Payroll for Small Businesses in Ontario: The 2026 Guide

Hiring your first employee is a milestone. It is also the moment the CRA starts expecting money from you every single month, on a schedule, with penalties for lateness that arrive faster than almost any other tax. Payroll is not hard, but it is unforgiving. Here is the whole system, with the 2026 numbers.

What do you need before running your first payroll?

Two pieces of paperwork, ideally done before the first pay date:

1. A payroll account. Payroll runs on your CRA Business Number, the same nine-digit ID used for HST and corporate tax. You add a payroll program account to it, online or by phone, and that account is where your remittances go.
2. TD1 forms from each employee. One federal, one Ontario. These tell you each person's tax credit amounts, which determine how much income tax to withhold. No TD1 means you withhold using only the basic amount, which often means over-withholding.

You will also want each employee's SIN, their start date, and a written agreement on wage and vacation terms. Then, every pay period, you deduct three things from gross pay: income tax, CPP, and EI, and you set aside your employer share on top.

What are the 2026 payroll numbers?

These are the figures that drive every paycheque in Ontario this year:

CPP2 catches people off guard: employees earning above $74,600 pay a second, smaller CPP contribution on earnings up to $85,000, and you match it. Payroll software handles all of this automatically, which is a strong argument for using some.

How much does an employee actually cost?

More than the salary. Your employer share of CPP and EI adds roughly 7% to 8% on top of gross wages, and Ontario employment law adds vacation pay of at least 4% (often taken as paid vacation time rather than a separate cheque).

Take a $60,000 salary in 2026. Employer CPP is 5.95% of $56,500 (salary minus the $3,500 exemption), about $3,362. Employer EI is 1.4 times the employee's $978 premium, about $1,369. That is $4,731 in employer payroll costs before WSIB premiums, benefits, or equipment. The realistic budget for a "$60,000 hire" is closer to $67,000, and knowing that number before you hire is exactly the kind of math good monthly books make easy.

When do you remit payroll deductions?

Everything you withheld, plus your employer share, goes to the CRA on a schedule. New employers are monthly remitters: the deadline is the 15th of the month after the month you paid your people. January's deductions are due February 15, and so on. Established employers can be assigned different schedules based on the size of their remittances.

Treat this deadline as sacred. Payroll deductions are trust money, like HST but with sharper teeth: late remittances trigger penalties that escalate the later you are, interest compounds daily, and the CRA can hold directors personally liable for unremitted source deductions. Incorporation does not shield you here. Of all the deadlines a small business faces, this is the worst one to miss.

What year-end filings does payroll create?

Every February, you close out the previous calendar year:

• T4 slips for each employee, showing earnings and deductions, due to the CRA and to your employees by the last day of February.
• T4 Summary, totalling all slips, filed at the same time. It must reconcile to what you actually remitted during the year, which is where sloppy payroll records turn into painful February evenings.

Late T4s carry per-slip penalties, and your team cannot file their personal taxes properly without them. If your payroll records and your books are reconciled monthly, T4 season is a button click. The same goes for year-end generally; clean payroll makes your T2 corporate filing smoother because salaries are one of your biggest deductions.

What about WSIB and the Employer Health Tax?

Two Ontario-specific obligations sit alongside CRA payroll:

WSIB. Most Ontario businesses with workers must register with the Workplace Safety and Insurance Board and pay premiums, which vary by industry. Registration is required in most sectors, and it applies whether your worker is full-time, part-time, or casual. Register when you hire, not when someone asks.

Employer Health Tax (EHT). The good news for small employers: most private businesses are exempt on their first $1 million of Ontario payroll. Until your total payroll approaches seven figures, EHT is usually a non-issue, but it is worth confirming your eligibility for the exemption rather than assuming it.

Employee or contractor: why does classification matter?

Calling someone a contractor does not make them one. The CRA looks at the reality: who controls the work, who owns the tools, whether the person can profit or lose money, and whether they work for others. A "contractor" who works your hours, on your equipment, only for you, is probably an employee in the CRA's eyes.

Get it wrong and the reassessment lands on you, the payer: back CPP and EI (both shares, yours and what should have been withheld), plus penalties and interest. The invoice-instead-of-paycheque arrangement that felt simpler at the time becomes the most expensive shortcut in the building. If an arrangement is genuinely ambiguous, get advice before the CRA forms its own opinion.

Should you use payroll software or outsource it?

Doing payroll by hand with CRA tables is technically possible and practically a bad idea. Your real choices:

• Payroll software. Modern tools calculate deductions, handle CPP2 and EI ceilings, direct-deposit pay, and generate T4s. For a small, stable team, software plus a careful owner works fine. The failure mode is the owner: software calculates perfectly and still cannot make you remit on time or notice a misclassified contractor.
• Outsourcing payroll. Bundling payroll with your bookkeeping and accounting means someone is accountable for remittances happening, T4s reconciling, and the books matching the payroll records. It usually costs more than software alone and less than one missed-remittance penalty. Choosing a provider? Our guide to choosing a small business accountant covers the questions to ask.

If you are hiring soon and want to know what payroll will actually cost your business, a free assessment takes about five minutes.