Should I use payroll software for my employees?

Short Answer

Yes, you should use payroll software once you have employees. Payroll software automates CPP, EI, and income tax calculations, handles remittances to CRA, generates T4s and ROEs, and reduces the risk of costly errors and penalties. Manual payroll becomes impractical and error-prone even with just one or two employees.

The Rule / General Rule

As a Canadian employer, you’re legally required to:

• Deduct and remit payroll taxes: Income tax, Canada Pension Plan (CPP) contributions, and Employment Insurance (EI) premiums must be deducted from each employee’s pay
• Pay employer contributions: You must match CPP contributions and pay 1.4× the employee’s EI premium, unless you qualify under the EI Premium Reduction Program
• Remit on time: Depending on your remitter type, you must send deductions to CRA monthly (by the 15th of the following month) or more frequently for larger payrolls Remit payroll deductions and your employer portions according to the remitter type and due dates the CRA assigns to your payroll account
• Keep records for six years: CRA requires detailed payroll records including earnings, deductions, and remittances
• File year-end returns: T4 slips must be issued to employees and filed with CRA by the last day of February
• Issue Records of Employment (ROEs): Electronically issued ROEs are required within five days when an employee stops working or experiences an interruption in earnings

How payroll software helps:

• Calculates deductions automatically using current CRA rates and formulas
• Tracks year-to-date amounts for CPP and EI maximums
• Generates pay stubs, T4s, and ROEs
• Submits remittances and filings electronically to CRA
• Adjusts for provincial differences (Ontario vs. BC vs. Alberta, etc.)
• Maintains audit-ready records

Without software, you’d need to manually reference CRA’s Payroll Deductions Tables or use the Payroll Deductions Online Calculator (PDOC) for every pay run—and still handle all the filing and remittance yourself.

Why It Matters

Compliance and Penalties:

• Late or incorrect remittances trigger penalties starting at 3% and escalating to 10% for repeat offenders, plus daily compound interest
• Failure to issue T4s on time results in penalties of $100 or $25/day per slip, up to $2,500
• CRA actively audits payroll accounts and can assess back taxes, penalties, and interest going back years
• Errors in CPP/EI calculations can affect employees’ future benefits and create trust issues

Time and Efficiency:

• Manual payroll for even a small team can take hours per pay period
• Agencies bill clients for their time—hours spent on payroll administration is time not spent on revenue-generating work
• Payroll software reduces a multi-hour task to minutes

Accuracy:

• CPP and EI have annual maximums, exemption amounts, and rates that change yearly
• Provincial tax rates and brackets vary and change frequently
• Manual calculations are prone to human error, especially when handling bonuses, vacation pay, or mid-year hires
• Payroll software automatically applies current rates and handles edge cases

Employee Experience:

• Employees expect accurate, on-time pay with professional pay stubs
• Direct deposit, available through most payroll software, is now standard
• Online access to pay stubs and T4s is appreciated by employees

Best Practices

Choose the Right Software:

• Look for Canadian-specific payroll software that handles federal and provincial requirements. We recommend Wagepoint.
• Ensure it integrates with your accounting software (Xero, QuickBooks Online) to avoid double entry
• Confirm it can file T4s and ROEs electronically with CRA and Service Canada
• Check that it handles your province’s specific requirements (e.g., Ontario EHT, Quebec QPP/QPIP)

Set Up Correctly:

• Collect TD1 forms (federal and provincial) from each employee before their first pay
• Verify Social Insurance Numbers and keep copies on file
• Enter accurate hire dates, pay rates, and pay frequency
• Set up direct deposit to avoid cheque handling

Maintain Good Habits:

• Run payroll on a consistent schedule—employees depend on predictable pay
• Review each pay run before finalizing to catch obvious errors
• Keep payroll records organized and backed up for the required six years
• Reconcile payroll liabilities in your accounting software monthly

Plan for Year-End:

• Verify employee information is current before generating T4s
• Review year-to-date totals for reasonableness
• File T4s and the T4 Summary by the February deadline
• Issue ROEs promptly when employees leave or have interruptions in earnings

Consider Your Options:

• For 1-5 employees, simple payroll software like Wagepoint is usually sufficient
• For larger teams (>50 staff) or complex situations, consider a full-service provider
• Factor in the cost of your time—even “free” manual payroll costs you billable hours

Examples

Small Agency Getting Started

A Toronto-based social media agency hires its first employee at $55,000/year, paid bi-weekly. The owner has been doing everything manually using CRA’s PDOC calculator, spending 2-3 hours each pay period calculating deductions, preparing pay stubs in Word, writing cheques, and manually remitting to CRA.

After signing up for Wagepoint ($25/month base plus $6/employee), the owner enters the employee’s information once, connects the business bank account, and payroll now takes 10 minutes per pay period. Deductions are calculated automatically, direct deposit hits the employee’s account on payday, and remittances are sent to CRA automatically. At year-end, T4s are generated and filed electronically with one click.

Growing Agency Scaling Up

A Vancouver creative agency with 12 employees has been using spreadsheets and the CRA’s payroll tables. The office manager spends nearly a full day on each bi-weekly payroll, and last year CRA assessed a $1,200 penalty for a remittance timing error.

The agency switches to Wagepoint, which integrates with their existing QuickBooks Online. Payroll now takes under an hour, including review time. The system automatically handles two employees in BC and one remote employee in Alberta with different provincial tax rates. ROEs are filed electronically through the system when the agency’s contract designer goes on parental leave.

Tools

• Wagepoint – Canadian-built payroll software that handles all federal and provincial requirements, automatic CRA remittances, T4s, and ROEs. Integrates with Xero and QuickBooks Online.
• QuickBooks Payroll – Payroll add-on for QuickBooks Online users, providing seamless integration between payroll and accounting with automatic tax calculations and filings.
• Knit People – Canadian payroll platform with strong compliance features, time tracking integration, and HR tools for growing teams.
• CRA Payroll Deductions Online Calculator (PDOC) – Free government tool for verifying calculations or handling one-off situations, though not a replacement for payroll software.

Sources

• CRA – Payroll
• CRA – Calculate payroll deductions and contributions
• CRA – Payroll Deductions Online Calculator
• CRA – Open or manage a payroll account

Pro Tip

When choosing payroll software, prioritize integration with your accounting system over standalone features. Double-entering payroll data into your books is a waste of time and a source of errors. Wagepoint syncs beautifully with Xero and QuickBooks Online. The few extra dollars per month for proper integration pays for itself in the first pay run.

Need Help?

Setting up payroll correctly from the start saves headaches down the road. At Back Office Stars, we help Canadian marketing agencies choose and configure payroll software that integrates with their accounting system, ensuring accurate deductions, timely remittances, and clean books. Book a call and we’ll get your payroll running smoothly.