Operational Setup: Banking, Accounting, Payroll, and the Construction Act

Who This Guide Is For

You've incorporated, registered with every government body, secured your licences, bought your insurance, and built your safety program. Your company exists on paper and in every database that matters. Now you need the operational infrastructure to actually run a business: move money, track it, pay people, and understand the legal framework that governs how you get paid in construction.

This guide is less about compliance and more about setting up the machinery of your business so that when you win your first project (Guide 8), you can execute it without scrambling.

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Section 1: Opening Your Business Bank Account

Why You Can't Skip This

Your corporation is a separate legal entity from you. Its money must be separate from your money. Mixing personal and corporate funds is called commingling, and it is one of the fastest ways to lose the liability protection that incorporation gives you.

If a court finds that you treated the corporation's money as your own (paying personal expenses from the corporate account, depositing corporate cheques into your personal account, no clear separation), they can pierce the corporate veil, meaning your personal assets become exposed to the corporation's debts and liabilities. Everything you did in Guide 1 to protect yourself is undone.

Beyond legal protection:

• Your accountant needs clean books with a dedicated corporate account
• CRA expects corporate revenue and expenses to flow through a corporate account
• Clients paying your corporation should see the corporate name on the account
• Payroll deductions must be remitted from a business account
• WSIB premiums, insurance premiums, and licensing fees should all come from the corporate account

What You Need to Open the Account

Every bank will require:

1. Certificate of Incorporation (original or certified copy)
2. Articles of Incorporation
3. Business Number (BN) from CRA
4. Corporate resolution authorizing banking: a resolution of the directors naming the bank, authorizing the opening of accounts, and designating signing officers. This is one of the documents in your minute book.
5. Personal identification for all signing officers (two pieces of government-issued ID)
6. Proof of business address

Some banks also ask for:

• Corporate by-laws (or relevant extracts)
• Shareholder register
• Director register
• HST registration number

Choosing a Bank

For a construction company, the things that actually matter:

Business credit line availability. Construction cash flow is brutal. You invoice, wait 30-60 days for payment, and meanwhile you're paying suppliers, subs, and workers weekly. A line of credit is essential. Ask each bank about their process and requirements for a business line of credit. New corporations typically can't get one immediately, but establishing the relationship early matters.

Cheque/payment processing. You'll issue a lot of cheques and electronic payments (supplier payments, sub payments). Some banks charge per transaction, some offer unlimited transactions with a monthly fee. Compare the cost structures based on your expected volume.

Integration with accounting software. Whichever accounting software you choose (Section 2), confirm the bank offers a direct feed/sync. Manual data entry is a waste of time.

Construction industry experience. Some commercial banking teams understand construction cash flow patterns (progress billings, holdbacks, mobilization advances). A banker who understands construction is more likely to approve a credit line for a seasonal business with lumpy revenue.

Major banks with established commercial banking for construction:

• RBC, TD, BMO, Scotiabank, CIBC all have commercial/small business teams
• Credit unions are sometimes more flexible on credit for new businesses, but have fewer branches and services

The Banking Resolution

Your minute book should include a resolution that:

1. Names the financial institution
2. Authorizes the opening of chequing, savings, and/or investment accounts
3. Names the signing officers and their authorities
4. Specifies signing requirements (e.g., "any one director may sign cheques under $5,000; two directors must sign cheques of $5,000 or more")
5. Authorizes online banking access
6. Authorizes the corporation to borrow (line of credit, overdraft)

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Section 2: Setting Up Accounting Software

Why This Matters From Day 1

Construction accounting is different from other industries. You need software that handles:

• Job costing: tracking revenue and costs per project, not just in aggregate
• Progress billing: invoicing based on percentage complete, milestones, or schedule of values
• Holdbacks: the 10% statutory holdback under the Construction Act (money billed but not yet payable)
• HST tracking: input tax credits on purchases, HST collected on sales, net remittance calculation
• Subcontractor payments: tracking what you owe subs, what holdbacks you're retaining from them, when holdbacks release
• Change orders: tracking approved changes to contract value
• CRA remittances: payroll deductions, HST payments, corporate tax instalments

Your Options

For a new construction company, QuickBooks Online is the standard starting point. Most accountants and bookkeepers are proficient with it, it handles HST and basic payroll, and it integrates with your bank. But know that you'll likely outgrow it. Most growing construction companies migrate to Sage 300 CRE, Jonas, or Maestro within their first few years as job costing, progress billing, and payroll complexity demand purpose-built tools.

Setting It Up Right

When you (or your bookkeeper) set up your accounting software:

Chart of accounts for construction:

• Revenue accounts by type (contract revenue, change order revenue, T&M revenue)
• Cost of goods sold / direct costs broken down: labour, materials, subcontractors, equipment, permits
• Overhead accounts: insurance, office rent, vehicle costs, professional fees, bank charges
• HST receivable and HST payable accounts
• Holdback receivable (money your clients owe you but are holding back) and holdback payable (money you're holding from your subs)

Job/project tracking:

• Set up each contract as a separate "project" or "job" in the software
• Track all revenue and costs to the specific project
• This is essential for knowing which projects are profitable and which are bleeding money

HST settings:

• Configure for 13% Ontario HST
• Set your filing frequency (Guide 2)
• Enable ITC tracking on purchases

Payroll settings (if you have employees):

• Configure federal and Ontario tax tables
• Set up CPP, EI, and income tax deductions
• Configure WSIB premium tracking
• Set remittance frequency per your CRA assignment

Do You Need a Bookkeeper?

Probably, yes. Unless you enjoy data entry and reconciliation, hire a bookkeeper from Day 1, even part-time. A construction-experienced bookkeeper will:

• Enter invoices and receipts
• Reconcile your bank accounts monthly
• Track HST collected and paid
• Prepare your HST returns (or give your accountant the numbers)
• Run payroll (or manage a payroll service)
• Track holdbacks and progress billings
• Keep your books clean for your year-end accountant

Cost: $300 - $800/month for a part-time bookkeeper, depending on volume.

Do you need an accountant? Yes, at least for year-end. A CPA prepares your T2 corporate tax return, reviews your books, advises on tax planning (salary vs. dividends, HST optimization, capital cost allowance), and prepares any reviewed or audited financial statements you need for bonding (Guide 5) or bank financing.

Cost: $2,000 - $5,000/year for a small corporation's year-end preparation.

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Section 3: Setting Up Payroll

If You Have Employees

You registered your CRA payroll account in Guide 2. Now you need a system to actually process payroll: calculate deductions, issue pay, and remit to CRA.

Why Construction Payroll Is Different

Before you pick a system, understand that construction payroll is fundamentally more complex than most industries. You're not paying a fixed salary to office workers on the same schedule every two weeks. In construction, you're typically managing:

Both hourly wages and salaries. Your field crew (labourers, carpenters, electricians, operators) are paid hourly wages based on hours worked. Your office staff, project managers, and estimators may be salaried. Many construction companies run both types simultaneously, which means your payroll system needs to handle wage calculations, overtime rules, and salary splits in the same pay run.

Multiple pay rates per employee. A journeyman carpenter might earn $38/hour on regular residential work, $42/hour on commercial, and 1.5x on overtime. Workers may earn different rates for different types of work, different projects, or different shifts. Your payroll system needs to handle this; generic small-business payroll software often cannot.

Frequent ROEs. Construction workers get laid off and rehired regularly: project ends, weather shutdowns, seasonal slowdowns. You'll issue Records of Employment far more often than most employers. Get comfortable with Service Canada's ROE Web system.

Your Options

Option A: Use your accounting software's payroll module

• QuickBooks Online Payroll: ~$22 - $40/month + $5/employee/month
• Handles T4s, ROEs, CRA remittances, direct deposit
• Everything in one system
• Good for small teams (under 10 employees) with straightforward pay structures

Option B: Construction-specific payroll software

• Maestro: purpose-built for Canadian construction; handles union/non-union, multiple rates, certified payroll
• Jonas Construction : integrated construction ERP with payroll that understands prevailing wages, burden rates, and union remittances
• Sage 300 Construction: project-level payroll allocation, certified payroll reports, multi-rate handling
• These are the systems your competitors are using once they grow past 10-15 employees
• They cost more ($200 - $500+/month) but they actually understand how construction companies pay people

Option C: General dedicated payroll service

• Wagepoint, Humi, ADP, Ceridian
• $20 - $100/month base + per-employee fees
• ADP and Ceridian offer construction-specific modules for larger operations
• Wagepoint and Humi are simpler and work well for small non-union crews

Option D: Full-service payroll provider

• ADP full-service, Ceridian Dayforce, or a payroll-specialist accountant
• They calculate everything, file everything, handle ROEs
• You provide hours worked and they do the rest
• Most expensive but least effort
• Good if you don't want to touch payroll at all

More Construction Payroll Complexities

Per diems and travel allowances. Workers on out-of-town projects may receive per diem payments. These have specific CRA rules about taxability; under certain thresholds and conditions, they're non-taxable. Get this wrong and CRA will reassess.

Union vs. non-union. If your workers are unionized, you'll remit to multiple funds: union dues, pension, health benefits, training fund, vacation pay fund. Each has its own reporting format and deadline. Union payroll is significantly more complex.

Piece work / production pay. Some trades pay by the unit (per square foot of drywall installed, per fixture hung). Your payroll system needs to calculate earnings from production records.

Payroll Remittance Schedule

As covered in Guide 2, your CRA remittance schedule depends on your total annual deductions:

New employers start as regular (monthly) remitters. CRA adjusts your frequency based on your actual remittance volume.

Set up pre-authorized debit with CRA so remittances go automatically. Missed payroll remittances are one of the few things that make directors personally liable (Guide 2).

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Section 4: HST Filing Frequency and Management

Understanding Your Cash Flow Impact

HST filing frequency has a direct impact on your cash flow, and in construction, this matters more than most industries because of the timing gap between when you bill HST and when you collect payment.

The problem:

January:    Invoice client $100,000 + $13,000 HST = $113,000
February:   Client pays... nothing yet (30-day terms)
March:      Client pays $113,000
March 31:   Your HST return is due (if quarterly filer)

You owe CRA: $13,000 HST collected
Minus ITCs:  -$5,000 (HST on materials, subs, etc.)
Net owing:   $8,000

But what if the client hasn't paid yet? You still owe the $8,000.

HST in construction is triggered on invoicing, not on payment receipt. This means you can owe CRA money you haven't collected yet. With construction payment cycles of 30-60+ days, this creates real cash flow pressure.

Choosing Your Filing Frequency

For a new construction company that's spending heavily on materials, equipment, and startup costs: Consider voluntary monthly filing. In your early months, you'll likely have more HST paid (on purchases) than HST collected (on sales). Monthly filing means you get those refunds back quickly instead of waiting a year.

Once you're established and consistently collecting more HST than you pay: Quarterly or annual is fine, as long as you're setting aside the HST collected so you're not caught short at filing time.

The HST Set-Aside Discipline

The single most important financial discipline for a new construction company: HST collected is not your money. The moment a client pays an invoice that includes HST, mentally subtract the HST portion. It belongs to CRA.

Open a separate savings account and transfer HST collected into it immediately. When your filing is due, the money is there. Too many new contractors spend the HST portion on operations and then scramble to pay CRA, or worse, can't pay and face penalties and interest.

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Section 5: The Ontario Construction Act: What You Must Know

Why This Section Exists

The Ontario Construction Act (formerly the Construction Lien Act, substantially reformed in 2018) governs how money flows in construction projects and how parties protect their right to payment. If you don't understand this law, you will lose money. Possibly a lot of it.

This is required reading. Every construction company in Ontario operates under this framework whether they know it or not.

Prompt Payment: The Rules

The 2019 prompt payment amendments created mandatory payment timelines:

From the owner down to the general contractor:

• The owner must pay the GC's proper invoice within 28 days of receipt
• A "proper invoice" is one that meets the contractual requirements for invoicing (format, supporting documentation, certification)
• If the owner disputes all or part of the invoice, they must deliver a Notice of Non-Payment within 14 days of receiving the invoice, stating what's disputed and why
• Undisputed amounts must still be paid within the 28-day period

From the GC down to subcontractors:

• The GC must pay each sub within 7 days of receiving payment from the owner for that sub's work
• So the full cycle is: sub invoices GC -> GC includes it in their invoice to the owner -> owner pays GC within 28 days -> GC pays sub within 7 days of receiving payment = maximum 35 days from GC's invoice

From subcontractors down to sub-subcontractors:

• Same 7-day rule after receiving payment

If any party fails to pay on time without delivering a valid Notice of Non-Payment, interest accrues at the rate specified in the contract (or the Construction Act default rate).

What This Means for You

If you're a subcontractor:

• Submit proper invoices on time and in the correct format
• If you don't get paid within 35 days of the GC's invoice to the owner, something is wrong
• If you receive a Notice of Non-Payment, you have the right to refer the dispute to adjudication (a fast, binding dispute resolution process under the Act)

If you're a general contractor:

• You must pay your subs within 7 days of receiving payment from the owner
• You must flow down the Notice of Non-Payment process; if the owner disputes part of your invoice, you must notify affected subs
• You cannot hold sub payments while disputing unrelated items with the owner

Holdbacks: The 10% Rule

Under the Construction Act, every payer in the construction chain must retain a 10% holdback from each payment:

Invoice from sub to GC:    $100,000
GC pays sub:               $90,000 (releases 90%)
GC retains:                $10,000 (10% holdback)

The holdback exists to protect lien rights. Subcontractors and suppliers who aren't paid can file a construction lien against the property. The holdback creates a pool of money to satisfy lien claims.

When holdbacks release:

• The holdback for each subcontract becomes payable 60 days after:
  • The subcontractor's work is substantially complete, OR
  • The contract is completed or abandoned, OR
  • The subcontractor last supplied services or materials
• If no lien is preserved within that 60-day window, the holdback must be released

This directly impacts your cash flow. On a $500,000 subcontract, $50,000 is held back throughout the project and for 60 days after completion. You need to plan for this.

Construction Liens: Protecting Your Right to Payment

If you don't get paid, the Construction Act gives you a powerful remedy: a construction lien against the property where you performed work.

Who can lien:

• Any person who supplies services or materials to an "improvement" (construction project) on the premises
• This includes GCs, subs, sub-subs, material suppliers, equipment rental companies, and even architects/engineers

How it works:

1. Preserve your lien. Register a Claim for Lien on title to the property within 60 days of:

   • Your last day of supplying services or materials, OR
   • The date of publication of a Certificate of Substantial Performance (if one is published)

   Miss this 60-day deadline and your lien right is gone forever. There are no extensions, no excuses, no mercy. This is the most important deadline in construction law.

2. Perfect your lien. Commence a court action to enforce the lien within 90 days of the last day you could have preserved it (i.e., 150 days total from last supply of services)

3. The lien attaches to the property, not to the person who owes you money. The property owner's land is encumbered until the lien is resolved. This gives you enormous leverage; no owner wants a lien on their property.

Statutory Declaration

Before releasing holdback, the payer (GC or owner) will typically require a Statutory Declaration from you, a sworn statement that you've paid all your subs, suppliers, and workers for the project. This protects them from lien claims by parties you've failed to pay.

Your Document Center includes a Statutory Declaration template for this purpose.

Adjudication: Fast Dispute Resolution

The 2019 amendments introduced interim adjudication, a rapid, binding (but temporarily) dispute resolution process:

• Either party can refer a payment dispute to adjudication
• An adjudicator is appointed within 7 days
• The adjudicator issues a determination within 30 days (extendable to 45)
• The determination is binding on an interim basis, meaning you must comply with it, but either party can later commence court proceedings or arbitration to get a final determination
• Non-compliance with an adjudicator's determination can result in a court order for payment, plus the right to suspend work

This is a game-changer for subcontractors. Before adjudication, your only remedy for non-payment was a lien + lawsuit, which could take years. Now you can get a binding payment determination in 30 days.

Key Deadlines Summary

The Bottom Line

The Construction Act is the most important law governing your business after the OHSA. Understanding prompt payment timelines, holdback rules, and lien rights is the difference between getting paid and writing off receivables.

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Section 6: Business Line of Credit

Why Construction Companies Need Credit

Construction cash flow is structurally negative in the early stages of a project:

Week 1-4:    Mobilize, buy materials, pay workers        -$50,000
Week 4:      Submit first progress invoice                $0 collected
Week 8:      Client pays first invoice                    +$90,000 (minus 10% holdback)
Week 5-8:    Continue spending on materials, labour       -$50,000
Net:         You're -$10,000 even though you billed $100K

Add in the 10% holdback, 30-60 day payment cycles, and the reality that you often need to fund materials before work begins, and most construction companies need working capital financing to survive the first year.

What to Ask Your Bank For

Operating line of credit:

• Revolving credit facility tied to your receivables
• Draw when you need cash, repay when clients pay
• Interest only on the drawn balance (prime + 1% to prime + 4% typical for construction)
• Typical limits: $25,000 - $250,000 for new small contractors

What the bank wants to see:

• 6-12 months of business banking history (this is why you open your account early)
• Clean books showing revenue and expenses
• Personal guarantee from the director(s), almost always required for new companies
• Possibly a personal asset pledge (home equity)
• Your contracts / backlog (evidence of future revenue)
• Your receivables aging (evidence that clients pay)

Reality check: Most banks won't give a meaningful credit line to a brand-new corporation with no revenue history. Start with what you can get (even $10,000 overdraft protection) and build from there. Every month of clean banking history helps.

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Section 7: Invoice Factoring: Getting Paid Now Instead of Later

The Problem It Solves

You invoiced $85,000 three weeks ago. The work is done. The client approved the progress claim. But payment terms say net-30, the client is slow, and realistically you won't see that money for 45-60 days. Meanwhile, you need to pay your crew on Friday, your material supplier's invoice is due next week, and your sub is chasing you for last month's payment.

A line of credit helps, but banks are cautious with new companies, and your limit may not cover the gap. Invoice factoring bridges this gap immediately.

How It Works

1. You complete work and submit a proper invoice to your client
2. You sell that invoice (the receivable) to a factoring company
3. The factor advances you 85% - 95% of the invoice value within 24-48 hours
4. Your client pays the factor directly (or pays you and you remit, depending on the structure)
5. When the client pays, the factor releases the remaining balance to you, minus their fee

Example:

Your invoice:                    $100,000
Factor advances (90%):           $90,000 -> in your account in 24-48 hrs
Client pays factor in 45 days:   $100,000
Factor releases remainder:       $10,000 - $2,500 fee = $7,500
Total you received:              $97,500
Factoring cost:                  $2,500 (2.5% of invoice)

Factoring vs. Line of Credit

When Factoring Makes Sense for Construction

Good fit:

• New company with no banking history but working for creditworthy clients (government, institutional, large GCs)
• Rapid growth: you're winning more work than your cash flow can support
• Seasonal ramp-up: you need to fund a big spring mobilization before cash starts flowing
• Bridge financing while waiting for holdback releases
• Your clients are slow payers (60-90 days) but reliable

Less ideal:

• Your clients are small, unknown, or have poor credit (factors assess your client, not you)
• Your invoices are disputed or subject to significant change orders (factors want clean receivables)
• The factoring cost exceeds your profit margin on the work

Types of Factoring

Recourse factoring: If your client doesn't pay, you owe the factor back. Lower fees (1.5% - 3%) because you carry the credit risk.

Non-recourse factoring: The factor absorbs the credit risk if your client doesn't pay. Higher fees (2.5% - 4%+) but you're fully protected against client default.

Spot factoring: You factor individual invoices as needed rather than committing your entire receivables book. More flexible but slightly higher per-invoice fees.

Whole-ledger factoring: You factor all your receivables through one provider. Lower rates, but you're locked in and all your clients interact with the factor.

For most new construction companies, spot factoring with recourse is the starting point: you factor the invoices you need to, when you need to, and keep the cost down.

What Factors Look For

The factor cares more about your client than about you:

• Is the client creditworthy? (Government and institutional clients are ideal; they always pay, just slowly)
• Is the invoice for completed, undisputed work?
• Is there a signed contract backing the invoice?
• Are there any liens, disputes, or set-offs that could reduce the payment?
• Is the invoice a progress billing against a schedule of values? (Factors prefer these over T&M invoices)

Construction-specific considerations:

• Holdbacks: Most factors will only advance against the 90% payable portion, not the 10% holdback. The holdback is released separately when it comes due.
• Progress billings: Factors familiar with construction understand percentage-of-completion billing and will advance against certified progress claims.
• GC vs. owner invoices: If you're a sub invoicing a GC, the factor assesses the GC's credit. If you're a GC invoicing an owner, the factor assesses the owner. Government and institutional owners get the best rates.

What It Costs

On an annual basis, factoring is more expensive than a line of credit. But availability is the point: you can access factoring when a bank won't give you a credit line, and you can scale it with your revenue without renegotiating a lending facility.

The Math That Matters

Factoring only makes sense if the cost of factoring is less than the cost of not having cash:

• If factoring costs you 2.5% but lets you take on a project with a 15% margin that you couldn't otherwise fund, it's worth it
• If factoring costs you 3% but your profit margin on the work is only 5%, your effective margin drops to 2%, which may not be worth the risk
• If not having cash means you can't make payroll or pay subs, factoring becomes a matter of survival

Many successful construction companies use factoring strategically in their first 1-3 years, then transition to bank financing as they build credit history and financial track record.

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Total Operational Setup Costs

These aren't optional costs; they're the cost of running a real business. Budget for them.

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Common Mistakes to Avoid

1. Mixing personal and corporate finances. I said it at the top and I'll say it again. Separate accounts, separate credit cards, no personal expenses through the company, no corporate deposits into your personal account. Ever. Your accountant, your lawyer, CRA, and a court will all judge you on this.

2. Not understanding holdbacks. New contractors who bid based on full-value cash flow projections are shocked when 10% of every invoice is held for months. Factor holdbacks into every cash flow projection. On a $1M project, that's $100,000 you won't see until 60 days after completion.

3. Spending HST collected. It's not your money. Set it aside. When the CRA remittance is due, you need it available. This is the #1 cash crisis for new construction companies.

4. Not filing ROEs promptly. When a construction worker is laid off, they need their ROE to claim EI. Service Canada expects ROEs within 5 calendar days of the interruption of earnings. Late ROEs mean your worker can't access benefits, and CRA can fine you $250 per late ROE.

5. Ignoring the 60-day lien deadline. If a client doesn't pay you, your construction lien right expires 60 days after your last day of work on the project. Not 60 business days. Not 60 days after the invoice. Not 60 days after the payment was due. 60 calendar days after you last supplied services or materials. If this deadline passes, your most powerful collection tool is gone. Track it.

6. Not getting a construction-savvy accountant. A general accountant may not understand holdbacks, WIP (work-in-progress) accounting, percentage-of-completion revenue recognition, or construction-specific CRA audit triggers. Find a CPA who works with contractors.

7. Underbidding because you forgot overhead. Your bid price must cover not just direct costs (labour, materials, subs) but also overhead: insurance ($5K-$10K), WSIB premiums, accounting ($5K-$15K), vehicle costs, office costs, phone, software, and your own salary. Add 15-25% overhead markup to your direct costs before you even think about profit margin.

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What Happens Next

You now have everything in place to operate:

• A legal entity (Guide 1)
• Government registrations (Guides 2-3)
• Licences (Guide 4)
• Insurance and bonding (Guide 5)
• Safety compliance (Guide 6)
• Banking, accounting, payroll, and legal knowledge (this guide)

One thing remains: winning work.

• Guide 8: Bid Readiness: How to assemble everything you've built into a prequalification package, company profile, and bid submission that wins contracts. This is where it all comes together.