Payroll Setup for Ontario Small Business: What You Need Before Your First Pay Run

Running payroll looks simple until you do the first pay run and realize you're responsible for CRA payroll deductions, remittances, year-end slips, and clean records that match your bookkeeping.

This post is a practical checklist for how to set up payroll for an Ontario small business—so your first pay run doesn't turn into a compliance mess later.

Quick Answer (save this)

Before your first pay run in Ontario, you need: a CRA payroll account (RP), employee onboarding info (TD1 forms), a payroll schedule, a system to calculate deductions, and a plan for remitting source deductions on time.

Payroll setup checklist (Ontario) — before your first pay run

1) Confirm you're ready to hire (employee vs contractor)

Your payroll setup depends on whether the worker is an employee (payroll deductions apply) or an independent contractor (usually no payroll deductions, but you still need good records).

If you're unsure, don't guess—misclassification is one of the easiest ways to create CRA problems.

2) Set up your CRA payroll program account (RP)

To run payroll properly, you generally need a CRA payroll program account (often referred to as an RP account). That's what ties your business to payroll remittances and reporting.

Practical tip: Don't wait until payday to do this. Set it up as soon as you know you'll have employees.

3) Collect employee onboarding info (don't skip this)

Before you pay anyone, collect and store:

• Full legal name + address
• SIN (as required for payroll administration)
• Date of birth (if needed for benefits/records)
• Completed TD1 forms (federal + provincial)
• Banking details for direct deposit (if using)
• Signed offer letter / employment agreement
• Pay rate, pay frequency, start date, job title

This is the “paperwork layer” that protects you when questions come up later.

4) Choose your pay frequency + payroll schedule

Pick a schedule you can actually maintain (weekly, bi-weekly, semi-monthly, monthly). Then document:

• Pay period start/end dates
• Pay date
• When you'll run payroll (example: every Tuesday morning)
• Who approves hours and when

Consistency matters because it keeps your bookkeeping clean and reduces errors.

5) Decide how you'll track hours, vacation, and overtime

Even a simple spreadsheet works—what matters is that it's consistent and reviewable.

Track:

• Regular hours
• Overtime hours
• Stat holiday pay (when applicable)
• Vacation pay accrued/paid
• Sick days / unpaid time off

6) Set up payroll calculations (gross-to-net)

Your payroll system must calculate the right deductions and net pay. At minimum, you need a reliable way to calculate:

• Gross pay
• Statutory deductions (source deductions)
• Net pay
• Employer portions/expenses (where applicable)

Big mistake to avoid: paying “net amounts” without documenting the gross and deductions. That creates messy books and compliance risk.

7) Know your remittance obligations (source deductions)

Payroll isn't finished when you hit “pay.” You also need a process to remit source deductions on time.

Create a simple routine:

• Run payroll
• Save payroll reports
• Book payroll entries in your accounting system
• Set a reminder for remittance due dates
• Pay remittance + file/confirm payment evidence

8) Tie payroll to your bookkeeping (this is where most people break it)

To stay audit-ready, payroll needs to reconcile across:

• Payroll reports
• Bank payments (net pay + remittances)
• Bookkeeping entries (wages expense, payroll liabilities, etc.)

If these don't match, you'll feel it later—usually at year-end or when applying for financing.

Mini “First Pay Run” checklist (quick)

Before you click submit:

• Employee info complete
• TD1 forms saved
• Pay period correct
• Hours approved
• Deductions calculated
• Pay stub generated/saved
• Net pay funding confirmed
• Remittance plan scheduled

FAQ