Expanding operations to Canada or hiring remote employees within the country is an exciting prospect for international businesses. However, navigating Canada’s employment laws, payroll regulations, and benefits systems can be complex. This guide provides a detailed overview of what employers need to know when hiring and paying employees in Canada.
Understanding Canadian employment law
Canadian employment law is primarily governed at the provincial level, although federal law applies to specific industries such as banking, telecommunications, and transport. Each province and territory has its own employment standards legislation. Below are the core elements of Canadian employment law:
Minimum wage
- Federal minimum wage: Applies to employees in federally regulated industries and matches the provincial or territorial rate.
- Provincial minimum wages: Vary across provinces, e.g., CAD 16.65/hour in British Columbia and CAD 15.50/hour in Ontario (2025 rates).
Working hours and overtime
- Standard hours: Typically 8 hours per day or 40 hours per week.
- Overtime pay: Minimum 1.5 times the regular hourly rate, unless stated otherwise in collective agreements or contracts.
Termination and severance
- Notice periods: Employers must provide written notice or pay in lieu, based on the employee’s length of service.
- Severance pay: Required in certain cases, particularly for long-term employees or mass layoffs in Ontario and federal sectors.
Statutory holidays
Canada has both federal and provincial statutory holidays. Examples include Canada Day (national holiday) and Family Day (observed in certain provinces).
Employer obligations for hiring in Canada
Employers must meet several key obligations before and during the hiring process.
Business registration
- Federal business number (BN): Required to operate and manage payroll.
- Provincial registration: Necessary for doing business in a specific province.
Contracts of employment
- Written contracts are not legally mandatory but highly recommended to define roles, responsibilities, and benefits.
Employment insurance (EI) and Canada Pension Plan (CPP)
- Employers and employees must contribute to EI and CPP (or Quebec Pension Plan – QPP for Quebec residents).
- EI contribution rate (2025): 1.63% of insurable earnings (up to a maximum).
- CPP contribution rate (2025): 5.95% of earnings between CAD 3,500 and CAD 66,600.
Canadian payroll essentials
Setting up a payroll system
Employers must:
- Open a payroll account with the Canada Revenue Agency (CRA).
- Collect and retain employee information, including Social Insurance Numbers (SINs) and tax forms (e.g., TD1 forms).
Tax withholdings
Canada’s income tax system involves progressive federal and provincial rates. Employers must withhold:
- Federal income tax: Based on CRA guidelines.
- Provincial/territorial income tax: Rates vary by region.
Remitting payroll deductions
Employers remit withheld amounts (income tax, EI, CPP/QPP contributions) to the CRA by specified deadlines. Penalties apply for late remittances.
Issuing T4 slips
At the end of the tax year, employers must provide employees with T4 slips summarising their earnings and deductions, and submit copies to the CRA.
Payroll process in Canada
Setting up and managing payroll in Canada involves several steps, from registration to ongoing compliance. This section outlines the payroll process in detail to help businesses ensure they meet all regulatory requirements.
1. Registering for payroll
To pay employees in Canada, businesses must first register with the Canada Revenue Agency (CRA) by opening a payroll account. This involves:
- Obtaining a Business Number (BN) if not already held.
- Registering for a Payroll Program Account under the BN.
If operating in Quebec, employers must also register with Revenu Québec for provincial payroll obligations.
2. Collecting employee information
Before processing payroll, employers must collect and verify key details:
- Social Insurance Number (SIN): Mandatory for all employees working in Canada.
- TD1 Forms: Employees complete federal and provincial TD1 forms to determine tax credits and personal exemptions.
- Banking information: For direct deposit, employees must provide account details.
3. Calculating gross pay
Employers calculate gross pay based on the agreed compensation structure:
- Hourly employees: Gross pay equals the total hours worked multiplied by the hourly rate.
- Salaried employees: Gross pay is the fixed periodic salary divided by the number of pay periods.
Additional considerations include overtime, bonuses, and commissions.
4. Determining deductions
Employers are responsible for deducting statutory contributions from employees’ gross pay. These include:
- Income tax:
- Federal income tax is based on progressive brackets set by the CRA.
- Provincial/territorial income tax rates vary by region and are applied in addition to federal rates.
- Canada Pension Plan (CPP)/Quebec Pension Plan (QPP):
- Contributions are mandatory for employees aged 18-70.
- The contribution rate for 2025 is 5.95% of earnings between CAD 3,500 and CAD 66,600.
- Employment Insurance (EI):
- EI premiums are deducted at a rate of 1.63% (2025) on insurable earnings up to a yearly maximum.
- Other deductions:
- Voluntary contributions to benefits, such as group RRSPs or extended health insurance.
- Union dues, if applicable.
5. Employer contributions
Employers must match or contribute to certain statutory programmes:
- CPP/QPP: Employers match employee contributions dollar for dollar.
- EI premiums: Employers contribute 1.4 times the amount deducted from employees (unless in certain industries with lower rates).
For Quebec-based employees, employers also contribute to the Quebec Parental Insurance Plan (QPIP).
6. Remitting deductions
Employers are required to remit deductions to the CRA (and Revenu Québec, if applicable) by set deadlines. The frequency of remittances—monthly, quarterly, or accelerated—depends on the total payroll amount.
Late remittances can result in penalties, so timely payment is critical.
7. Issuing pay stubs
Employers must provide employees with detailed pay stubs, which include:
- Gross pay
- Deductions (taxes, CPP, EI, benefits, etc.)
- Net pay (take-home amount)
Pay stubs can be issued physically or electronically, depending on company policy and employee preference.
8. Year-end reporting
At the end of each tax year, employers must:
- Prepare T4 slips for all employees, summarising total earnings and deductions.
- Submit T4 summaries to the CRA (and Revenu Québec if applicable) by the last day of February following the tax year.
Employees use their T4 slips to file personal income tax returns.
9. Keeping accurate records
Employers are legally required to maintain payroll records for a minimum of six years. These records should include:
- Employee details and contracts
- Payroll calculations
- Remittance receipts
- T4 and T4A summaries
Employee benefits in Canada
Statutory benefits
Employers are required to provide:
- Paid annual leave: Typically 2-3 weeks, depending on the province and years of service.
- Public holiday pay: For eligible employees.
- Parental leave: Federally governed, allowing up to 18 months of shared leave.
Voluntary benefits
Employers often enhance their offerings to remain competitive. Common voluntary benefits include:
- Health insurance: Covers supplementary health, dental, and vision care.
- Retirement plans: Group RRSPs or employer-sponsored pension plans.
- Wellness programmes: Subsidised fitness memberships or mental health support.
Hiring foreign workers in Canada
Work permits
Employers hiring foreign workers must secure the appropriate work permits, which may include:
- Labour Market Impact Assessment (LMIA): A document proving no Canadian is available for the role.
- International Mobility Program (IMP): LMIA-exempt pathways for specific worker categories.
Compliance with immigration laws
Employers must ensure foreign workers are authorised to work and maintain accurate records for immigration authorities.
Employment practices to consider
Equity and diversity
Canadian laws emphasise workplace equity. Employers should proactively avoid discrimination and promote diversity in hiring.
Unionised workforces
Some industries in Canada are heavily unionised, particularly in manufacturing and public services. Employers should be aware of collective bargaining agreements.
Remote work compliance
For remote employees, employers must comply with the employment standards and tax obligations of the province where the employee resides.
Key challenges and how to overcome them
Payroll compliance
Managing multi-province payroll can be challenging. Employers may opt for a Canadian payroll provider to ensure compliance. For more, see international payroll providers.
Tax complexities
Provincial income tax variations require careful calculations. Using software or consulting with a tax expert is recommended.
Adapting to local culture
Understanding Canadian workplace etiquette, such as a preference for collaboration and respect for work-life balance, can help foster strong relationships with employees.
Conclusion
Hiring and paying employees in Canada involves adherence to a robust regulatory framework, including payroll compliance, employment law, and benefits administration.
While the process can seem daunting, thorough preparation and the right tools can simplify operations.
International employers may consider engaging a payroll provider or consultant with expertise in Canadian regulations to ensure smooth and compliant hiring processes.
FAQ
Yes, you can hire employees in Canada without establishing a physical office. However, you must register with the Canada Revenue Agency (CRA) for a payroll account and comply with all employment laws, including tax remittance and benefits contributions. Many businesses use Professional Employer Organisations (PEOs) or Employer of Record (EOR) services to handle local compliance.
When hiring remote workers in Canada, you must comply with the labour laws of the province where the worker resides, including minimum wage, overtime rules, and statutory benefits. Additionally, income tax and social security contributions must be deducted and remitted based on provincial and federal regulations.
In Canada, workers are typically classified as employees or independent contractors. Employees are entitled to statutory benefits and are subject to income tax, EI, and CPP deductions. Independent contractors, on the other hand, handle their own taxes and are not eligible for statutory benefits. Misclassification can result in significant penalties, so it is crucial to correctly classify workers.
Penalties for non-compliance include fines, interest on late remittances, and potential audits by the CRA or Revenu Québec. Employers may also face legal action from employees for failing to meet statutory obligations like paying overtime or providing required benefits.
Yes, Canada offers several payroll-related incentives for employers, such as:
Canada Job Grant: Subsidies for employee training.
Work-Sharing Program: Temporary EI benefits to employees during reduced business activity.
Small Business Deduction: Reduces corporate taxes for eligible businesses.
Check with provincial programmes for additional support specific to your region.
Yes, employees in Canada must be paid in Canadian dollars unless they explicitly agree otherwise in their employment contract. This ensures compliance with provincial and federal wage laws.
While Canada’s public healthcare system covers basic medical services, employers are not required to provide additional health insurance. However, many employers offer supplementary health insurance to remain competitive and attract top talent.
Each province and territory in Canada has its own employment standards that govern aspects like:
Minimum wage
Statutory holidays
Overtime rules
Termination notice periods
For example, British Columbia has different statutory holidays than Ontario, and Quebec has unique payroll obligations such as the Quebec Parental Insurance Plan (QPIP).
Canadian workplaces value inclusivity, diversity, and collaboration. Employers should respect cultural and religious holidays, offer equitable opportunities, and foster a healthy work-life balance to align with employee expectations.
While some international payroll software systems support Canadian employees, it is essential to ensure the software can handle local tax codes, deductions, and remittance requirements. Alternatively, you may consider partnering with a Canadian payroll provider for local expertise.