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%, rising to 6% once an employee reaches five years with you (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. WSIB adds roughly $738 more at the 2026 average premium rate, taking the mandatory add-ons to about $5,470. The realistic budget for a "$60,000 hire" is closer to $67,000 once benefits and equipment land, 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. As your payroll grows, the CRA moves you to a faster schedule based on your average monthly withholding amount (AMWA), the average income tax, CPP, and EI you remit each month measured over the two calendar years before the current one:

Almost every small business starts and stays in the regular monthly tier. The point of knowing the ladder is simple: as you hire, your deadlines get tighter, not looser, so the habit of setting remittance money aside every pay run matters more over time.

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.

Do you have to register with WSIB, and how fast?

Usually yes, and faster than most owners expect. You have 10 calendar days from the day you hire your first employee to register with the Workplace Safety and Insurance Board. The clock starts on the hire, not on your first pay run, and it applies whether the person is full-time, part-time, casual, or a family member. Subcontractors can count too.

Not every business has to register. Ontario decides which industries are covered, and the mandatory list covers most of the economy: construction, restaurants and bars, retail and service businesses, agriculture, manufacturing, trucking and transportation, plus homeowners who hire domestic help such as a nanny or a regular cleaner. Industries that may register voluntarily but are not required to include banks and financial services, trade unions, private daycares, travel agencies, photography businesses, barber shops and funeral homes. Being on the optional list is not something to conclude from a blog post, including this one. Confirm your classification with the WSIB before you decide to skip registration.

$1.23 is the average, not your rate. WSIB prices by business activity, so a roofing company and a software company pay very different amounts on the same payroll. Use the average only as a first estimate: on a $60,000 salary it works out to roughly $738 a year ($60,000 × 1.23 ÷ 100). Your actual rate comes to you in a premium rate statement. Worth knowing before you flinch at the line item: the 2026 average is the lowest in more than 50 years, and it came down from $1.25 in 2025.

Construction is the exception that catches owner-operators. Since January 1, 2013, coverage in construction is compulsory for independent operators, sole proprietors, partners and executive officers, not only for employees. A corporation may exempt one executive officer, and only if that person does no construction work at all: no manual work skilled or unskilled, no operating equipment or machinery, no directly supervising workers on site. Visiting a site is fine, working on it is not. There is a narrow exemption for home renovation work done exclusively on existing private residences where the homeowner hires and pays you directly, and it does not extend to subcontractors you hire.

If you are not required to cover yourself, you can still buy optional insurance on your own earnings as a sole proprietor, partner, independent operator or executive officer, once any employees are covered. You choose the insurable earnings figure, capped at the same $121,700 maximum, and pay premiums on it. For an owner with no employees that is the only route to WSIB benefits after an injury, and it is worth pricing against a private disability policy rather than assuming which is cheaper.

Skipping registration is the expensive version. WSIB can charge retroactive premiums covering the whole period you should have been registered, plus interest and non-compliance charges, and it can adjust your account for any year premiums were payable. Failing to register is an offence under the Workplace Safety and Insurance Act, and on conviction the maximum penalties are $25,000, or six months in jail, or both, for an individual, and $500,000 for a corporation. Prosecutions are rare and retroactive premiums are not, which is the part worth planning around. Register when you hire, not when someone asks.

What is the Employer Health Tax, and does it apply to you?

The other Ontario-specific obligation sitting alongside CRA payroll. The good news for small employers: most private businesses are exempt on their first $1 million of Ontario payroll. Above the exemption the rate tops out at 1.95%, and private employers with more than $5 million in annual Ontario payroll lose the exemption entirely. The $1 million exemption is not indexed again until January 1, 2029, so it will not quietly rise with inflation in the meantime. 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.

What does Ontario employment law require on top of the CRA rules?

The CRA sets what you withhold. Ontario's Employment Standards Act sets what you owe the employee in the first place, and the two are easy to confuse. The four numbers that drive most small-business payrolls:

Plan for the October 1 increase now, not in September. The general minimum wage rises from $17.60 to $17.95 an hour on October 1, 2026, a 1.9% adjustment tied to the Ontario Consumer Price Index. On a single full-time minimum-wage employee that is roughly $700 a year in extra gross wages, plus your employer CPP and EI on top of it. If you run a small team at or near minimum wage, the increase lands part-way through a pay period, so the practical work is making sure your payroll software has the new rate before the first pay date that includes October 1, and repricing anything you quote by the hour.

Two traps worth naming. Overtime in Ontario is calculated at 44 hours, not the 40 many owners assume from American payroll software and American advice. And salaried does not mean overtime-exempt: the exemption depends on the kind of work the person does, not on how you pay them.

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. Most Canadian payroll software runs about $20 to $100 per month for the base fee plus $4 to $15 per employee, so a stable team of one to five people usually lands around $20 to $80 a month. For that kind of 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, often a few hundred dollars a month depending on headcount and pay frequency, and less than one missed-remittance penalty. Choosing a provider? Our guide to choosing a small business accountant covers the questions to ask.

Two numbers worth keeping straight: budget roughly $80 to $250 a month once you are around ten employees on full-service payroll, and watch for extra per-T4, per-ROE, and per-direct-deposit fees stacked on top of the advertised base price.

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