Taking on your first employee changes your legal status overnight. The moment you have someone on a wage, you are an employer: you must run payroll and remit source deductions to the CRA, register for and pay workers' compensation, meet your province's employment standards, and put the terms in writing. None of it is optional, and the penalties for skipping steps land on you, not the worker. This guide walks the order you actually do it in.
First, confirm they are really an employee
Before any of the steps below, be sure the person is genuinely an employee and not a contractor you are mislabelling. The test is the real working relationship, not the contract heading (see Employee vs Contractor: the CRA Test). If they are an employee, the obligations here apply in full.
Open a payroll account with the CRA
You cannot deduct and remit source deductions without a payroll (RP) program account attached to your Business Number. Open it before the first payday. From then on you withhold income tax, the employee's CPP and EI from each cheque, add the employer's CPP and EI on top, and send the lot to the CRA on a schedule set by how much you remit. The mechanics, the rates and the remittance deadlines are covered in full in Payroll, CPP, EI and Source Deductions.
Register with your workers' compensation board
In most provinces, workers' compensation coverage becomes mandatory the moment you engage a worker, with no minimum headcount (Nova Scotia is a notable exception, where it kicks in at three or more employees, voluntary below that). Register with your provincial board before the crew starts, because in construction you also need clearance certificates to get paid. The board, the registration trigger and the clearance rules differ by province, and Quebec uses the CNESST rather than a "WCB": see WCB Registration for Employers.
Know your provincial employment standards
Employment standards are provincial (federal only for federally regulated work). Hiring an employee means you are now bound by your province's floor on:
- Minimum wage: the lowest you may lawfully pay, with rates and effective dates that vary by province (see Minimum Wage by Province).
- Hours and overtime: the daily or weekly threshold past which overtime pay is owed. Common thresholds are 8 hours a day or 40 a week, though Ontario uses 44 a week and Nova Scotia and PEI use 48.
- Vacation pay: a minimum of 4% of wages, rising to 6% after a set number of years of service.
- Statutory holidays: between seven and twelve paid stat holidays a year depending on the jurisdiction.
- Termination notice: a statutory minimum notice (or pay in lieu) once the employee passes the qualifying period, usually three months. The statutory figure is a floor; common-law reasonable notice is often far higher.
These are minimums. Collective agreements, your own contract and the common law can all push the real obligation higher.
Put the offer in writing
A written offer of employment protects both sides and, crucially, is where you can cap termination obligations at the statutory minimum with a properly drafted termination clause. Without a clear, enforceable clause, the courts default to common-law reasonable notice, which for a long-serving employee can reach many months of pay. A sound written offer covers at least:
- Job title, duties and start date
- Pay rate, pay frequency and how overtime is handled
- Hours of work and probationary period
- Vacation and statutory holiday entitlement
- A termination clause that is compliant with your provincial standards
- Any tools, PPE allowance or vehicle arrangements
Have a template reviewed once by an employment lawyer; a clause that breaches the provincial minimum is void, and a void clause hands the employee the full common-law entitlement.
Get a SIN and set up the file
Collect the worker's Social Insurance Number (SIN) on day one, have them complete federal and provincial TD1 forms so you withhold the right income tax, and keep an employee file. You will need these numbers to run payroll and, the following February, to issue a T4.
Common mistakes
- Paying cash and "sorting tax later". There is no later. The CRA holds you liable for the deductions you should have withheld from day one.
- Skipping the WCB registration. No clearance certificate means principals may refuse to pay you, and an uninsured injury is a catastrophe.
- No written termination clause. Silence defaults to common-law notice, the most expensive outcome.
- Misreading the statutory notice as the whole obligation. It is the floor, not the ceiling.
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