COUNTRY GUIDE
Payroll and HR in: Canada
Canada offers a diverse and skilled workforce that can significantly benefit global businesses. Its stable economy and welcoming attitude towards foreign investment make it an ideal destination for companies looking to grow internationally.
Local currency
CAD
Dialling code
+1
Pay periods
12 – 16
World Bank Ease of Doing Business
23
Capital
Ottawa
Timezone
PT, MT, CT, ET, AT, NT
Lanuages
English and French
Tax year
Jan 1st – Dec 31st
Sales tax
5 – 15%
Corporate tax
26.50%
Employment insurance
1.66%
Wages tax
15 – 33%
Getting started with Canadian payroll
- The most common foreign enterprise is a limited liability company (private corporation)
- Non-Resident Employee: Payroll registration for an overseas company
- Companies must register with applicable federal or province territorial government authority
- Separate registrations are required if you want to operate/hire in Quebec
Employees must have a Social Insurance Number (SIN). Applications for a SIN can be made at a Service Canada Centre. If the employee is a temporary resident, they will need to also provide their study/work permit and a supporting document such as a marriage certificate. When a new employee joins the following information is also required:
- Completed new hire form
- Employment Agreement
- Copy of Employees ID
No, it is not required to have a local bank account for payroll in Canada.
The standard working week in Canada is 40 hours, divided into five 8-hour days. The laws of each province vary. Different provinces also dictate varying lengths of legally mandated rest breaks.
It usually costs around 1.1 times an employee’s salary to hire them in Canada, but this can vary depending on the province and the additional benefits provided.
Canada Wages and Pay
Wages in Canada have been governed by the federal government since April 2023, however, as Canada is split into multiple provinces there is some fluctation in salaries based on this. There is also other things related to pay in Canada which are regulated so let’s look at a quick overview.
In April 2023 Canada introduced a new federal minimum wage of $16.65, before then workers were subject to the minimum wage of the province or territory they worked in. The federal minimum wage is set by the government and is adjusted based on inflation.
The federal minimum wage applies to all workers in industries regulated by the federal government, including:
- Federal Crown corporations, such as Canada Post.
- Some Indigenous government activities that occur on First Nations reserves.
- Air transportation.
- Some road transportation services.
Some province’s and territories have different minimum wages. Here’s a look at current provincial and territorial minimum hourly wages for general labour:
Alberta: $15.00.
British Columbia: $16.75.
Manitoba: $15.30.
New Brunswick: $14.75.
Newfoundland and Labrador: $15.00.
Northwest Territories: $16.05.
Nova Scotia: $15.00.
Nunavut: $16.00.
Ontario: $16.55.
Prince Edward Island: $15.00.
Quebec: $15.25.
Saskatchewan: $14.00 (will increase to $15.00 by October 2024).
Yukon: $16.77.
For organisations governed by regulations at federal level, overtime is federally enforced at 1.5 times an employee’s regular rate, for all work beyond eight hours in a day or 40 hours in a week.
Ontario stands as the only province in Canada where workers are entitled to severance pay. This benefit is separate from termination notice pay. Both employees in Ontario and those working under federal laws can receive severance pay. In Ontario, employees who have worked for at least five years qualify for this. They get a week’s pay for each year they’ve worked, with part-years calculated on a pro-rata basis, up to a limit of 26 weeks. Under federal rules, qualifying employees are paid either two days’ wages for every year of service or a minimum of five days’ wages, whichever is higher.
Canadian Taxes and Deductions
Employers operating in Canada are required to withhold income taxes, at both the federal and provincial level from their employees. The federal tax rate is progressive based on income for the employee. This starts at 15 percent for the lowest bracket (the first $53,359 of taxable income), to 33 percent (income over $235,675).
Taxable income | Tax percentage |
$55,867 or less | 15% |
$55,867.01 to $111,733 | 20.5% |
$111,733.01 to $173,205 | 26% |
$173,205.01 to $246,752 | 29% |
Over $246,752.01 | 33% |
Provincial tax rates are also applied on a progressive basis however this varies per province.
The remittance of the taxes withheld is the responsibility of the employers.
If an employee wishes to have more tax withheld than the standard CRA (Canada Revenue Agency) requirements, a TD1 form should be completed and returned by the employee.
Canada has a social security system that is made up of the following:
- Disability benefits
- Death benefits
- Family grants
- Medical care
- Old age
- Sickness
- Unemployment.
Contributions are made through the Canada Pension Plan, Québec Pension Plan, and Employment Insurance via the payroll deductions.
If an employee join’s the company part way through the payroll year, all deductions will be started again even if they have reached their maximum contributions through a previous employer. Any overpayment of contributions will be refunded to the employee when they file their year-end tax return with the CRA.
The Canada Pension Plan (CPP) provides a monthly, taxable pension as a means of income replacement upon retirement. This pension is available for life once you qualify. To be eligible, the following criteria must be met:
- You need to be 60 years of age or older.
- You must have contributed to the CPP at least once.
Contributions are considered valid if they come from employment within Canada or through credits transferred from a former spouse or common-law partner after a relationship ends. As of the latest update, the employee contribution rate is 5.95% of earnings between $3,500 and $64,900, and the employer matches this contribution.
There’s a maximum contribution per annum, and this is $3,754.45 for employers and $3,754.45 for employees.
Canadian payroll and HR compliance
When processing payroll, compliance is vital—and there are a few things in Canada to be aware of to ensure that you have completed your payroll correctly and compliantly. Here are the key areas you need to be fully aware of:
Each pay cycle, the following payroll changes must be provided in your payroll data:
- Salary changes
- Employee TD1 form (If there are any changes to employee’s personal information, tax credits, employee has got married etc)
- Bonus/commissions
- New Hires/Leavers
- Overtime
- Benefits
- Stock Remuneration
- Annual Payroll Employer return is due by 15th of March
- Annual Payroll Employee return (T4) is due by 28th February. Failure to provide these to the employees in time can result in penalties
- Taxable benefits are to be reported within the last pay of the payroll year
If an employee is terminated, typically they must receive their final payment within a set number of days from their end of their employment. This final payment date will be determined by the province in which the employee is located. However, if the employee resigns, the employer would typically make the final payment to the employee on the next scheduled pay date.
- Employees cannot be terminated at will, employer must either have a just cause, or provide proper notice or payment in lieu
- Notice period is limited in most jurisdictions to 8 weeks
- Severance pay is dependent on province
- Signed termination letter needs to be provided before a finalised record of employment (ROE) is produced and submitted to the authorities. The ROE is submitted 5 working days after final payment. If the ROE is not submitted within this period, penalties and fines can be issued
Records in Canada at federal level are required to be kept for a minimum of 6 years. However, the requirements at Provincial level will vary from 1-5 years. These records must be available upon request of the CRA (Canada Revenue Agency) or any other regulating bodies.
Canada Employee Benefits
When hiring employees in Canada, you’ll find there are specific benefits you have to offer to comply with federal law. But there are also many benefits that employees will look for and, in some cases, even expect to be offered by most businesses that they work for. These are supplementary benefits. Let’s cover the mandatory benefits set out by federal law, and common supplementary benefits that will help you stand out as an employer in Canada.
Mandatory benefits
In Canada, employee's social security contributions cover a wide range of benefits however in addition to social security benefits employers must also offer:
- Employment insurance
- Canada Pension Plan (CPP)
- Workers compensation or workplace safety and insurance board
Supplementary benefits
Supplementary benefits are at the employer's discretion and must be outlined in an employee’s employment contract. The most commonly offered ones are:
- Retirement and pension benefits
- Termination benefits
- Disability, sickness, and accident benefits
- Medical, hospital, drug, dental, and vision care
- Life insurance
- Flexible working
Canada Statutory Leave and Time Off
In Canada, vacation entitlement varies according to each province/territory, but the federal legislation mandates the following;
- 1 – 5 years employment: a minimum 2 weeks must be offered
- 5+ years employment: a minimum of 3 weeks must be offered.
In addition to this leave, employers must offer time off for public holidays. There are on average between 9 and 12 days public holidays per annum. Federal law mandates the observation of nine national public holidays, though each province or territory may observe additional holidays.
In Canada, employees in federally regulated sectors are entitled to 10 days of sick leave per year. Sick leave would be prorated if you’re a part-time employee. There is a thirty-day qualifying period and employees accumulate an additional day of paid medical leave at the beginning of each month following a month of continuous employment, up to a maximum of 10 days per year.
Maternity leave is a federal benefit in Canada and is funded by employment insurance (EI), except for in Quebec. Most working Canadians pay into EI and are therefore entitled to withdraw from it in the event they require maternity leave.
Maternity leave benefits can be taken for up to 15 weeks in Canada, and can start from as early as 12 weeks before the due date and end as late as 17 weeks after the birth.
Maternity benefits are available to biological mothers (and surrogate mothers) who are away from work because they’re pregnant or have recently given birth.
If an employee is eligible for maternity benefits, they can receive benefits equal to 55% of their average weekly insurable wage. The maximum weekly amount is $595
Like maternity leave, parental leave is also funded by employment insurance. Parental leave is offered to both parents, unlike maternity which is only offered to the mother of the child.
Type of leave | How long will it cover? | How much will it replace? | How much will I receive? |
Standard parental leave | Up to 40 weeks, but 1 parent cannot receive more than 35 weeks of standard benefits | Up to 55% of earnings | Up to a maximum of $595 a week |
Extended parental leave | Up to 69 weeks, but 1 parent cannot receive more than 61 weeks of extended benefits | Up to 33% of earnings | Up to a maximum of $357 a week |
Year’s Day | January 1 | All Provinces |
Islander Day | Third Monday in February | PE |
Louis Riel Day | Third Monday in February | MB |
Heritage Day | Third Monday in February | NS |
Family Day | Third Monday in February | AB, BC, NB, ON, SK |
St. Patrick’s Day | March 17 (Not a statutory holiday) | NL |
Good Friday | Friday before Easter Sunday | All Provinces |
Easter Monday | Monday after Easter Sunday | Federal |
St. George’s Day | April 23 (Not a statutory holiday) | NL |
Victoria Day | Monday preceding May 25 | All Provinces |
National Aboriginal Day | June 21 | NT, YT |
Discovery Day | June 24 (Not a statutory holiday) | NL |
Canada Day | July 1 | All Provinces |
Nunavut Day | July 9 | NU |
Orangemen’s Day | July 12 (Not a statutory holiday) | NL |
Civic Holiday | First Monday in August | AB, BC, MB, NB, NT, NS, NU, ON, PE, QC (not statutory), SK, YT |
Discovery Day | Third Monday in August | YT |
Labour Day | First Monday in September | All Provinces |
Thanksgiving | Second Monday in October | All Provinces except NB, NL, NS, PE |
Remembrance Day | November 11 | All Provinces except MB, ON, QC, NS |
Christmas Day | December 25 | All Provinces |
Boxing Day | December 26 | ON, NB, NL, NS, PE |
Canada legal entity set up
Your first decision when you settle upon doing business in Canada is location. All ten provinces in Canada have their own laws and regulations, which work alongside Canadian federal law. Do plenty of research to understand which province will best meet your business needs.
You also need to consider whether to open a branch of your global business or set up a subsidiary business. These will have varying financial implications, based upon taxes payable.
If you open a branch of a global corporation in Canada, you will need to pay income tax on your local business income, at both provincial and federal levels. This will be charged at the same rate as a native Canadian business. Different provinces have varying tax codes, which is another reason why location is so important.
A branch will also be liable for repayments of the branch profits tax. This is an additional payment on any dividends that would be applicable if the company was a subsidiary, not a global branch. This sum will be applied under the Income Tax Act and will typically run to around 25% of the branch profits – minus any tax payments already made, and any investment in the local economy.
A subsidiary is liable to pay income tax on a corporation’s global profits. A subsidiary will not need to pay the branch profits tax, but any non-resident corporation will potentially be charged an additional 25% of local income as a dividend.
There are also a handful of legal differences between branches and subsidiary companies. If a branch of a global corporation experiences legal difficulties or acquires debts, the overseas parent company will be responsible for these. A subsidiary company, meanwhile, will be responsible for its own, local affairs. In addition, a subsidiary company may be eligible for governmental business incentives that are not open to a branch.
Entity set-up FAQs
To successfully launch your business in Canada, you will be required to pay a, “nominal initial investment.” This is far as the legal requirement extends. There is no minimum sum, so this could be as little as a single Canadian dollar, and this is up to the business.
Once we have completed the preliminary work and filed the relevant applications to the Canadian authorities, it can be up to five business days before your entity is legally able to trade in Canada. This is the length of time the registration process often takes to be completed and approved. The process may be shorter, but it depends upon how busy the authorities are and the complexity of your application.
A federal incorporation gives you the freedom to conduct business all over Canada. A provincial incorporation will be restricted to trading in the province in which your business is registered. You can trade with other provinces under this banner. They will just need to come to your location to strike a deal, and all payments must be registered with your province to remain tax compliant.
Federal incorporations also typically run at lower cost, but greater restrictions are applied in terms of business naming. If an existing national company has a similar name to your own, you are unlikely to be permitted to trade under that identity. If your business is named Apple Enterprises, for example, you are unlikely to be granted status as a federal incorporation due to the risk of marketplace confusion.
Yes, an existing overseas corporation may make an application to open a Canadian branch. This is done by making separate applications to each province that the business aims to operate within. You cannot make one, single application to the national Canadian authorities as a whole.
If a business has three directors or less, at least one must be a Canadian resident. If you have more than three directors, 25% of these individuals must be Canadian residents.
No, this decision will be overturned in a court of law. Under Canadian common law, unless a business has just cause for instant dismissal, “reasonable notice” (usually considered to be two weeks) is required before terminating a contract.
Examples of just cause under Canadian law include:
• Gross incompetence leading to damage to the business. Note that this is not mere underperformance
• Refusal to follow reasonable instructions
• Fraud, embezzlement or other forms of dishonesty that breach trust between employer and employee
• Persistent, avoidable tardiness or absenteeism
• Harassment, whether sexual in nature or the use of verbal or physical intimidation
• Physical violence in the workplace, especially when intent to harm can be proven
• Conduct off-duty that compromises the reputation of the business, leaves the employee unable to perform duties safely and efficiently (such as intoxication that extends into working time), or leaves other employees unwilling to work alongside the individual (such as abusive or unlawful behaviour – personal differences, such as political persuasion, are not applicable)
As a business, the latter in particular must be handled with particular sensitivity. You will need to prove that the employee’s conduct impacts your ability to do business. A business is not considered the moral or ethical arbiter of an employee’s off-duty behaviour.
Country nuances
- Your company must be registered to a Canadian place of business, which can provide financial and legal information to the authorities upon request
- There is no minimum capital requirement to start a business in Canada
- Annual tax returns must be filed on a Federal and Provincial level in Canada
- At least 25% of directors of a business registered in Canada must be Canadian citizens. If you have three directors or less, one Canadian national is usually sufficient. However, depending on the nature of your business, some corporations may require a majority of directors to be Canadian residents
Interested in expanding into Canada?
Want to find out more about Cintra Global? We’d love to hear about your global expansion plans and tell you about how we can support you with your international payroll, HR, and expansion needs.