11 Jul How to do Payroll in Canada – Order of Operations
There are many manuals available on how to do payroll in Canada on the internet. Some ream on for pages and pages! The goal of this manual however is to get you from A to Payroll without spending the next day of your life bleary eyed and brain fogged. Doesn’t that sound like a good idea? Of course it is!
Most people know the basics of payroll, such as what Overtime, Statutory Holiday Pay, Vacation Pay and Payroll Deductions are, so this guide is not going to go into detail on what these things are. However, there are many guides throughout PayrollConnected.com that do go into great detail on these items, so if you are new to the payroll world, please check out one of the ‘How To’ guides on this site, for your specific province, to get that additional detail.
Before we get started, let me just note here that nearly everything below can be done in seconds by signing up for a free trial of Payroll Connected; Canada’s only fully automatic payroll processing software. Just tell it how many hours the employees worked, and then your payroll is practically done. So do keep in mind as we go that there is a simpler payroll solution available, right here on this very site.
How to do Payroll in Canada: First Things First
Before you can get going with your payroll processing, there’s a few things you need to have first:
i. Have a payroll number registered with the government of Canada. Here’s a link on how to do that thing: https://www.canada.ca/en/revenue-agency/services/tax/businesses/topics/payroll/payroll-overview/employer-responsibilities-payroll-steps/opening-a-payroll-program-account.html
ii. Collect your employee’s information. This should include their:
a. First & Last Name
c. Social Insurance Number (SIN)
d. Date of Birth
e. First Day Worked
iii. Have each employee fill out a TD1 federal form, and a TD1 form for your province. This will determine their Income Tax Exemption amount (meaning that if they won’t have to pay Income Tax on up to that amount of earnings in the year). These TD1 forms should be filled out annually and kept with their employee file. The TD1 forms can be found here: https://www.canada.ca/en/revenue-agency/services/forms-publications/td1-personal-tax-credits-returns/td1-forms-pay-received-on-january-1-later.html
Payroll Order of Operations
In over ten years of doing payroll, I’ve found this to be the simplest way to calculating the payroll numbers, without having to go back and recalculate anything as you go. To get your payroll done as fast as possible, payroll numbers should be calculated in this order:
1. Regular & Overtime Hours
2. Statutory Holiday Pay
3. Vacation Pay
4. Payroll Deductions
For how to calculate the first three items, refer to a very handy guide at the bottom of the following page in a section called ‘Payroll Rules By Province‘ for a quick reference: https://www.payrollconnected.com/canadian-payroll-software/
Or consult your province’s own labour standards for the most up to date information.
For the final point of Payroll Deductions, you can do them for free on the Canada Revenue Agency’s very own Payroll Deduction Online Calculator (PDOC): https://www.canada.ca/en/revenue-agency/services/e-services/e-services-businesses/payroll-deductions-online-calculator.html
Be sure to track all the Year To Date numbers though as the PDOC won’t do this for you. The EI and CPP deductions must especially be tracked as an employee earning more than $56,000.00 in a year may max out their contributions for these amounts.
There! Cheat sheet done. Of course by using the PDOC above, you will have to manually add up all their pay periods manually, if they decide to leave and need a Record of Employment or when you need to make their T4 document at the end of the year. So do keep track of the numbers. Or use Payroll Connected to do all that for you, and process your payroll automatically.