A few months ago I published a post titled My 2008 Personal Income Tax Results, and in it I mentioned how I was going to set payroll up with my corporation to pay my personal self in the future, to make processing and managing income tax easier.
Originally, I was going to process the payroll all by myself, do all the calculations and paperwork, and remit the income taxes to the CRA (Canadian Revenue Agency) every paycheck.
I was very stressed about having to set it up and how much time it would take to process manually every 2 weeks, so I posed the following question to my readers: “Does anyone have any experience setting up a payroll through a corporation with the Canadian Revenue Agency?”.
Fortunately, a number of people responded with helpful comments. In particular, I’d like to thank Paul Piotrowski, Martin, and Brian for really pushing me to use a 3rd party payroll management service.
In Canada at least, there are basically two sources for outsourcing your payroll management needs: Ceridian and ADP. Both are absolutely massive companies and have favourable reputations behind them, but I ended up going with Ceridian (the company Paul recommended to me) because it’s Canada’s largest payroll management company and is also tied in a partnership with TD Canada Trust, which is where my corporate bank account resides.
Getting set up with Ceridian wasn’t too difficult. After speaking with a representative over the phone who answered all my questions politely, I was sent a bunch of forms via PDF which I signed, scanned, and e-mailed back.
I also had to provide important information such as documentation and proof of my company’s incorporation, a signed statement from my bank, etc. It did take a little while getting everything in order, but Ceridian employees are very tech-savvy and respond to your e-mails pretty fast so I believe my setting up process was actually finished by the next day.
The next step was to get acquainted with the Powerpay system – Ceridian’s online payroll control panel where I can manage every aspect of payroll. It came with a 100+ page PDF instruction manual which I quickly read a couple times, but for the most part it is fairly self-explanatory.
I spoke to another representative who walked me through how to submit my first payroll, and it’s really just a few steps.
Here is a screenshot of one of the screens within the Powerpay system:
Basically, I just have to log in once a month and submit my payroll. This only takes a minute, and can actually be automated if you want the same amount each month. I chose to do it by hand so I can become familiar with how it works.
I should mention that the Powerpay system is only one method of managing your payroll. You can also do it over the phone, for example.
I have my payroll set up to run once a month, and it takes the amount from my corporate bank account on the 28th and, since I set up direct deposit with my personal bank account, deposits there on the 1st. These dates may change slightly depending on whether or not they fall on a weekend or holiday.
I currently have my payroll set up to pay me $4,500 each pay period (once a month). This is the gross amount before taxes. I only need to pay myself enough to live on – the rest will stay in the corporation to take advantage of the lower tax bracket.
In Canada, in addition to the basic income tax, we also have to pay into the CPP – Canadian Pension Plan. This is forced and mandatory. The sad part is, my generation will most likely never see a dime of the CPP… our government pension plan is is not much better shape than America’s.
To make matters worse, since I am both the employer and employee, I have to pay the CPP twice! CPP is nearly 5%, so that’s 10% from the gross amount that is going down the drain.
Below is a screenshot of my first payroll summary:
As you can see, of my initial $4,500 payment, $799.91 goes as general income tax, $208.31 goes to the employee CPP, and another $208.31 goes to the employer CPP. That works out to $1,216.53 that is immediately taken off and sent to the government.
What’s left is $3,491.78.
My first payroll was sent out without any problems and withdrawn as scheduled from my corporate bank account on the 28th, as seen in the screenshot below:
The reason why it shows a debit of $5,156.18 instead of $4,500 is because there were some initial set-up fees with Ceridian. For those wondering, the actual service cost to use Ceridian is only around $25 a month once you’re set up. The set-up fee will vary as well, but I paid around $600 since I opted for a paperless feature.
On the 1st of the following month, I checked my personal bank account to see that my very first payroll payment was deposited flawlessly with the correct amount of $3,491.78.
Awesome. What I really like is that I’m free to move around money as I want. For example, if I wanted an ‘advance’ of $30,000 to buy a new car, I could process that immediately. I’m not limited to being locked into a fixed $4,500 per month.
I’m very happy I went with a 3rd party payroll management company such as Ceridian instead of doing it by myself. I have no doubt that the decision saved me countless hours of accounting work each month, and all for only around $25 a month.
So, if you’re looking to set up payroll for your company, definitely outsource it. It’s really easy once you’re set up.