Payroll Tax Compliance Checklist for Canadian Employers | Custom CPA
Payroll Tax Compliance Checklist for Employers
📌 Quick Summary
Payroll tax compliance is one of the most unforgiving areas of Canadian tax law — the CRA levies automatic penalties for late remittances starting at 3% with no grace period, and directors of corporations can be held personally liable for unremitted amounts. This complete employer checklist covers every payroll compliance obligation: CRA registration, CPP and CPP2 deductions (2024–2025 updates), EI premiums, income tax withholding, remittance schedules, T4 filing, Records of Employment, and the audit-readiness requirements that protect you if the CRA comes calling.
1. CRA Payroll Registration — Before Your First Pay Run
The moment you hire your first employee — even part-time, casual, or contract-based (if they are an employee under the common law test) — you become a payroll deductions remitter under the Income Tax Act. There is no minimum hours threshold, no minimum wage amount, and no waiting period. The obligation exists from the first dollar paid.
Many Canadian employers make the costly mistake of paying their first employee before registering their payroll account with the CRA. This results in unregistered remittances, potential penalties, and the burden of retroactive compliance. The CRA payroll account (designated by the letters RP after your Business Number, e.g., 123456789 RP0001) must be opened before the first pay date. To set up your bookkeeping system to track payroll correctly from the start, see our Bookkeeping Software Setup Checklist.
For businesses evaluating whether to manage payroll in-house or outsource it, our comprehensive guide on the Best Payroll Services for Small Business in Canada compares the leading Canadian payroll platforms so you can make an informed choice before your first hire.
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20%
Maximum CRA penalty for repeated late remittances in the same calendar year
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1
Employee is all it takes to trigger full payroll compliance obligations
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15th
Day of following month — regular remitter deadline (most small employers)
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Feb 28
T4 filing deadline — last day of February every year without exception
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CRA Registration Checklist — Before First Payroll
Complete these steps 2–3 weeks before your first pay date
Register for a Business Number (BN) with the CRA if you don't already have one — this is the 9-digit identifier for your business. Required
Open a Payroll Deductions Account (RP) — register online through CRA My Business Account or by calling 1-800-959-5525. Required
Confirm your remittance type with the CRA — new employers are typically assigned as "quarterly" or "regular" remitters; your remittance schedule depends on your average monthly withholdings. Important
Collect a completed TD1 (Federal) form from each new employee before their first payroll run — this determines the correct income tax withholding. Required
Collect TD1 (Provincial) — employees must also complete the provincial TD1 for their province of employment, which may differ from the federal TD1 claim amounts.
Record each employee's Social Insurance Number (SIN) — required for T4 preparation and CPP/EI calculations. Never pay an employee without confirming their SIN. Required
Set up payroll software or service — configure the correct province of employment, pay frequency, and CPP/EI/tax calculation tables for the current year.
📋 Setting Up Payroll for the First Time?
Custom CPA handles CRA registration, payroll setup, and compliance configuration — so your very first pay run is fully compliant and error-free.
2. Mandatory Payroll Deductions — What Every Employer Must Withhold
Every pay period, employers must calculate and withhold three mandatory deductions from each employee's gross pay: Canada Pension Plan (CPP) contributions, Employment Insurance (EI) premiums, and federal/provincial income tax. The employer must also contribute the employer's share of CPP and EI on top of what is withheld from the employee — these are not optional and cannot be reduced by agreement with the employee.
Deduction
2025 Employee Rate
2025 Employer Rate
2025 Maximum (Employee)
Notes
CPP (Base)
5.95%
5.95% (matched)
~$3,867 annually
Applied on earnings between basic exemption ($3,500) and YMPE (~$71,300)
CPP2 (Enhanced)
4.00%
4.00% (matched)
~$396 annually
New 2024+. Applied on earnings between YMPE and YAMPE (~$81,900). See Section 3.
EI (Employment Insurance)
1.64%
2.296% (1.4× employee rate)
~$1,049 employee / ~$1,469 employer
Applied on insurable earnings up to the annual maximum (~$63,200)
Federal Income Tax
Graduated: 15–33%
Not applicable
Based on taxable income
Calculated using CRA Payroll Deductions Tables (T4032) or Payroll Deductions Online Calculator (PDOC)
Provincial Income Tax
Varies by province
Not applicable
Based on province and income
Saskatchewan provincial rates: 10.5%–14.5%. Use province-specific T4032 tables.
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Employer Cost Alert: For every $100 an employee earns, the employer pays an additional ~$6–$8 in employer CPP and EI contributions (on top of the employee's deductions). These employer amounts must be remitted to the CRA along with the employee withholdings. Failing to account for the employer portion in your cash flow planning is a common and costly mistake for new employers.
3. CPP2 — The 2024/2025 Enhancement Every Employer Must Know
The second additional Canada Pension Plan (CPP2) enhancement came into full effect in 2024, introducing a new second earnings ceiling and a separate contribution rate that applies between the Year's Maximum Pensionable Earnings (YMPE) and the new Year's Additional Maximum Pensionable Earnings (YAMPE). This is one of the most significant payroll changes in decades — and many employers' payroll systems were not automatically updated.
CPP Component
Applies to Earnings
2025 Rate
Max Annual Contribution (Employee)
CPP Base
$3,500 – ~$71,300 (YMPE)
5.95% employee / 5.95% employer
~$3,867
CPP2 (New)
~$71,300 – ~$81,900 (YAMPE)
4.00% employee / 4.00% employer
~$396
Total Maximum
Combined
—
~$4,263 employee + ~$4,263 employer
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Action Required: Verify that your payroll software calculates both CPP and CPP2 as separate line items. Some older systems may not have been properly updated for the 2024–2025 CPP2 thresholds. Incorrect CPP2 calculations result in either under-withholding (creating a CRA liability) or over-withholding (creating an employee complaint and refund obligation). Our Best Payroll Services Guide highlights platforms with current 2025 CPP2 compliance built in.
4. Payroll Remittance Schedule & Deadlines
Your remittance frequency is determined by your average monthly withholdings from two calendar years ago. This is the most misunderstood aspect of payroll compliance — many employers don't know their remitter type until they receive a CRA notice, by which point they may have already missed deadlines.
Remitter Type
Average Monthly Withholdings
Remittance Due Date
Who Qualifies
Quarterly Remitter
< $3,000/month
15th of month after each quarter (Apr 15, Jul 15, Oct 15, Jan 15)
New small employers with low payroll
Regular Remitter
< $25,000/month
15th of following month
Most small-to-medium employers
Accelerated Remitter — Threshold 1
$25,000 – $99,999/month
25th of current month + 10th of following month
Mid-size employers
Accelerated Remitter — Threshold 2
≥ $100,000/month
3rd, 7th, 18th, 23rd of each month
Large employers only
Annual Payroll Compliance Calendar
📅 Key Annual Payroll Compliance Deadlines
Jan
January 15 — Q4 Payroll Remittance Due (Quarterly Remitters)
Remit all October–December payroll deductions if you are a quarterly remitter.
Feb
February 28 — T4 Slips to Employees + T4 Summary to CRA
Distribute T4s to all employees AND file T4 Summary with the CRA by last day of February — no exceptions.
Mar
March 15 — February Regular Remittance Due
February payroll deductions due for regular remitters. Also review your CRA remitter type designation for the new year.
Apr
April 15 — Q1 Remittance (Quarterly Remitters) + March Regular Remittance
Both quarterly filers and regular remitters have obligations in April.
Jul
July 15 — Q2 Remittance Due (Quarterly Remitters)
April–June payroll deductions due for quarterly remitters.
Oct
October 15 — Q3 Remittance Due (Quarterly Remitters)
July–September deductions due. Also begin year-end payroll review — identify any gross-up errors before year close.
Dec
December 31 — Final Payroll Calculations for the Year
Ensure all CPP/CPP2/EI maximums are correctly applied. Process year-end bonuses and taxable benefits by December 31.
5. Per-Payroll Run Compliance Checklist
Every single payroll run must be processed consistently and accurately. This checklist ensures nothing is missed on each pay cycle — whether weekly, bi-weekly, semi-monthly, or monthly.
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Every Payroll Run — Step-by-Step Checklist
Complete for every pay period, every time
Calculate gross pay — include regular wages, overtime, commissions, bonuses, taxable benefits, and vacation pay paid this period. Required
Calculate CPP deductions using current-year tables — verify the pro-rated period exemption is applied correctly. Stop deducting when the annual CPP maximum is reached. Required
Calculate CPP2 deductions — apply only when employee earnings exceed the YMPE ceiling. Requires a separate calculation from CPP base. 2024+ Required
Calculate EI deductions — use the current EI rate and stop when the annual insurable earnings maximum is reached. Required
Calculate federal and provincial income tax — use CRA Payroll Deductions Tables (T4032) or PDOC. Ensure TD1 claim amounts are applied. Required
Calculate taxable benefits — employer-paid group insurance taxable portions, personal use of company vehicles, and any other taxable benefits must be included in the pay period's insurable/pensionable/taxable income. Often Missed
Calculate net pay and process direct deposits — confirm bank file is submitted and timing aligns with employee's expected pay date.
Record payroll journal entry — debit Wages Expense, credit CPP Payable, EI Payable, Income Tax Withholding Payable, and Net Pay. Add employer CPP/EI to the liability accounts. Bookkeeping
Issue pay stubs to all employees — required by employment standards legislation in all provinces. Pay stubs must show gross pay, all deductions, and net pay. Required
🧮 Are Your Payroll Deductions Calculated Correctly?
CPP2 errors, missed taxable benefits, and incorrect remittance schedules are costing Canadian employers thousands. Let Custom CPA audit your payroll for compliance.
The T4 Summary and individual T4 slips are due to the CRA and to employees by the last day of February following the calendar year. Penalties of $25/day (minimum $100, maximum $7,500) apply for late T4 filings. For businesses with complex financial reporting needs alongside payroll, see our guide on When Businesses Need Compilations.
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T4 Year-End Filing Checklist
Complete by February 28 — no exceptions
Reconcile total payroll — year-end payroll register totals must agree to the sum of all individual T4 slips AND to the T4 Summary total. Any discrepancy must be resolved before filing. Required
Reconcile T4 Summary to CRA remittances — total remittances shown on the T4 Summary must match what was actually remitted. Any balance owed must be paid with the T4 Summary filing.
Report all taxable benefits on T4 Box 40 — group life insurance employer premiums, personal vehicle use, employee discounts (above limits), and housing allowances. Often Missed
Report CPP2 in the correct T4 box — CPP2 employee contributions are reported in T4 Box 16A (separate from Box 16 for CPP base contributions). 2024+ Required
File T4 slips electronically — employers with more than 5 T4s must file electronically via CRA My Business Account. Paper filing is only permitted for 1–5 slips.
Distribute T4 slips to employees — deliver physically or electronically (with employee consent). T4s must be in employees' hands by February 28. Required
Retain copies of all T4s and the T4 Summary for a minimum of 6 years — the CRA can request them in an audit at any time within that window.
7. Record of Employment (ROE) — Obligations & Deadlines
A Record of Employment (ROE) is required every time an employee experiences an "interruption of earnings" — not just when they quit or are fired. Sick leave, parental leave, layoffs, and leaves of absence all trigger the ROE requirement.
Separation Reason
ROE Trigger?
ROE Deadline
Penalty for Late ROE
Resignation
✅ Yes
5 calendar days after last day of pay period
Up to $2,000 per offence
Layoff / Shortage of Work
✅ Yes
5 calendar days after last day of pay period
Up to $2,000 per offence
Dismissal / Termination
✅ Yes
5 calendar days after last day of pay period
Up to $2,000 per offence
Illness / Injury
✅ Yes (if EI-sick claim anticipated)
5 calendar days after interruption
Up to $2,000 per offence
Parental / Maternity Leave
✅ Yes
5 calendar days after last day of pay period before leave
Up to $2,000 per offence
Seasonal Shutdown
✅ Yes
5 calendar days after last day of pay period
Up to $2,000 per offence
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ROE Tip: All ROEs should be filed electronically through Service Canada's ROE Web. Electronic ROEs are immediately available to both the employee and Service Canada — reducing follow-up calls from employees and speeding up EI benefit processing. Paper ROEs require the employee to submit them to Service Canada, creating delays. Our Specialized Services include payroll compliance support, including ROE filing management.
8. CRA Payroll Penalties & Interest — What's at Stake
CRA payroll penalties are automatic, non-negotiable, and compound quickly. Unlike some other CRA penalties that require an assessment process, late payroll remittance penalties are applied automatically the day after the deadline passes.
1–3 Days Late
3%
Of the amount that was due. Applies the very next business day.
4–5 Days Late
5%
Penalty jumps to 5% at 4 days — weekend timing matters.
6–7 Days Late
7%
One week late and nearly 1/10th of the remittance amount is lost.
Over 7 Days
10%
Standard late penalty for remittances more than a week overdue.
2nd Offence (Same Year)
20%
Doubled penalty if late again in the same calendar year. Plus daily interest.
Top CRA Payroll Compliance Issues — Most Common Employer Mistakes
Late or missed remittances
68%
68%
Taxable benefits not reported
54%
54%
T4 errors / late filing
46%
46%
CPP/CPP2 miscalculation
39%
39%
ROE not issued on time
33%
33%
Director personal liability
22%
22%
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Director Liability: Under the Income Tax Act, directors of corporations can be held personally liable for unremitted payroll deductions — with no limit on the amount. The CRA can pursue a director's personal assets, home equity, and personal bank accounts for a corporation's unpaid payroll remittances. This is one of the most severe personal exposures in Canadian tax law and one of the most common surprises for small business owners. Our Specialized Services include director liability assessments and CRA payroll issue resolution.
9. Payroll Audit-Readiness Checklist
The CRA conducts payroll source deduction audits regularly — often triggered by employee complaints, T4 discrepancies, or random selection. Being audit-ready means having six years of organized records that clearly document every payroll decision. Our Core Accounting & Tax Services and Strategic CFO Advisory Services both support payroll compliance as part of comprehensive financial management.
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Payroll Audit-Readiness Checklist
Maintain these records for minimum 6 years from each tax year end
Payroll register / payroll journal — complete record of every payroll run showing gross pay, all deductions, and net pay for each employee for each pay period. 6-Year Retention
TD1 forms for all employees — signed federal and provincial TD1 forms for every employee. Keep updated when employees submit revised forms. 6-Year Retention
CRA remittance receipts — confirmation of every payroll remittance including date, amount, and period covered. Online banking or CRA My Business Account records. 6-Year Retention
Filed T4s and T4 Summary copies — copies of all T4 slips issued and the T4 Summary as filed with the CRA, matching what employees received. 6-Year Retention
ROEs for all separated employees — copies of all Records of Employment filed, with the dates and reason codes. 6-Year Retention
Taxable benefit documentation — records supporting all taxable benefits reported on T4s, including vehicle log books, insurance premium records, and housing allowance calculations. Often Requested in Audits
Worker classification documentation — evidence that workers classified as independent contractors (not employees) are genuinely self-employed. CRA regularly challenges misclassification. High Audit Risk
✅ Ensure Your Payroll Is Fully CRA-Compliant
Custom CPA conducts comprehensive payroll compliance reviews — identifying errors, updating for CPP2, and getting your records audit-ready before the CRA visits.
These are the most common questions Canadian employers search for about payroll tax compliance:
When must a Canadian employer register for payroll deductions with the CRA?
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A Canadian employer must register for a payroll deductions account (RP account) with the CRA before the first payroll is processed — not at year-end, not after the first T4, but before the very first employee is paid. CRA recommends registering at least 2–3 weeks before the first pay date to allow for processing. Registration can be done online through CRA My Business Account or by calling 1-800-959-5525. There is no minimum size or number of employees — even one part-time worker triggers the full payroll registration and remittance obligation from day one.
What are the CRA payroll remittance deadlines for 2025?
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CRA remittance deadlines in 2025 vary by your remitter type: Quarterly remitters (new small employers with low payroll) remit by the 15th of the month after each quarter-end — April 15, July 15, October 15, January 15. Regular remitters (most small businesses with average monthly withholdings under $25,000) remit by the 15th of the month following the payroll month. Accelerated Threshold 1 ($25,000–$99,999/month average) remit twice monthly: 25th of the current month and 10th of the following month. Accelerated Threshold 2 (over $100,000/month) remit four times monthly on the 3rd, 7th, 18th, and 23rd. Your remitter type is assigned by the CRA and should be confirmed annually through My Business Account.
What is CPP2 and how does it affect payroll deductions in Canada?
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CPP2 is the second additional Canada Pension Plan enhancement that became effective January 1, 2024. It creates a new second earnings tier above the existing Year's Maximum Pensionable Earnings (YMPE). In 2025, CPP2 applies to employment income between approximately $71,300 (YMPE) and $81,900 (YAMPE — Year's Additional Maximum Pensionable Earnings). The CPP2 rate is 4% for both employee and employer. Employers must calculate CPP2 separately from the base CPP calculation — many older payroll systems required manual updates to handle this correctly. CPP2 employee contributions are reported in T4 Box 16A, separate from base CPP in Box 16. Failure to calculate and remit CPP2 correctly results in CRA penalties.
What happens if an employer misses a CRA payroll remittance deadline?
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Missing a CRA payroll remittance deadline triggers automatic penalties with no grace period: 3% for 1–3 days late, 5% for 4–5 days late, 7% for 6–7 days late, and 10% for over 7 days late. If you miss a second remittance deadline in the same calendar year, the penalty doubles to 20% of the overdue amount. Interest is also charged at the CRA's prescribed rate (currently ~9–10% annually), compounded daily on both the principal and the penalty. The best course of action if you realize you've missed a deadline is to remit immediately and contact the CRA to discuss whether a first-time penalty relief (Taxpayer Relief) application is appropriate. Continued late remittances can also trigger a full payroll audit.
What is a Record of Employment (ROE) and when must employers issue it?
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A Record of Employment (ROE) is a mandatory document that employers must issue to Service Canada (not the employee directly — it goes into the Service Canada system) whenever an employee experiences an "interruption of earnings." This includes termination, layoff, resignation, illness, injury, pregnancy, parental leave, compassionate care leave, and seasonal shutdowns. The ROE must be filed within 5 calendar days of the last day of the pay period in which the interruption occurred. Late or missing ROEs carry penalties of up to $2,000 per offence and can delay the employee's EI benefits — which often results in complaints to Service Canada and additional employer scrutiny. ROEs should be filed electronically through Service Canada's ROE Web for fastest processing.
✅ Payroll Compliance — Handled by Custom CPA
From CRA registration and CPP2 calculations to T4 filing and ROEs — Custom CPA manages complete payroll tax compliance for Canadian employers of every size.
Disclaimer: The above contents are provided for general guidance only, based on information believed to be accurate and complete, but we cannot guarantee its accuracy or completeness. It does not provide legal advice, nor can it or should it be relied upon. Please contact/consult a qualified tax professional specific to your case.
