The moment you hire your first employee, your responsibilities to the Canada Revenue Agency change significantly. Payroll source deductions are not optional, not approximate, and not forgiving of missed deadlines. The CRA treats payroll remittances as funds held in trust for the government — which means late or missing remittances attract some of the most aggressive enforcement and penalty provisions in the tax system.
This guide walks Edmonton and St. Albert small business owners through what you need to know from the moment you hire your first employee.
The Three Mandatory Source Deductions
Every Canadian employer is legally required to deduct three amounts from each employee paycheque and remit them to the CRA: Canada Pension Plan (CPP) contributions, Employment Insurance (EI) premiums, and income tax withholding. As an employer, you also contribute your own share of CPP and EI on top of what you withhold from employees.
CPP contributions: CPP applies to employees aged 18 to 70 earning above the basic exemption. Both the employee and employer contribute at the same rate. Since 2024, CPP operates in two tiers: CPP1 on earnings up to the Year’s Maximum Pensionable Earnings (YMPE), and CPP2 on earnings between the YMPE and the Year’s Additional Maximum Pensionable Earnings (YAMPE). Both tiers apply to both employer and employee.
EI premiums: Employment Insurance premiums are deducted from employee earnings at the applicable rate, and employers pay 1.4 times the employee premium. EI rates are set annually by the federal government.
Income tax withholding: You are required to withhold federal and provincial income tax from each paycheque based on the employee’s TD1 forms — the Personal Tax Credits Return that every new employee must complete before their first paycheque. The CRA provides payroll deduction tables and an online payroll calculator to determine the correct withholding amounts.
Remittance Schedules — When You Must Pay
How often you remit depends on your average monthly withholding amount (AMWA): regular remitters (AMWA under $25,000) remit by the 15th of the following month; quarterly remitters (for small businesses that qualify) remit quarterly; accelerated remitters (AMWA $25,000 to $99,999) have a more frequent schedule; large employers remit on an accelerated basis tied to payday. The CRA determines your remitter category based on historical withholding amounts.
Payroll remittance penalties are among the CRA’s most aggressively enforced obligations. A late remittance of even one day can trigger a 3% penalty. Penalties escalate to 5% at four days late, 7% at seven days late, and 10% for subsequent failures. The CRA charges compound daily interest on top of all penalties from the first day the remittance is late.
T4 Slips — Annual Reporting
At year-end, you must prepare T4 slips for every employee reporting their employment income, CPP contributions, EI premiums, and income tax withheld. T4 slips must be distributed to employees and filed with the CRA by the last day of February following the calendar year. For the 2025 tax year, T4s are due February 28, 2026.
Employee vs. Contractor — The Classification That Matters
One of the most consequential decisions a small business owner makes — and one the CRA scrutinizes closely — is whether a worker is an employee or an independent contractor. The distinction has significant financial and legal consequences.
For employees, you must withhold and remit CPP, EI, and income tax. You pay the employer’s share of CPP and EI. You issue T4 slips. For independent contractors, you do not withhold or remit anything. The contractor is responsible for their own taxes and CPP contributions. You issue a T4A slip if payments exceed $500 for services.
The CRA uses several factors to determine worker status: the degree of control over how work is done; who provides tools and equipment; whether the worker has a chance of profit or risk of loss; whether the worker is integrated into the business. No single factor is determinative — the CRA considers the overall relationship.
Misclassifying an employee as a contractor is a serious compliance failure. The CRA can assess the business for all unremitted CPP, EI, and income tax — both the employer and employee portions — plus interest. Courts have consistently held that a written contract saying someone is a contractor does not override the actual working relationship.
Taxable Benefits — Often Overlooked
If your corporation provides benefits to employees — company vehicles, group life insurance above certain thresholds, parking, employer-paid meals — these may be taxable benefits that must be included in the employee’s income and reported on their T4. Forgetting to account for taxable benefits is a common payroll error that surfaces during CRA audits. Review which benefits you provide and ensure your payroll accounts for them correctly.
How Nguyen Scott LLP Can Help
Getting payroll right from the first hire is significantly easier than trying to correct errors retroactively. At Nguyen Scott LLP, we assist businesses in Edmonton, St. Albert, Leduc, and Drayton Valley with payroll setup, ongoing bookkeeping that integrates payroll records, year-end T4 preparation, and CRA payroll audits. Book your free 30-minute consultation at nsllp.ca/contact-us/
Nguyen Scott LLP — Chartered Professional Accountants. This article is for general informational purposes only and does not constitute tax or legal advice. Please consult a qualified CPA for advice specific to your situation.
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