With mirrored time zones, proximity, shared language, and similar talent pools and business practices, Canada can be a natural extension for a US company’s workforce. However, hiring employees in the country means learning how to do payroll in Canada. While it’s an easier process than in some other countries, you’ll still need to register your business, set up a local bank account, get accurate employee information, and ensure compliance with Canadian employment laws.
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Key Takeaways:
- The current Canadian minimum wage is $17.30—but it only applies to federally regulated industries
- Each province has its own minimum wage requirement that applies to all employers inside it
- Overtime requirements vary by province
- At-will employment is not allowed in Canada
Step 1: Set Up Your Business as an Employer
If you want to hire an employee and run payroll in Canada, you’ll first need to set up your business as an employer. Having an entity in Canada allows you to hire and pay employees directly and sets you up for greater and easier expansion later. If you plan to have a large Canadian workforce, this is probably your best option, albeit a complex one.
If you choose to register your business and pay employees directly in Canada, you first need to get a business number from the Canada Revenue Agency (CRA). You can do this process completely online. You can also request a business number over the phone or by regular mail. This number is like an employer identification number in the US. You’ll use this number to remit required deductions like income taxes, employment insurance, and the Canada Pension Plan (CPP).
Although you’ll establish your payroll process in Step 2, you’ll need to figure out your pay schedule in advance to register your business, as the CRA requires it. You can choose to pay weekly, every other week, twice per month, or monthly. Besides that, you’ll also need to know how many employees you have at the time of application and what payroll software you intend to use.
Canada previously disallowed monthly payments, but that has changed—though most employees still prefer to be paid twice per month. Employers must give employees a statement upon hire outlining the pay frequency and the days of regular pay and provide at least 30 days’ notice when changing the pay frequency.
Once approved, you’ll also need to set up CRA accounts for your business taxes, Goods and Services Tax and the Harmonized Sales Tax (GST/HST), payroll accounts, and savings and pension plans. You’ll also need to register with each province where you have employees as the Canadian health system is funded by provincial taxes.
Importance of Classifying Correctly: Employee vs Independent Contractor
The CRA is like the Internal Revenue Service (IRS) in the US. Its job is to collect taxes from businesses and employees—and like the IRS, the CRA takes worker misclassification seriously.
If you’re trying to get around registering your business in Canada by partnering with an independent contractor, you risk running afoul of misclassification laws—which could lead to fines and penalties for both of you if you treat them as employees. You can partner with a Canadian independent contractor; you just need to make sure they’re actually a contractor and not an employee.
To easily distinguish between what makes a contractor vs an employee—typically, a contractor retains control over their schedule and how they work. Meanwhile, if you’re telling someone when to work and how to do their job, they’re an employee.
Step 2: Establish Your Payroll Process & Policies
You’ll want to create a structured process to follow so that you don’t miss any vital payroll steps. Consider the following:
- Pay schedule: How frequently will you pay employees? You can pay employees weekly, every other week, twice per month, or monthly.
- Type of employees: Full time vs part time?
- Tracking time: How will you track employee hours, and how will it be reported to you?
- Benefits: What benefits will you offer? Who pays for them? How will you manage the payroll deductions?
- Taxes: How often will you need to pay taxes? What tax rates will you pay? How often do you need to remit taxes and to what agencies?
- Payroll processing and calculations: Will you calculate payroll by hand, Excel, or use a payroll service or software?
- Paychecks: Will you write manual checks, use pay cards, pay via direct deposit, or pay in cash?
To ensure your company processes payroll in Canada effectively, you should also have policies on:
- Leaves: What leaves are required to be paid vs unpaid, and at what rates?
- Overtime: At what rate do you need to pay employees overtime and for how many hours?
- Absences: How do you track absences and know whether they’re paid or unpaid, excused or unexcused?
- Holidays: What holidays are paid and at what rate?
Step 3: Determine Salaries & Ensure Compliance
The cost of living in Canada is slightly lower than in the US—currently 16% less expensive. The average annual salary in Canada is about CA$85,500 ($63,270 in USD). When determining what you’re going to pay your Canadian workers, consider their experience and skills, in addition to the cost of living. You may be able to save money by having Canadian workers, but you’ll still need to pay competitive rates to ensure you attract and retain the best talent.
Payroll & Employment Law Compliance
Canada has similar employment and payroll compliance laws to the US, but some go further in providing additional benefits to employees, like mandatory participation in a national retirement plan and universal healthcare participation. It’s vital that you understand these differences so you remain compliant. Written contracts are not required though companies frequently use them, and at-will employment is expressly forbidden. Be aware that both English and French are used; in Quebec, French is the majority language.
Canada has a federal minimum wage, currently $17.30 per hour, but it only applies to workers in federally regulated industries. There are many: here’s a full list. For all other workers, each province has its own minimum wage, which effectively and legally ignores the national minimum wage.
Province | Minimum Wage |
|---|---|
Alberta | $15.00 |
British Columbia | $16.75 (increasing to $17.40 on June 1, 2024) |
Manitoba | $15.30 |
New Brunswick | $15.30 |
Newfoundland and Labrador | $15.60 |
Northwest Territories | $16.05 |
Nova Scotia | $15.20 |
Nunavut | $19.00 |
Ontario | $16.55 (increasing to $17.20 on October 1, 2024) |
Prince Edward Island | $15.40 (increasing to $16.00 on October 1, 2024) |
Quebec | $15.75 |
Saskatchewan | $14.00 (increasing to $15.00 in October 2024) |
Yukon Territory | $17.59 |
Be aware that Canada is aggressively increasing provincial minimum wages and has legislation to continue increasing at least once, sometimes twice, per year. So make sure you’re paying attention to the minimum wage in the provinces where you have Canadian employees.
The typical Canadian workweek is 8 or 8:30 a.m. to 5 p.m., for a standard workweek of 37.5 to 40 hours. Employees can work up to 48 hours in a single workweek; however, any hours worked over 40 in a week or eight in a single day are considered overtime and must be paid at 1.5 times the employee’s regular hourly rate.
This applies to both salaried and hourly workers—though there are some exceptions for salaried workers, like if they’re in a managerial role. Some provinces have different rules, so review the chart below. Note that in lieu of overtime pay, employees may elect to receive time off with pay, equivalent to 1.5 hours of time off for every overtime hour worked.
If a workweek includes a holiday, the working hours must be reduced by eight hours for each holiday in that week, which means that a workweek with one holiday would be capped at 32 hours and any time worked beyond that is overtime. Canada has similar exemptions to overtime as the US and each province has its own overtime rules. Note that Canadian employees have the right to refuse overtime work to carry out family responsibilities related to the health or care of any family member or the education of any family member under age 18.
Province | Overtime Hours Begin After | Overtime Pay Rate (multiplied by the regular rate of pay unless otherwise noted) |
|---|---|---|
8 hours in a day or 44 hours in a week, whichever results in more hours | 1.5 times | |
8 hours in a day 40 hours in a week | 1.5 times for the first four hours of overtime in a single day, then 2 times for each hour beyond 12 in a single day | |
8 hours in a day 40 hours in a week | 1.5 times | |
44 hours in a week | 1.5 times for the first four hours of overtime in a single day, then 2 times for each hour beyond 12 in a single day | |
40 hours in a week | 1.5 times the current minimum wage | |
8 hours in a day 40 hours in a week | 1.5 times | |
48 hours in a week | 1.5 times | |
8 hours in a day 40 hours in a week | 1.5 times | |
44 hours in a week | 1.5 times | |
48 hours in a week | 1.5 times | |
40 hours in a week | 1.5 times | |
8 hours in a day 40 hours in a week | 1.5 times | |
8 hours in a day 40 hours in a week | 1.5 times |
There is no federal requirement to offer paid time off (PTO) to your employees unless your business operates in a federally regulated industry. If your company qualifies as a federally regulated industry, you’ll need to offer PTO. Be aware that PTO in Canada is not calculated at the rate of pay when the employee takes the time off. Instead, it’s calculated as a percentage of the gross wages an employee earned during the previous year.
- At least two weeks of PTO each calendar year after an employee has worked 12 consecutive months, paid at 4% of earnings
- At least three weeks of PTO each calendar year after an employee has worked five consecutive years, paid at 6% of earnings
- At least four weeks of PTO each calendar year after an employee has worked 10 consecutive years, paid at 8% of earnings
Employers may offer unlimited PTO, but you must ensure that employees actually take off the minimum amounts listed above. Also, note that it’s typical to pay an employee for their PTO before they take the time off—in some places, it’s even required. For example, in British Columbia, an employer must pay the employee’s vacation wages at least seven days before the beginning of the employee’s time off.
Federally regulated employees, such as those in industries like air transportation, banks, and telecommunications, are entitled to 10 paid general holidays each year. If a general holiday falls on a non-working day, employees are entitled to a holiday with pay on the working day immediately before or after the holiday.
- New Year’s Day
- Good Friday
- Victoria Day (the last Monday before May 25 in May)
- Canada Day (July 1)
- Labour Day (First Monday in September)
- National Day for Truth and Reconciliation (September 30)
- Thanksgiving Day (Second Monday in October)
- Remembrance Day (November 11)
- Christmas Day (December 25)
- Boxing Day (December 26)
Canada requires employers to give medical leave for employees of up to 10 days with pay per year. This is an update to the Canada Labour Code, which took effect in December 2022. Under this revision, employees earn three days of paid medical leave after 30 days of consecutive employment. Then, employees earn one additional day at the start of each subsequent month until they’ve reached a total of 10 days. Unused days may carry over from year to year, but only a maximum of 10 days may be used each year.
Canada also offers Employment Insurance (EI) sickness benefits. This program provides employees with up to 26 weeks of financial help if they’re unable to work for medical reasons. Employees can receive up to 55% of their regular earnings, up to $668 per week.
Canada offers maternity leave and parental leave:
Benefit | Maximum Weeks | Rate | Weekly Max |
|---|---|---|---|
Maternity (only available to the person giving birth) | 15 | 55% | $668 |
Standard parental | 40 shared between parents, one parent cannot take more than 35 | 55% | $668 |
Extended parental | 69 shared between parents, one parent cannot take more than 61 | 33% | $401 |
Maternity leave can be taken along with parental leave, giving new mothers extended time off.
Canada provides for EI caregiving benefits. This program is available for employees to support a critically ill or injured person, or someone needing end-of-life care. The employee does not have to be related to or live with the person receiving support, but they must be considered or treated like family.
Here are the benefits employees can receive, payable at up to 55% of the employee’s regular rate of pay up to $668 per week:
Benefit | Maximum payable weeks | Recipient of care |
|---|---|---|
Children | 35 | Critically ill or injured person under the age of 18 |
Adults | 15 | Critically ill or injured person age 18 or over |
Compassionate care | 26 | Person of any age requiring end-of-life care |
Under Canadian law, an employer must either provide an employee with at least two weeks’ written notice of termination or pay the employee two additional weeks of pay. At-will employment does not exist in Canada like in the US but, unlike other countries that don’t adhere to at-will employment standards, Canadian employers may terminate employees without cause.
However, if an employee has worked for a company for at least 12 consecutive months, they’re also entitled to severance if they were terminated without cause. Severance pay is calculated as two days’ pay for each full year of employment, with a minimum of five days’ pay. Severance is not required when an employee is terminated for cause, when an employee quits, when there is a layoff, or when the employment relationship ends on the date noted in any employment agreement.
Step 4: Collect Employee Data & Forms
As with US-based employees, you’ll need to collect certain data from your Canadian employees. This often includes:
- Employee’s full name
- Employee’s permanent address in Canada
- Documentation proving the employee’s identity
- Employee’s social insurance number
- TD1 form
- Bank account information
- Provincial forms (like this tax deduction form for Quebec and this form for British Columbia)
Step 5: Collect Time Sheets & Calculate Payroll
When a business first launches, they often use paper time sheets. We don’t recommend this, as it’s ripe for errors and misuse. The best and most effective way to keep track of employee hours is to use time tracking software. Your employees clock in and out electronically, and your managers can review and approve time sheets before they get to your payroll team for processing. Check our roundup of the best time tracking software for some options.
Once payroll gets the time sheets, they should still review them for accuracy. A second set of eyes to spot any glaring errors is crucial to ensuring your company runs payroll correctly each time. It’s easier to fix these errors before running payroll, and it creates a smoother process for everyone involved.
When calculating your Canadian payroll, you’ll need to account for tax and payroll deductions. Missing these will leave you out of compliance and could cause costly fines and penalties from Canadian government agencies.
Type of Payroll Deduction | Employer Share | Employee Share |
|---|---|---|
Canada Pension Plan | 5.95% (plus 4% for earnings between $68,500 and $73,200) | 5.95% (plus 4% for earnings between $68,500 and $73,200) |
Employment Insurance | 2.32% (1.85% in Quebec) | 1.66% (1.32% in Quebec) |
Quebec Pension Plan | 6.4% (plus 4% for earnings between $68,500 and $73,200) | 6.4% (plus 4% for earnings between $68,500 and $73,200) |
Employer Health Tax | Varies by province | 0% |
Workers’ Compensation | Averages about $1.50 per $100 of payroll | 0% |
Besides these payroll withholdings, you’ll also need to withhold appropriate income tax from your employee’s paychecks. Here are the current tax brackets in Canada.
Annual Salary | Income Tax Withholding |
|---|---|
Up to $55,867 | 15% |
$55,868 to $111,733 | 20.5% |
$111,734 to $173,205 | 26% |
$173,206 to $246,752 | 29% |
Over $246,752 | 33% |
For reference, the top tax bracket here is equal to about $180,000 USD. It’s also important to note that Canadian taxpayers are frequently taxed at the provincial level as well.
Be sure to keep track of where your employee works. With over 5,000 miles of shared border, it’s possible that your Canadian employee will come to the US and do work. Depending on where the employee works inside the US, they may be subject to tax withholdings in that state (check our state payroll directory for some help with state-specific rulings). If you’re bringing the employee into the US to work, even for a day, they may also need a visa—read our guide on how to sponsor an H1-B visa employee for more information.
Step 6: Pay Employees
Now that you’ve reached the point of calculating your payroll, it’s time to pay your international employees. Make sure you’re following the pay schedule you’ve previously outlined.
If you have just a single or a handful of employees in Canada, you may want to outsource your payroll to a local provider. They will be licensed and familiar with Canadian payroll laws and processes. While you’ll pay them a fee, it’ll likely be worth your time for just a few workers.
However, if you have more employees or plan on dramatically expanding your Canadian workforce, you may want to hire an international payroll and HR expert to handle payroll in-house, depending on cost differences. If you opt not to outsource, make sure you or your payroll team are familiar with Canadian payroll laws and deductions to ensure you’re making the right deductions from employees’ paychecks and sending tax payments to the right Canadian government authorities.
For the easiest time, you can also work with an international payroll service. Such services are typically familiar with local laws and will ensure that your business won’t miss any compliance regulations. Look into our guide to the best international payroll services for options.
Step 7: Document & Store Your Payroll Records & Give Employees Annual Form T4
Payroll records in Canada must be kept for up to 10 years. Your payroll records should include, at a minimum:
- The dates of employment and rate of pay
- The frequency of pay
- Deductions
- Total regular and overtime pay
- Net employee pay
At the end of the year, you’ll need to provide your employees with Form T4. This form is the equivalent of the US W-2. It provides your employees with information about their total year’s earnings and withholdings so they can file their annual tax returns.
Frequently Asked Questions (FAQs) About Canadian Payroll
Yes. Even if your business does not operate within a federally regulated industry and is not subject to the federal Canadian minimum wage, each province has its own minimum wage that applies to every employer.
Much like when you hire remote workers across state lines and become subject to the rules and regulations of that state, the same is true for hiring workers in Canada. You’ll need to provide your Canadian employees with the required benefits, some of which vary based on the province in which your employee lives and works. Also remember that if you require your Canadian worker to come to the US to do even a single day’s work, they and you may be required to file and withhold US taxes.
Under certain circumstances, yes. Once an employee has worked for your company for 12 consecutive months, you must start providing them with paid time off—the amount required increases based on their years of service to your company. You may offer unlimited time off as well, but you must ensure your employees are taking off the required amount of time.
Bottom Line
Doing payroll in Canada for the first time is not as hard as other foreign countries. With similar processes to the US, you’ll find it won’t take long to get the hang of it. Just make sure you take your time and set everything up correctly from the start, paying close attention to federal and provincial minimum wage requirements, some of which change twice per year.
