Do I Need a Payroll Account to Hire My First Employee in Canada?

Yes. If you pay someone as an employee, you generally need a payroll account with the CRA. It's best to register before their first paycheque so everything is ready when payroll starts. The account is a separate CRA program account attached to your business number, distinct from any GST/HST account, and it's one of the steps new employers miss most often.

What a payroll account is

The CRA is the Canada Revenue Agency, the federal body that collects tax. Your business number is the nine-digit number the CRA uses to identify your business (our post on business number registration explains how it works). A payroll account is a program account attached to that number, and it ends in RP, so the full number looks like 123456789 RP0001.

It's the account the CRA uses to track source deductions. Those are the amounts you hold back from an employee's pay and send to the CRA: income tax, Canada Pension Plan (CPP) contributions and Employment Insurance (EI) premiums. CPP is the federal pension plan that employees and employers pay into. EI is the federal program that pays benefits to workers who lose their job or take certain leaves.

Quebec employers also deal with Revenu Québec for provincial payroll items, so if you're in Quebec, check what applies to you.

When you need one

The CRA generally ties the requirement to your first remittance, which is the payment of those deductions to the CRA, so the formal deadline can fall after the first paycheque. It's still best to register before you pay your first employee. Part-time, casual and seasonal employees all count. So does the owner of a corporation who pays themselves a salary.

You generally don't need a payroll account for a contractor who invoices you, but the label isn't what decides it. The CRA looks at the actual working relationship. Dividends paid to a corporation's owner aren't wages, so they don't create payroll either, though they have their own slip, covered in our post on T5 slips. And a sole proprietor doesn't pay themselves wages, so owner draws don't need a payroll account.

Why it matters

Once you have employees, you're responsible for withholding the deductions, adding your own share of CPP and EI (see what an employer pays on top of wages), and sending everything to the CRA on schedule. The due dates depend on the size of your payroll, and our post on payroll remittance due dates explains how they work. If deductions aren't withheld or remitted, the CRA can hold the employer responsible, and penalties and interest can apply.

Mistakes new employers make

• Registering after the first paycheque and scrambling when the first remittance comes due.
• Assuming the GST/HST account covers payroll. Each CRA program account is separate.
• Calling an employee a contractor to avoid payroll. If the working relationship looks like employment, the label won't protect you.
• Starting without the employee's paperwork. You'll generally need the employee's Social Insurance Number (SIN), the nine-digit number used for tax and benefits, and their completed federal and, where applicable, provincial or territorial TD1 forms, the forms employees use to claim personal tax credits, so payroll deductions can be calculated correctly.
• Forgetting the provincial side. Most employers also have to register for workers' compensation, covered in do I need workers' compensation coverage for my employees in Canada?
• Overlooking what happens when someone leaves. You'll need to issue a Record of Employment, explained in what is an ROE and when do I have to issue one?

If you're about to make a first hire, the RSB Guide takes you through your monthly bookkeeping routine so payroll costs land in the right place each month, and the Guided plan's dashboard keeps your CRA deadlines in front of you once payroll starts. If you're not sure whether your situation counts as employment, ask Margot (bottom right of this page, free to try, no sign-up). She'll give you a plain answer, or tell you when it's one for your accountant.

FAQ

Do I need a payroll account if I only pay myself dividends? No. Dividends aren't wages. A payroll account comes into play when you pay a salary, wages or taxable benefits.

Do I need one for a part-time or student employee? Yes. Hours and age don't change the rule. If the person is an employee, you're an employer.

Can a payroll provider handle this for me? A payroll provider can calculate and send deductions on your behalf, but the account and the responsibility still belong to your business. Confirm who registers the account before the first pay date.

When should I register? Ideally before your first paycheque. The CRA generally requires you to register before your first payroll remittance is due, but setting up the account early helps prevent delays and missed deadlines. If you're close to a first pay date, confirm the timing with the CRA or your accountant.

Register before the first paycheque, not after.