How Does Payroll Management Work for Small Businesses in Ontario?

When you run a small business in Ontario, one of your biggest responsibilities is managing payroll. It may seem straightforward—just paying employees on time—but in reality, payroll involves a complex combination of compliance, record-keeping, and financial accuracy. If not handled properly, it can lead to tax issues, unhappy employees, and significant penalties.

At Henderson Roller Partnership, we specialize in helping small businesses streamline payroll processes, ensuring compliance with provincial and federal laws while giving owners the time to focus on growth.

What Is Payroll Management?

Payroll management refers to the administration of employee wages, benefits, deductions, and taxes. It includes everything from calculating hours and wages to withholding the correct income tax and making contributions to programs like the Canada Pension Plan (CPP) and Employment Insurance (EI).

For small businesses, managing payroll can be especially burdensome without the resources of a dedicated HR or finance department.

Key Components of Payroll Management

1. Employee Classification

The first step in managing payroll is determining the classification of your workers. Are they full-time, part-time, contract, or freelance? This determines how taxes are withheld and reported. Misclassifying employees can lead to audits and penalties.

2. Collecting Employee Information

Before processing payroll, employers must collect:

• Social Insurance Number (SIN)

• Completed TD1 forms (Federal and Provincial)

• Bank account details for direct deposit

• Employment agreement including pay rate and schedule

3. Setting Up a Payroll System

Many small businesses opt for one of the following:

• Manual payroll using spreadsheets (time-consuming and error-prone)

• Payroll software like QuickBooks or Wagepoint

• Outsourcing to a professional CPA or accounting firm (like Henderson Roller)

We recommend outsourcing or using secure payroll software to avoid the common pitfalls of manual tracking.

4. Calculating Gross and Net Pay

Gross pay includes hourly wages or salary, plus any bonuses or commissions. Deductions must then be calculated:

• CPP contributions

• EI premiums

• Income tax (federal and provincial)

• Union dues (if applicable)

• Benefit contributions

Net pay is the amount employees actually receive after deductions.

5. Remitting Payroll Deductions to the CRA

Employers are required to remit CPP, EI, and income tax deductions to the Canada Revenue Agency (CRA) on a regular basis (monthly or quarterly, depending on business size and history). Failure to remit on time can lead to penalties and interest.

6. Providing Pay Stubs and T4s

Each pay period, employees should receive a pay stub detailing:

• Hours worked

• Gross pay

• Deductions

• Net pay

At the end of the year, employers must issue T4 slips for each employee and submit a T4 Summary to the CRA.

Payroll Compliance in Ontario

Ontario has its own employment standards laws that influence payroll, including:

• Minimum Wage: As of 2025, the general minimum wage is $16.55/hour.

• Public Holiday Pay: Must be calculated using specific formulas outlined by the Employment Standards Act (ESA).

• Overtime Pay: Employees are entitled to 1.5x their regular pay after 44 hours in a workweek.

Employers must also comply with workplace safety (WSIB), vacation pay, and termination rules.

Payroll Frequency Options

Most Ontario businesses choose one of these pay schedules:

• Weekly

• Bi-weekly

• Semi-monthly

• Monthly

Whatever schedule is chosen, it must be consistent and align with employment contracts.

Common Payroll Challenges for Small Businesses

• Miscalculating deductions

• Missing CRA deadlines

• Misclassifying employees

• Keeping up with compliance changes

• Not maintaining proper payroll records for 6+ years (as required)

These mistakes can lead to audits, fines, and strained employee relationships.

How Henderson Roller Can Help

At Henderson Roller Partnership, we offer payroll solutions tailored to the unique needs of small businesses in Oakville and across Ontario. Our services include:

• Full-service payroll processing

• CRA remittance management

• Year-end T4 preparation

• Integration with accounting software

• Support for direct deposit setup

• Advisory services for employee compensation and tax strategy

We ensure that your payroll is accurate, compliant, and hassle-free—so you can focus on running your business.

Final Thoughts

Payroll management is a critical part of running a successful small business in Ontario. While it can seem overwhelming, with the right tools and professional guidance, it doesn’t have to be. Working with a trusted CPA firm like Henderson Roller Partnership can reduce the burden, improve accuracy, and help you stay compliant every step of the way.

If you're ready to simplify your payroll process, get in touch with our team today. We’re here to help your business stay on track and thrive.