Hiring Your First Employee in Canada: Day One Compliance Checklist (CRA, WCB, OHS) 2026

Why “Hire First, Comply Later” Is a Dangerous Strategy

For immigrant entrepreneurs and first-time Canadian employers, the biggest payroll surprise is not the deduction rates — it is the timing. The moment you hire an employee, a cascade of legal obligations activates automatically. CRA does not wait for you to figure out the system; it expects the first remittance to arrive on schedule whether or not you have registered your payroll account.

Canada’s payroll compliance framework is administered primarily by the Canada Revenue Agency at the federal level, with Quebec operating its own parallel system through Revenu Québec. The federal framework covers CPP (Canada Pension Plan), EI (Employment Insurance), and federal income tax withholding. Quebec adds QPP (Quebec Pension Plan) in place of CPP, QPIP (Quebec Parental Insurance Plan) alongside EI, and the RL-1 slip alongside the T4.

What most small business owners do not appreciate until it is too late is that directors carry personal, unlimited liability for unremitted payroll deductions. This liability does not disappear when the corporation goes bankrupt. Understanding this single point can change how you approach every payroll decision for the life of your company.

Step 1 — Register Your CRA Payroll Account

Before you issue your first paycheque — or more precisely, before the remittance due date for the first deductions — you must open a Payroll Program Account with the CRA. This account is identified by your existing Business Number (BN) with an “RP” suffix, typically in the form 123456789 RP 0001.

If you do not yet have a Business Number, you must obtain one first, then add the RP payroll extension. There are three ways to register:

• Online: Through CRA’s My Business Account portal or the Business Registration Online (BRO) service — fastest option, usually active within minutes
• By telephone: Call CRA’s business enquiries line at 1-800-959-5525
• By mail: Submit Form RC1 (Request for a Business Number and Certain Program Accounts)

The timing rule: The first payroll remittance is due by the 15th day of the month following the month in which you made your first deductions. If you first deduct CPP, EI, and income tax from a paycheque issued April 15, your first remittance deadline is May 15. Your payroll account must exist before that date.

Many new employers believe they can pay the employee first and register the payroll account retroactively. In practice, CRA treats a missing registration as a compliance failure. Penalties apply immediately on the first missed remittance, and CRA’s audit algorithms flag accounts with a gap between business start date and payroll account open date.

If your company already holds a GST/HST Program Account, you simply add the RP payroll extension to your existing BN. You do not need to obtain a separate Business Number.

Step 2 — Apply the Correct 2025 CPP and EI Rates

Every employee (not an independent contractor) who is employed in insurable and pensionable employment must contribute to CPP and EI. As employer, you are responsible for deducting the employee’s share at source and adding your own employer contribution before remitting the combined amount to CRA.

2025 CPP and EI Rate Table

Plan / Program	Employee Rate	Employer Rate	Annual Employee Maximum
CPP — First Tier	5.95%	5.95% (matches employee)	$4,034.10
CPP2 — Second Additional Tier	4.00%	4.00% (matches employee)	$416.00
EI — Outside Quebec	$1.64 per $100 insurable earnings	$2.30 per $100 (×1.4 multiplier)	$1,077.48
EI — Inside Quebec	$1.31 per $100 insurable earnings	$1.83 per $100 (×1.4 multiplier)	Lower (QPIP applies separately)

Understanding CPP2 — The New Second Tier

CPP2 was introduced in 2024 as part of the federal government’s phased enhancement of the Canada Pension Plan. It applies to earnings between the first Year’s Maximum Pensionable Earnings (YMPE — $68,500 in 2025) and the Year’s Additional Maximum Pensionable Earnings (YAMPE — $73,200 in 2025). Both employee and employer contribute 4.00% on this earnings band.

For most small businesses with employees earning under $68,500, CPP2 will not apply. For higher-paid staff, it is essential that your payroll software is configured to calculate both tiers separately, cap them correctly, and remit both contributions as part of your regular payroll remittance.

Why Quebec EI Rates Are Lower

Quebec administers its own parental insurance program, QPIP (Quebec Parental Insurance Plan), which covers maternity, paternity, adoption, and parental leaves. Because QPIP takes over the parental-benefit component that federal EI covers in other provinces, the federal EI premium rate is set lower for Quebec employees. Quebec employers must remit both the reduced federal EI contribution and separate QPIP premiums to Revenu Québec.

Common Mistakes to Avoid

• Deducting only the employee CPP/EI share — employers must add their own matching contribution (CPP) or 1.4× multiplied contribution (EI) to every remittance
• Using CPP rates for Quebec employees — Quebec residents contribute to QPP, not CPP; the two programs are separate and managed by separate agencies
• Forgetting CPP2 for higher earners — payroll software must be updated to apply both CPP tiers correctly
• Misclassifying an employee as a contractor — if CRA determines a worker-for-hire relationship exists, all undeducted CPP, EI, and income tax become immediately owing, with interest from the date deductions should have started

Step 3 — Know Your Remittance Schedule

CRA assigns remittance frequency based on your Average Monthly Withholding Amount (AMWA) from two calendar years prior. New employers default to monthly remittance, but may qualify for quarterly remittance if their withholding is very small.

Employer Category	AMWA Threshold	Remittance Due Date
New employer (default) / Regular	Any	15th of the following month
Quarterly remitter (small)	AMWA < $1,000 with good compliance	Apr 15 / Jul 15 / Oct 15 / Jan 15
Accelerated Tier 1	$25,000–$99,999.99	Twice-monthly: deductions from 1st–15th due by 25th; 16th–month-end due by 10th of next month
Accelerated Tier 2	≥ $100,000	Within 3 business days of payroll

Quarterly remittance qualification: This is one of the most useful but least-known CRA accommodations for micro-employers. If your total monthly deductions are consistently below $1,000 and you have a clean compliance record for the prior 12 months, CRA may approve quarterly remittance. This is not automatic — you must verify your eligibility through My Business Account. Losing this status (by missing a remittance or having your AMWA rise) will revert you to monthly without notice.

Late-remittance penalties begin at 3% for 1–3 days late, rising to 7% for 4–5 days late, and 10% for more than 7 days late. If CRA determines that the failure was due to “gross negligence” or was intentional, the penalty can reach 20% of the outstanding amount. Penalties compound with daily interest. A single missed monthly remittance on a $5,000 payroll can cost $500 in penalties before interest is added.

Step 4 — Understand Director Personal Liability Under ITA Section 227.1

This is the legal risk that surprises most small business owners, particularly those who assumed that incorporation protects them from all personal liability. It does not protect them from unremitted payroll deductions.

Section 227.1 of the Income Tax Act (ITA) and the parallel provision in Section 323 of the Excise Tax Act make every director of a corporation jointly and severally liable — meaning personally and without limit — for amounts the corporation failed to remit. This includes the employee share of CPP and EI, the employer share, and all income tax withheld at source. Penalties and interest are also included in the personal liability.

The Critical Point: Corporate Bankruptcy Does Not Erase Director Liability

CRA’s collection process requires it to first exhaust remedies against the corporation — issue assessments, file tax liens, seize assets. Only after confirming that the corporation cannot satisfy the debt does CRA turn to directors personally. But once that threshold is met, the personal assessment follows. A director who resigned two years ago from a company that is now insolvent may still receive a personal assessment for deductions that were not remitted during their tenure.

Who Qualifies as a “Director”?

The legal definition is broader than the corporate registry entry. Courts and CRA have extended director liability to “de facto directors” — individuals who exercised director-level authority without being formally appointed. In family-owned SMEs, a spouse who signs contracts, approves payroll, or manages day-to-day operations may be treated as a de facto director. Every person in this position carries the same unlimited personal liability.

The Due Diligence Defence — What Actually Works

Section 227.1(3) provides a due diligence defence: a director is not liable if they exercised the degree of care, diligence and skill to prevent the failure that a reasonably prudent person would have exercised in comparable circumstances. The courts have interpreted this strictly.

What constitutes a valid due diligence defence:

• Engaging a professional payroll service provider and retaining all remittance confirmation records
• Arranging a dedicated line of credit specifically to fund payroll remittances during cash-flow shortfalls
• Upon first discovering a remittance shortfall, immediately contacting a tax professional and CRA to arrange a payment plan
• Proactively disclosing unremitted amounts through CRA’s Voluntary Disclosures Program before CRA initiates contact

What does NOT constitute a valid defence:

• “I delegated payroll to my bookkeeper” — passive delegation without oversight is not due diligence
• “I didn’t know there was a problem” — ignorance of the failure is not a defence if the director had management authority
• “The business was struggling so we prioritized vendors” — cash-flow difficulty excuses nothing under s.227.1

A real pattern seen repeatedly in Canadian tax court: a founder-director runs a struggling startup, falls behind on CPP/EI remittances for six months to preserve cash, then the business folds. Three years later — after the director has rebuilt their financial life — CRA issues a personal assessment for the unremitted amount plus compounded interest and penalties. The total may have doubled. Canadian courts have consistently upheld CRA’s collection rights under s.227.1 in these circumstances.

Step 5 — File T4 and RL-1 Slips by February 28

February 28 is the single most important annual deadline for every Canadian employer. On this date, you must simultaneously deliver T4 slips to each employee and file T4 slips plus a T4 Summary with CRA. If you operate in Quebec, you must also file RL-1 (Relevé 1) slips with each employee and submit the RL-1 Summary to Revenu Québec.

Slip	Applies To	Filed With	Deadline
T4 + T4 Summary	All provinces	CRA (federal)	February 28 (or next business day)
RL-1 (Relevé 1) + Summary	Quebec employers	Revenu Québec (provincial)	February 28 (same as T4)

What the T4 Reports

The T4 captures employment income, federal income tax deducted, employee CPP contributions (Box 16), employee EI premiums (Box 18), and the value of employer-provided taxable benefits such as company vehicles, group life insurance contributions, and stock option benefits. Employers must report all taxable benefits accurately — the T4 is a key audit trigger if reported employment income appears inconsistent with third-party data CRA holds.

What the RL-1 Adds (Quebec Only)

The Relevé 1 is Quebec’s provincial equivalent of the T4. It reports QPP contributions (Box B), QPIP premiums (Box H), Quebec provincial income tax withheld (Box E), and Quebec-specific taxable benefits. The RL-1 is one of 31 RL-series slips issued by Revenu Québec, each covering different categories of Quebec-source income.

Late Filing Penalties

CRA’s T4 late-filing penalty is $10 per day, with a minimum of $100 and a maximum that scales with the number of slips: up to $1,000 for 1–5 slips, up to $7,500 for more than 50 slips. Revenu Québec applies separate late-filing penalties for RL-1 slips. Penalties from both agencies can apply simultaneously for Quebec employers.

Step 6 — Charge the Correct GST/HST Rate by Province

Payroll compliance and sales tax compliance often mature at the same time for a growing business. When you hire your first employee, you are likely approaching — or have already passed — the $30,000 threshold that requires GST/HST registration. Charging the wrong rate, or failing to charge when required, creates a liability that CRA will recover on audit.

Province	Tax Type	Combined Rate	Composition
Ontario	HST	13%	5% federal + 8% provincial
Quebec	GST + QST	14.975%	5% GST + 9.975% QST (administered separately)
British Columbia	GST + PST	12%	5% federal GST + 7% provincial PST
Alberta	GST only	5%	No provincial sales tax

Registration trigger: You must register for GST/HST within 30 days of the day your total taxable revenues in a single calendar quarter exceed $30,000, or at any point when your revenues over any four consecutive calendar quarters exceed $30,000. The $30,000 threshold is a rolling test — it catches businesses that grow gradually as well as those that spike suddenly.

Quebec’s dual-registration requirement: Selling into Quebec requires two separate sales tax registrations: (1) a GST account with CRA for the 5% federal portion, and (2) a QST account with Revenu Québec for the 9.975% provincial portion. Many businesses from other provinces entering the Quebec market make the mistake of registering only for GST and neglecting the QST. Revenu Québec actively pursues non-registrants for QST.

A Toronto IT consulting firm provided software services to Quebec clients for two years, collecting only 13% HST (Ontario rate). Revenu Québec issued an assessment requiring the firm to have collected and remitted 9.975% QST separately on all Quebec revenues. Since the firm had not collected this amount from clients, the QST liability plus penalties and interest — approximately $23,000 — became an out-of-pocket cost for the business.

Step 7 — Quebec Employers: Navigate the Full QPP/QPIP/RL-1 System

Operating in Quebec means running two parallel payroll compliance systems simultaneously — one federal (administered by CRA) and one provincial (administered by Revenu Québec). The two systems do not overlap; both are mandatory; and both carry their own penalty regimes.

Quebec Program	Federal Equivalent	Administered By	Key Difference
QPP (Quebec Pension Plan)	CPP	Revenu Québec	Quebec employees contribute to QPP, not CPP; both employer and employee pay the QPP rate
QPIP (Quebec Parental Insurance Plan)	EI (partial replacement)	Revenu Québec	Covers maternity, paternity, adoption leaves; why Quebec EI rate is lower
RL-1 (Relevé 1)	T4	Revenu Québec	Reports QPP, QPIP, Quebec income tax, and all provincial taxable benefits

Practical workflow for Quebec employers: At year-end, you must produce and file two separate annual payroll slips per employee — the T4 (to CRA, covering federal EI and federal income tax) and the RL-1 (to Revenu Québec, covering QPP, QPIP, and Quebec income tax). Both are due February 28. The two slips are not interchangeable and cannot substitute for each other.

2025 QPIP reference rates: Employee premium: $0.494 per $100 of insurable earnings (maximum insurable earnings: $94,000). Employer premium: $0.692 per $100. QPIP uniquely covers self-employed individuals who opt in — a feature not available in the federal EI program for most self-employed workers.

The Pre-Hire Compliance Checklist

How SiLaw Legal Research Team Helps

SiLaw’ AI legal engine is built for Canadian SMEs navigating exactly these compliance requirements. Whether you are hiring in Ontario, Quebec, BC, or across all four provinces, SiLaw delivers:

• Province-specific employment contract generation (ESA, CCQ, BC ESA, AB ESA compliant)
• Payroll compliance checklists with jurisdiction-specific CPP/EI/QPP/QPIP registration reminders
• Director liability risk flagging and mitigation recommendations
• T4/RL-1 filing deadline reminders integrated with your employment document calendar

Your first hire is a milestone. Compliance starts on day one — not when CRA sends the first letter.

Sources: CRA Payroll Account Registration (canada.ca); CPP Rates 2025 (canada.ca/cpp); EI Premium Rates 2025 (canada.ca/ei); Income Tax Act s.227.1 (laws-lois.justice.gc.ca); Excise Tax Act s.323; CRA T4 Guide (canada.ca/t4); Revenu Québec RL-1 Guide (revenuquebec.ca); QPIP Premium Rates 2025 (rqap.gouv.qc.ca); GST/HST Registration Threshold (canada.ca/gst-hst); IC89-2 Director Liability (canada.ca)