It’s no secret that companies can access new markets, increase organizational productivity, and fill important skills gaps by hiring international employees. International workers also help companies build a workforce with fresh and different perspectives that spur innovation.
Canada has a strong economy and a landscape that helps facilitate long-term growth for scaling companies. However, navigating payroll practices and international employment laws is an ongoing challenge for companies because of mandatory employer contributions. Additionally, rules and regulations vary between provinces, meaning you must be aware of jurisdictional legislation on top of federal rules.
An Employer of Record (EOR) can help companies hire talent in Canada. Your EOR is responsible for meeting regulatory requirements and handling various HR-related tasks such as onboarding, payroll, benefits administration, tax compliance, and more. EORs play a pivotal role in ensuring employers follow tax regulations and employer contribution requirements, which fund Canadian social welfare programs.
This article lifts the veil on employer contributions in Canada and shares how an Employer of Record can support a company’s international expansion efforts.
Employment Laws in Canada
If you want to hire top talent and scale operations in Canada all while not running afoul of the law, you must have a thorough understanding of the country’s employment laws. This can be particularly challenging for an international company unfamiliar with the local employment standards in Canada. Companies that fail to meet all obligations will face non-compliance penalties. Non-compliance penalties in Canada include:
- Publishing the business's name and address in a report, leading to reputational damage.
- Significant fines or financial penalties. For example, companies may face monetary penalties of up to $10,000 for failure to abide by the Employee Equity Act and up to $50,000 for repeated violations.
- Operational impacts like sanctions against hiring new workers or business closure.
- Criminal charges or jail time in severe cases. This can also lead to other legal risks, such as class-action lawsuits.
Non-compliance in Canada comes in many forms, but the penalties are severe and triggered by various liabilities. For example, Bell Canada was fined $1.25 million in 2018 for failing to comply with data protection legislation, while Rogers Media was fined $200,000 in 2019 for failing to comply with anti-spam rules regarding commercial emails.
Understanding other important factors, such as the average cost to hire an employee in Canada, helps companies successfully build a presence in the market and efficiently allocate resources. Certain labor laws defined in the Employment Standards Act Canada impact practices, such as employer contributions and other payroll deductions.
Written Employment Contracts
Employers and employees must agree to a legal employment agreement in Canada. The employment contract will include all the necessary terms and details about the job, including:
- Wage or compensation
- Pay period
- The job's responsibilities or duties
- Start date
- Termination and notice period requirements
- Benefits
- Collective bargaining terms
Canadian employment laws don’t require written employment contracts, but providing these terms in writing ensures both parties understand their obligations and helps mitigate potential legal risks.
Minimum Wage and Overtime
Employers in Canada must ensure that all eligible employees receive appropriate compensation. As of April 1, 2024, the Canadian federal minimum wage is set to increase from $16.65 to $17.30 per hour. Additionally, employers must be aware of province-specific wage requirements, with mandated wages ranging from $16.55 per hour in Ontario to $14 per hour in Saskatchewan.
Eligible employees are also entitled to overtime pay if they work more than eight hours per day or 40 hours per week. Notably, overtime rules and premium requirements vary between provinces, though employees usually receive at least 1.5 times the regular hourly wage for every working hour.
However, if a business wants to remain truly competitive in this market, , employers should base each worker’s actual salary on the employee’s skills, qualifications, and the job’s requirements..
Termination Procedures
Handling employee terminations and offboarding procedures is a complication that accompanies global hiring. In Canada, employers cannot legally terminate an employee without a valid reason. Valid reasons for dismissing a Canadian employee include:
- Gross misconduct (unlawful acts, insubordination, etc.)
- Mutual agreement to end the working relationship
- Expiration of the employment contract
Employers must give terminated employees a minimum notice period depending on the employee’s length of service. Notice periods can range from 1 week for workers with less than one year of service to eight weeks for employees with eight or more years of tenure. Generally, notice period and severance procedures will be stipulated in the written employment contract.
Worker Classification
Employers in Canada must also ensure that all employees are classified correctly. Misclassification is when the employer incorrectly reports the employment status of an individual worker. Typically, this happens when a company considers a regular employee an independent contractor, which is significant because the two classifications of workers have different employment rights, tax obligations, and contribution requirements for employers. Failure to properly classify employees can result in back pay for any wages or benefits owed, fines, and reputational damage.
Leave Entitlements
Canadian employees are also entitled to take various forms of leave throughout the year. In Canada, workers may take up to 2 weeks of paid annual vacation after one year of consecutive employment, three weeks of vacation after five years of consecutive employment, and four weeks of vacation after ten years of consecutive employment with the same employer.
Employees can also take up to 15 weeks of maternity leave, typically starting around eight weeks before the expected date of birth. New parents are eligible for up to 35 weeks of parental leave, and while there’s no federally mandated requirement for paternity leave, employees in Quebec can take up to five weeks of parental leave.
Several national holidays also impact working hours for companies. Additionally, holiday entitlements vary between provinces, meaning business leaders must understand the local laws in each jurisdiction to provide employees with all statutory benefits.
Income Tax
Employers in Canada are responsible for withholding income tax for each employee, calculated on a progressive scale based on the employee’s annual income. Companies must consider the federal and provincial income tax requirements for each region in Canada to remain compliant.
Employment Income Tax Brackets
In 2024, the federal income tax brackets in Canada are:
- 15%: income up to $55,867
- 20.5%: income between $55,868 and $111,733
- 26%: income between $111,734 and $173,205
- 29%: income between $173,206 and $246,752
- 33%: income over $246,752
Employer Contributions in Canada
You must also consider other Canadian labor laws that regulate employer expenses, such as payroll regulations. Payroll refers to the process of an employer providing compensation to its employees and involves calculating the employee’s wages, tracking work hours, providing payment in the local currency, and more. Additionally, you will be responsible for withholding taxes and following the regulations stipulated by governing bodies such as the Canada Revenue Agency (CRA). Responsibilities include meeting federal deadlines, accurately reporting amounts, maintaining records, and complying with provincial requirements.
Canada has a strong social net with a relatively progressive structure for social programs, placing it 15th out of 170 countries. Funding these programs and providing employees with adequate rights or protections requires each employer to contribute. Ultimately, the employer must accurately deduct tax and remit the required amount for social security contributions.
Employers must contribute to various programs in Canada to remain compliant. However, each province may have different laws regarding employer contributions and tax obligations, complicating the payroll process when employing workers in multiple regions.
Canada Pension Plan
As of 2023, employers in Canada are required to contribute 5.95% of every employee’s paychecks to the Canada Pension Plan (CPP). The CPP is a social security program funded by contributions from employees and employers alike, designed to replace part of a worker’s income in the case of retirement, disability, or death. This benefit is available to all Canadian employees over 18 years old.
The maximum pension income contribution for employers and employees in 2024 is $3867.50, increased from $3754.45 in 2023. Maximum pensionable earnings are $68,500. In most cases, employers must deduct CPP contributions from:
- All forms of compensation for the employee, including salary or wages
- Commissions
- Additional payments, such as bonuses
- Taxable benefits, such as allowances or advances
- Honorariums
- Gratuities in relevant industries
Quebec Pension Plan
If you hire Canadian workers in Quebec, you will be responsible for remitting contributions and other post-tax deductions for region-specific requirements, such as the Quebec Pension Plan instead of the CPP. In 2024, the contribution rate for the QPP is 10.8% split between both parties, meaning you both contribute 5.4% each. This is available to Quebec workers over age 18, who make more than $3,500 annually.
Employment Insurance
Employment insurance is another major payroll deduction under Canadian employment laws. EI provides temporary income support to unemployed workers looking for employment opportunities. Generally, workers are eligible for EI if they have lost their jobs through no fault of their own, such as due to economic reasons, and are currently available to work. To be eligible, employees must have worked a certain number of insurable hours and contributed to the program.
In some cases, EI benefits can be given for other life events, such as:
- Illness
- Pregnancy
- Caring for a newborn or adopted child
- Caring for a critically ill person
- Caring for a family member with a significant risk of death
Employees contribute 1.66% of earnings towards EI, while employers are responsible for contributing 2.32%. The current maximum insurable earnings amount, referring to the income level that EI premiums are paid, is $63,200 and influences the maximum rate of weekly benefits for workers. Generally, EI insurance lasts for as long as 45 weeks, with a maximum benefit of $668 per week.
In Quebec, Employment Insurance rates are 1.32% for employees and 1.85% for employers.
Employer Health Tax
Employers that operate in certain provinces must pay the EHT, including Ontario, British Columbia, Manitoba, and Newfoundland and Labrador. Depending on the province, this tax only applies to companies with an annual payroll of a certain amount. The rates and payroll requirements for each province are:
Overall, the EHT is a payroll tax based on the amount of remuneration the employer provides to current or former workers within the province, and it’s meant to provide funding for provincial health services. These provinces also have progressive employer health tax rates, meaning that companies with payroll over a certain maximum will generally pay more. Knowing these rules is important to remain compliant with employer contributions in Canada and failure to meet obligations under the EHT Act, such as delivering statements on time, providing complete information, making inaccurate statements and more can lead to penalties.
EHT rules apply to various business structures, including sole proprietorships, partnerships, corporations, trusts, and other governmental organizations.
RRSP
Some employers voluntarily contribute additional amounts for supplementary benefits, including RRSPs. RRSPs are government-approved plans that further supplement an employee’s income after retirement. In many cases, employers match an RRSP contribution from employees, which is typically around 3-5% of the employee’s earnings, according to WealthSimple. Various types of savings plans are available, including pooled registered plans, voluntary retirement savings plans, group registered retirement savings plans, and more that may impact contribution amounts.
Quebec Employer Contributions
Certain region-specific contributions only apply to employers that employ workers in the province of Quebec.
Quebec Parental Insurance Plan
The QPIP is an income-replacement plan, providing benefits to individuals on maternity, parental, or paternity leave.
In 2024, the employer premium rate is 0.692% of an employee’s paycheck, and the maximum employee premium is $499.54.
Health Services Fund
The Health Services Fund is similar to the EHT, except it only applies to employees in Quebec.
The employer contribution rate depends on the total salary or wages paid to employees. Generally, employers will pay from 1.25% to 4.26%, depending on the company’s payroll threshold.
How Can an Employer of Record Help?
An Employer of Record is a third-party organization that acts as the legal employer for Canadian workers on your behalf. An EOR in Canada takes on responsibility for employment and other HR-related tasks, including managing employment contracts, assisting with visa or other work permit applications, paying employees on time, helping with terminations, onboarding or offboarding employees, and ensuring compliance with the Canada Revenue Agency’s regulations and global employment laws.
An EOR will support your company’s growth in Canada in several ways. For example, an Employer of Record will offer in-depth expertise regarding local and provincial labor laws within the country, allowing international companies to mitigate financial and legal risks. An Employer of Record will also handle all payroll requirements, meaning companies will accurately remit all social security contributions and income tax obligations.
In contrast, companies that do not partner with an EOR must set up a local entity in the country and will be responsible for navigating the global hiring processes themselves. Instead of relying on an Employer of Record to process payroll, these employers must manually calculate and remit employer contributions in Canada using tools like payroll deduction tables or the Canadian government's Payroll Deductions Online Calculator, which requires precision and accuracy to mitigate risks.
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Contact us today to see how we will help you navigate global compliance and all employer contributions when hiring top talent in Canada.
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