee question, because the cheapest time to answer it is before the arrangement starts. Workers’-compensation and provincial payroll-levy accounts go on the calendar too; which of those we prepare and which we coordinate varies by province, and we confirm it at the estimate. Remittances, slips and payroll accounts are GST/HST and payroll work, included in the year-round packages and available as an add-on to the annual-returns-only compliance tier. For consultants and agency owners the first hire is usually also the first payroll account the corporation has ever had, which makes it a registration and a calendar rather than a decision.