Hiring Your First Employee in Ontario: Payroll From Scratch

Hiring your first employee is the point where a business stops being a person with clients and becomes an employer with obligations. Most of those obligations are administrative, none are difficult, and one of them carries a penalty severe enough to be worth reading twice.

Before anything: are they actually an employee?

The CRA decides this on the facts, not on what the contract says. The factors weighed are control over how the work is done, who provides the tools, whether the worker can subcontract, the degree of financial risk, and the opportunity for profit.

Getting it wrong is expensive in one direction only. Treat a genuine employee as a contractor and you become liable for the deductions you should have withheld, both halves of CPP, the employer EI, plus penalties and interest, going back years.

If the relationship is genuinely ambiguous, you can request a formal ruling before you start rather than argue about it after. The test is set out under employee or self-employed, and the factors are weighed in more detail in employee versus contractor.

The setup, in order

1. Open a payroll account. An RP account under your existing business number. Free, and available online.

2. Get a completed TD1, federal and Ontario. Signed by the employee before their first pay, and refreshed when their circumstances change. This is what determines how much income tax to withhold.

3. Get their SIN. You are required to ask within three days of the start date, and to record it.

4. Decide the pay period. Weekly, biweekly, semi-monthly or monthly. Biweekly is the common default. Changing it later is a nuisance, so pick deliberately.

5. Set up a payroll system. Do not do this by hand. The payroll deductions tables exist, and so does the CRA’s online calculator, but software that files and remits for you removes an entire class of error for a small monthly fee.

What comes off a paycheque

Two consequences owners underestimate:

An employee costs meaningfully more than their salary. Employer CPP, CPP2 and the 1.4x EI multiplier sit on top, before you add vacation pay, WSIB and any benefits.

CPP2 exists now. A second tier of CPP applies to earnings between the YMPE and the YAMPE. For 2026 that band runs from $74,600 to $85,000. If you are hiring above the first threshold, budget for it.

The remittance deadline, and why it matters more than the others

Your remittance schedule depends on your average monthly withholding amount. A new employer is typically a regular remitter: everything withheld in a month is due by the 15th of the following month.

Here is the part worth reading twice. The late-remitting penalty is calculated on the full amount you were required to remit, not on the shortfall, and it escalates with lateness. Being a few days late on a $4,000 remittance is not a small percentage of a small number.

Repeated failures escalate further, and unremitted source deductions are a trust obligation: a director can be held personally liable for them even where the corporation cannot pay. That is one of the very few places the corporate veil does not hold, and it sits alongside the other risks that reach an owner personally rather than stopping at the company.

Set the reminder the day you open the account.

Ontario-specific obligations

Federal payroll is only part of it.

WSIB. Most Ontario employers must register within ten days of hiring. Some industries are exempt; check rather than assume, and note that engaging contractors does not necessarily put you outside it, which is the trap covered in WSIB for small employers.

Employment Standards Act. Minimum wage, hours, overtime after 44 hours in a week for most employees, public holidays, vacation pay at a minimum of 4% of wages, and written termination notice. These are floors, not guidelines. What the notice floor actually comes to, and when statutory severance is owed on top of it, is worked out in ESA notice and severance in Ontario.

Employer Health Tax. Payable above an annual Ontario payroll exemption threshold. A first employee at a modest salary is usually under it, but the threshold applies to total payroll, so it arrives sooner than people expect.

A written employment agreement. Not legally required, and worth having anyway. It sets probation, notice, confidentiality and expectations. Without one the common law fills the gaps, generally in the employee’s favour. Do not put a non-compete clause in it. Ontario prohibited them for employees in 2021, and what still protects the business is a confidentiality and non-solicitation clause that was drafted to stand on its own.

Written workplace policies. Several of these are mandatory rather than optional, and each carries its own headcount threshold and its own deadline, so they arrive at different points as you grow. The list is in the written policies an Ontario employer is required to have.

What can offset the cost

Before you settle on a salary, check whether part of the wage is claimable back. Several federal and Ontario programs exist specifically to reduce the cost of a hire, and they cluster around apprentices, co-op students and recent graduates rather than general hiring, so they are easy to miss if you do not know they are there. Two of them are tax credits claimed on a return, which means you do not apply for them and nobody reminds you; the rest are subsidies with an application and a window that usually closes before the person starts. That timing is the whole reason they get missed: by the time you are running payroll, the deadline has passed. Assistance you do receive is not free of tax consequences either, because it generally reduces the wage expense you can deduct rather than arriving untaxed. What exists and who qualifies is set out in hiring credits and wage subsidies.

Taxable benefits, the quiet one

Things you give an employee are often taxable to them and must go through payroll: personal use of a company vehicle, most insurance premiums, gift cards, parking in many cases, and cash allowances that are not based on receipts or kilometres.

Getting this wrong does not usually surface until a review, at which point it is several years of adjustments. Check any non-cash benefit against benefits and allowances before you offer it.

T4s by the last day of February

By the last day of February, a T4 slip goes to each employee and a T4 Summary to the CRA. Late filing carries per-slip penalties.

Reconcile monthly rather than discovering in February that remittances and payroll records disagree. That reconciliation is one line in the monthly close.

If you are the only employee

An owner-manager paying themselves a salary is running payroll on themselves, with every obligation above. That administrative load is a real input into the salary versus dividends decision, and it is the main practical argument for dividends at small amounts.

Open the RP account, remit by the 15th, file T4s by February

Open the RP account. Collect the TD1 and SIN. Use software. Remit by the 15th, without exception. Register with WSIB. Know the ESA floors. File T4s by the end of February.

None of that is difficult and all of it is unforgiving about dates, which is why a first hire is a common moment to hand payroll and the source deduction remittances to someone else.

If you are about to make a first hire and want the setup checked before the first pay run rather than after, that is a short conversation.