10 Payroll Dos and Don’ts Every Canadian Business Owner Should Know

Payroll isn’t just about paying your team. It’s a legal and financial obligation that comes with significant responsibility — and serious risks if it’s not managed properly.

For most employees, payday is a symbol of financial security. When payroll is late or incorrect, it can cause frustration, erode trust and affect morale. For employers, the consequences can be even more serious. But with increasing complexity and ever-changing regulations, compliance is more challenging than ever.

According to ADP’s Hassan King, “Payroll is an often-overlooked critical element to ensuring your business keeps running smoothly and avoiding trouble. Making sure that your employees are paid accurately and on time not only helps keep them happy but also ensures you avoid running into potential penalties, audits or even suffering reputational damage.”

Despite the complexities, managing payroll doesn’t have to be stressful. With the right tools and processes, business owners can maintain control and ensure they’re compliant with Canadian laws. 

As National Payroll Week approaches, this is a perfect time to get up to speed on your payroll responsibilities. Discover 10 dos and don’ts every business owner should know to stay on top of payroll and avoid costly mistakes.

1. Don’t wait until your first payday to get set up

Before you even hire your first employee, make sure you register for a payroll account with the CRA. Late registration can delay payments, mess up your remittance schedule and end up costing you in penalties. The sooner you set up your payroll account, the smoother the payroll process can be for you and your employees.

2. Don’t overlook federal & provincial employment standards

Labour laws in Canada are governed at the provincial and territorial levels, which means they can vary significantly from one region to the next. It’s crucial to follow the labour laws that apply to your employees based on where they work – not just where your business is located.

Whether it’s rules around overtime, minimum wage, vacation time or holiday pay, each province or territory has its own set of regulations. Keep in mind that these rules are regularly updated, so staying informed about changes is key to compliance.

• Tip: As an employer, you are responsible for deducting and remitting Canada Pension Plan (CPP) contributions, Employment Insurance (EI) premiums, and income taxes. You must also contribute your own share of CPP and EI for each employee. Additionally, there are other considerations and obligations including workers’ compensation, Health Tax, or the QPIP in Quebec.

3. Don’t overpay or underpay your team

Ensuring that employees are paid accurately is one of the most important aspects of payroll management. Underpaying employees can lead to disgruntled workers, while overpaying may lead to financial strain on your business. Implementing systems that accurately track hours worked, pay rates and deductions will help avoid these issues. Additionally, it’s crucial to understand the difference between employees and independent contractors — misclassification is a common mistake among small businesses.

• Tip: To stay on top of it all, consider using CRA-compliant payroll software, like ADP, that automatically applies the correct rates and regularly audits your deductions. Also, it’s a best practice to review the CRA’s deduction tables and thresholds regularly, especially after employee raises or updates to tax regulations.

4. Do remember to remit on time

Timely remittance of payroll deductions is one of the most critical aspects of payroll compliance. Deadlines vary depending on your business’s remitter type (e.g., monthly, quarterly or accelerated). Missed deadlines may result in penalties and daily interest charges from the CRA. To stay on track, rely on payroll software or set calendar reminders for key due dates and assign sufficient backup in case of an unexpected absence.

Hassan adds, “Generally speaking, it is a legislative requirement to retain and be ready to provide employment records to your current and past employees and regulatory bodies. Most provinces require that employers provide a breakdown of pay (pay stub) to employees, so having payroll software helps ensure that a business stays compliant and is providing all the required information.”

5. Don’t treat payroll like a black box

Transparency is crucial when it comes to payroll. Employees should have access to detailed records so they can verify the hours they have worked, the deductions made and their vacation balances. Not only does this help build trust, but it also helps your employees feel confident in the accuracy of their pay.

To achieve this transparency, consider payroll software that gives employees self-serve access to pay stubs and end-of-year forms, such as T4s. The more open you are about payroll, the better it is for both you and your team.

6. Don’t make employees chase their paycheques

Today’s employees expect fast, accurate and digital payment options— they don’t want to wait for paper cheques that force them to make a trip to the bank to deposit. Direct deposit is a table-stakes requirement today and a basic expectation in the modern workplace.

Digital payroll systems offer benefits for employers as well, including reduced errors, faster payments, and improved record-keeping.

7. Do keep good and secure records

Recordkeeping is an essential part of payroll compliance. Did you know? Employers are required to retain payroll records, including timesheets, pay stubs and T4s, for at least six years. Moreover, the information must be kept in a reasonably secure manner.

Having proper records means you can easily respond to any questions or audits from the CRA. On the flip side, without proper documentation, defending yourself during an audit may become significantly more difficult — and potentially result in penalties for non-compliance. Keep your records organized and easily accessible for future reference.

8. Do lean into automation

Relying on manual processes to manage payroll can be time-consuming — and there’s a greater chance of misses and mistakes. Automating payroll with the right software can help ensure timely and accurate payments while also eliminating the risks associated with human error. Look for payroll software that integrates seamlessly with other business tools and allows for automatic updates based on changing tax rates or regulatory requirements.

9. Do regularly audit your payroll processes

Payroll isn’t a “set it and forget it” function. Regulations change frequently, and small updates in tax or employment laws may have a big impact on your payroll process. Regularly monitoring the payroll landscape can help you stay current with tax regulations and ensure that your payroll system is running smoothly.

• Tip: Review your payroll processes and deductions quarterly, especially after employee raises, changes to tax rates or updates to government regulations. This proactive approach can help ensure your payroll remains compliant and accurate.

10. Don’t operate without a backup plan

What happens if your payroll person is out sick or if your software system crashes? Your employees still expect to be paid on time, and the lack of a backup plan could create unnecessary stress.

To minimize the risk of payroll disruptions, ensure that there’s always a backup person or system in place to handle payroll in the event of an emergency. If possible, consider using cloud-based payroll software that multiple users from different locations can access to maintain business continuity in the event of unforeseen circumstances.

Bottom Line

Getting payroll right isn’t just about keeping employees happy – it’s about avoiding serious business risks. With the right systems, habits and backups in place, you can stay compliant and focus on what matters most: running your business.