A 2022 Process to Run Payroll System in Canada: Components & Guidelines

by | Jun 1, 2022

Starting a small business in Mississauga can be overwhelming. You must be wondering what it takes to run a payroll system.

Many crucial components of the payroll system must be examined and maintained. But running this system is one of your more difficult challenges. So, have no fear; Yogi & Associates is here to help you understand the importance of payroll.

1. What is Payroll System?

The payroll system includes analyzing employees’ earnings and figuring out the taxes. Payroll can also refer to the following:

  • Paychecks given to employees.
  • Employee’s financial business records.
  • Annual history of employee’s salary.

2. How Does Payroll Work?

Payroll is a process of paying employees based on their work performance. Once you hire them, gather their personal information. After that, appoint them for the required tasks. Your choices as an employer will determine pay frequency. This is usually done weekly, biweekly, semi-monthly, or monthly.

3. Five Components Of Payroll:

The payroll system consists of a wide range of income transactions. You can use it to fulfill the requirements of its employees. Payroll management consists of four essential components.
  1. Gross Income.
  2. Employee Compensation.
  3. Employee Insurance
  4. Payroll Taxes.
  5. CCP Contributions.

1. Gross Income

Gross income is the total amount you earn in a year. You can calculate by dividing your salary by the number of hours worked per week.

For example, if you earn $50,000 per year and work 40 hours per week, your gross income is $10,000/40 = $2 per hour.

2.  Employee Compensation:

 Employee benefit rules differ depending on the type of business. It is a gesture to show employees how much you care about them.

“Employees engage with employers and brands when treated as humans.” -Meghan Biro.

3. Employment Insurance:

Employment insurance is money given to all qualified employees who lost their job. The following factors determine the EI given to jobless employees:
  • When you fire an employee for no apparent reason.
  • If an employee’s health is not good to work.
  • If you terminate an employee due to maternity or paternity leave.
  • If an employee is absent due to a family emergency.

4. Payroll Taxes:

You must Employers pay payroll taxes to the CRA. To obtain a business number through the Business Registration Online (BRO) service, the CRA has made it necessary to open an account with them. As a result, you must set up your account before the first remittance deadline and submit your taxes on time.

5. CCP Contribution:

You can save money for retirement or disability with The Canada Pension Plan (CCP). It benefits both employees and employers. You can still contribute if you don’t already have a CPP, but you’ll have to pay taxes on your earnings.

4. Five Steps to Run Payroll System in Canada:

The payroll process runs according to provincial laws and federal labor standards. To set up a payroll system, you must register your business with the CRA. They will provide a business number for your business. Here is the step-by-step guide to running a payroll process.

Step 1. Select a Payroll Process:

There are two types of payroll processes:

  • Manual Payroll.
  • Software Payroll.
  • Manual Payroll:

You can manually enter employees’ earnings on a paper or database.
  • Software Payroll:

Payroll software allows you to automate calculations, deductions, and much more. Employees can be paid via direct deposit.

Step 2. Payroll Regulations:

Create a payroll policy. An employee must follow this payroll policy. This must include the following:
  • What types of pay dates do you want to use?
  • How much will each employee be paid after their pay period ends?
  • How will you pay employees—direct payment or paper check?

Step 3. Collect Basic Information of an Employee:

The next step is to collect all the essential information of an employee, which includes:
  • Federal TD1 forms.
  • Date of Birth.
  • SIN.
  • Home Address/Mail Address/Email ID etc.
  • Bank Account Number.
  • Contact Number.

Step 4. Create a Time Tracking System:

According to the Federal Government, the Employer must maintain records of an employee working. This should include the following:

  • How many hours did the employee work?
  • How did an employee perform?
  • Timesheet entries of an employee if he has worked overtime.

Step 5. Update your Payroll Records:

After you’ve distributed the checks, it’s time to update your payroll records.
These records must show you deducted the federal income, Social Security, and Health care taxes from employee pay. You must also provide proof of your tax payments.

You can update your records using the QuickBooks Online program. This program allows you to create payroll accounts for each employee. We recommend you set up QuickBooks online now if you don’t already have a process for paying employees. It’ll save you time later on when payroll issues come up!

5. Payroll And Employee’s Self-Esteem:

The payroll system can have a direct impact on employees’ self-esteem. So, running a proper payroll system makes the employees more satisfied. But, paying late can cause problems between employers and employees. It can affect the employees’ trust in their employers. So you must pay your employees on time.

‘Note to salary setters: Pay your people the least possible, and you will get from them the same’ Malcolm Forbes

Wrap it up!

Setting up payroll for your business in Mississauga can be a daunting task.  You must balance everything, from your personal life to your employees’ schedules, and if you are not careful, you may lose sight of everything important to you. So,  If you do not intend to hire an accountant or bookkeeper, you can hire Yogi & Associates. We are worth considering!

Contact Yogi & Associates!