Hiring Talent And Managing Payroll In Canada

Hiring in Canada? Read on to find out the employment norms (like taxes, payroll and benefits) and EOR (Employer on Record) norms in Canada.

Employment Norms in Canada

Canada is a popular country for immigrants owing to its welfare rules and regulations. This means it attracts a high amount of talented individuals from across the world. However, some rules may seem complex to potential employers due to the difference in Canada's federal and provincial regulations. EOR services work with employers to bridge this gap, ensuring legal compliance and helping with employee management.

General Information:

The Canadian currency is the Canadian Dollar (CAD)
Ottawa is the capital of Canada
English and French are the official languages of Canada. Documentation can be in either of these languages to be legally valid.
As of 2022, the GDO of Canada was reported to be USD 2.20 trillion

Individual states and provinces form employment regulations in Canada. The federal government of Canada does not intervene much in labor laws.

Table of Contents

Select Section

Agreements
Onboarding Process
Visa
Minimum Wage
Payroll Cycle
Annual Bonus
Health Benefits
Working hours and overtime
Leaves
Social Security
Taxes for Employers
Taxes for Employees
Probation
Termination
Severance Pay
Employees or Contractors
Final Words

Agreements Onboarding Process Visa Minimum Wage Payroll Cycle Annual Bonus Health Benefits Working hours and overtime Leaves Social Security Taxes for Employers Taxes for Employees Probation Termination Severance Pay Employees or Contractors Final Words

Agreements

For certain trades, trade unions may exist, which can only be formed with the participation of 40% of the employees. In such a case, the trade union may negotiate the terms of the contracts.
The contracts may be written or verbal. Only for tax-related issues are written contracts utilized.
In Canada, agreements are drafted either in English (which is widely accepted) or in French. Some provinces may recognize only one of the two. The contract must be drafted as per the location and as per the wish of both parties.

Important points to consider in the contracts or agreements drafted:

The notice period in case of termination of the contract must be reasonable and agreed upon.
The employee must work exclusively for the employer and guard all trade secrets. Confidentiality must be ensured while working and even after the employment ends.
In Canada, certain industries which run nationwide are federally regulated. Examples are the post, railways, shipping, and some international industries. Others are regulated by respective provinces and territories.

Onboarding Process

There are no specific laws for the onboarding process in Canada. However, the whole process may take about two weeks
Employers can conduct background checks on employees and get the contracts or agreements signed by both parties.
Certain mandatory documents required before beginning work -
- Copy of Social Insurance Number (SIN) card - employees who don't have this must apply for it with the help of the employer
- Valid government-issued photo identity proof
- Work permit (if applicable)
- Other work-pertinent documents requested by the employer

Visa

Canada has mainly three types of work permits:

Employer-specific work permit

Required when a Canadian employer offers a job to a foreign national

Open work permit

Allows the applicant to work for any company in Canada (the employer must be registered with the Canadian government)

Business Visa

Requires proof of the individual's business and that they have no intention of entering the Canadian labour market
Valid for up to 6 months.

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Minimum Wage

In Canada, the federal minimum wage is CAD 15.55 per hour (as of 2022). However, the minimum wage is different for different provinces. In some provinces, the wage may be higher. It is advisable to check the minimum wage at the location of the employee.

Payroll Cycle

The payroll cycle in Canada is usually bi-weekly. Certain employers may make payments on a weekly or monthly basis.

Annual Bonus

Canadian law does not mandate any bonuses. However, the employees are free to negotiate bonuses before signing the contract.

Health Benefits

Government Public insurance is provided to all full-time employees in Canada.
This includes emergency room care, visits to doctors, and certain diagnostic services such as X-rays and MRIs.
The health care services are administered and delivered in the Provinces and territories as per the Canada Health Act.

Working hours and overtime

Work hours: Standard working hours in Canada are 8 hours a day and 40 hours a week.
Break: Canadian law mandates that a 30-minute break (undivided) be provided to employees working for 5 consecutive hours. The break must be provided before the end of 5 hours.
Overtime: The maximum working hours are 10 hours a day and 48 hours a week. Any hours excess of the standard working hours is considered overtime, for which the pay is 1.5 times the regular pay.

Leaves

Canadian employees in federally regulated workplaces and industries are entitled to different types of leaves based on their contracts and provinces.

Sick Leaves

As per the Canadian Labor Code, 3 days of paid sick leave is allowed for an employee who has been in the company for 3 consecutive months.

Parental leaves

All parental leaves in Canada are unpaid.
Pregnant employees can avail maternity leave of 17 weeks.
63 weeks of parental leave is also granted. The same is true in the case of adoption.

Annual Leaves

A 2-week paid annual leave is granted to employees of federally regulated industries who have worked for up to one year.
For employees who have worked for five years, the annual leave is up to 3 weeks
For employees who have worked for ten years, the annual leave is up to 4 weeks.

Public Holidays (for the Calendar year 2024)

A few of the following dates may vary according to the traditional calendar.

New Year's Day - January 1
Good Friday - March 29
Labor Day - May 1
Victoria Day - May 20
Saint-Jean-Baptiste Day (Quebec only) - June 24
Canada Day - July 1
Civic Holiday (Except in Quebec and Yukon) - August 5
Thanksgiving - October 14
Remembrance Day - November 11
Christmas Day - December 25
Boxing Day - December 26

Public Holidays (for the Calendar year 2025)

A few of the following dates may vary according to the traditional calendar.

New Year's Day - January 1
Good Friday - April 18
Labor Day - May 1
Victoria Day - May 19
Saint-Jean-Baptiste Day (Quebec only) - June 24
Canada Day - July 1
Civic Holiday (Except in Quebec and Yukon) - August 4
Thanksgiving - October 13
Remembrance Day - November 11
Christmas Day - December 25
Boxing Day - December 26

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Taxes for Employers

For different provinces, taxes differ. The employer must apply for the Social Insurance Number (SIN) if the employee is new. Taxes of the employees are withheld from the paycheck and paid by the employer.

The employer contributes towards the following federal taxes.

Canada Pension Plan - 5.45%
Employment Insurance - 2.28% (for Quebec); 1.63% (outside Quebec)
Workers' Compensation - 0.31% (for some industries)
Registered Retirement Saving Plan (Optional - percentage depends on the financial institution managing it)

Employer Health Tax (EHT) is another type of tax required in some provinces. Given below is a breakdown of EHTs in 5 provinces of Canada.

Ontario: 0.98% - 1.95%
Quebec: 1.65% - 4.26%
British Columbia: 1.95% - 2.925%
Manitoba: 2.15% - 4.3%
Newfoundland and Labrador: 2%

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Taxes for Employees

Respective provinces and territories charge income taxes in addition to federal income tax in Canada.

The federal income tax breakdown for employees is as follows.

Up to CAD 49,020 - 15%
CAD 49,020 to CAD 98,040 - 20.5%
CAD 98,040 to CAD 151,978 - 26%
CAD 151,978 to 216,511 - 29%
Above CAD 216,511 - 33%

Employees also pay 6.83% of their paycheck towards social security tax. The breakdown is as follows.

Canada Pension Plan - 5.45%
Employment Insurance - 1.58%

Probation

The probation period in Canada varies from province to province. It is generally from 3 months to 6 months. Even though there aren't any rules for probation, it is commonly practised to avoid any legal issues later on.

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Termination

Companies in Canada can lawfully terminate an employee only by providing a termination notice. The following norms are generally observed.

Non-unionized employees can be terminated without cause with the required notice. This applies to all provinces except Nova Scotia, Quebec, and the federal jurisdiction.
There are certain situations in which Canadian employment law protects employees from dismissal. These include maternity causes, domestic violence, parental causes, on the grounds of compassion, critical illness, and other reasons.

Severance Pay

As per Canadian Law, employees who have worked for 12 months or more are entitled to severance pay. The wage for every 2 days per year worked before termination is calculated as the severance pay.

Employees or Contractors

In Canada, people can be employed as full-time employees or contractors. Full-time employees are those who are on a payroll, enjoy other benefits and whose taxes are paid by the employer.
On the other hand, contractors in Canada are classified into two types - dependent and independent. Dependent contractors have some benefits (such as payroll or health insurance), while independent contractors have no benefits. They have to pay their taxes and are hired on a project-to-project basis.
Taxes are incurred when people are taken on as employees while independent contractors do not incur taxes. Thus, misclassification of the two would lead to a demand for back pay of the accrued taxes as well as additional penalties.
While hiring contractors may seem profitable initially, it is not in the long run. Also, workers tend to prefer being full-time employees for benefits and steady pay.

Final Words

Over the years, Canada has witnessed a rise in foreign investments and employees. Friendly immigration laws and proximity to other major international business hubs like the US have made it the perfect choice for business expansion. EOR services offer a hassle-free way to tap into this opportunity.