Payroll in Canada

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Guide to becoming an Employer in Canada

While it may sit in the economic shadow of its southern neighbour, the United States, that doesn’t mean that Canada isn’t a promising opportunity for international business in its own right.

The numbers explain why: with a nominal GDP of US$1.64 trillion, Canada is still the ninth-biggest economy in the world (as of the end of 2021). A member of the G7 and the North American Free Trade Agreement means that Canada is an important player on the world stage. And Canada is also particularly attractive to incoming investment thanks to its service-heavy economic make-up – with services accounting for 75% of its overall economy. Canada’s bilingual culture opens it up as a market of appeal to both English and French-speaking countries around the globe.

This guide explores the basics and key payroll specifics around doing business in Canada.

Establishing your business in Canada

Branch offices are popular among incoming businesses getting started in Canada, although in this situation, the parent company carries the branch office’s liability, wherever that parent company may be located.

Incorporation in Canada is relatively straightforward and can be done either at federal level or within an individual province. The difference is that federal incorporation is needed to trade in multiple provinces. Federal incorporation costs C$200 and is done by the next business day, or can be done in four hours for payment of an extra C$100 for the express service.

Companies should apply for a Business Number from the federal government, but a BN Can also be generated when a company registers its payroll programme with the Canada Revenue Agency. This enables businesses to pay all relevant taxes, worker compensation insurances, and obtain all relevant licenses needed to operate.

Canada’s financial year runs in line with the calendar year. Tax installment payments normally have to be made quarterly, on 15 March, 15 June, 15 September and 15 December.

Employment Law in Canada

The vast majority of employment laws in Canada are set at the provincial level, so companies should check the rules that apply to the province (or provinces) where they intend to operate.

Provincial employment laws are published on their respective provincial websites which can be found here:

  • Alberta
  • British Columbia
  • Manitoba
  • New Brunswick
  • Newfoundland & Labrador
  • Nova Scotia
  • Ontario
  • Prince Edward Island
  • Quebec
  • Saskatchewan

Several industries, however, are regulated federally and so their employment laws are set by the federal government instead. In these industries, working hours of eight per day and 40 per week are standard.

Equality is a core part of Canadian employment legislation. Businesses should familiarise themselves with the Canadian Human Rights Act and the Employment Equity Act, which protects the rights of women, disabled people and other minority groups, and bans discrimination along with a variety of different characteristics.

Probation periods are also set at provincial level but are three months or 90 days in the vast majority of cases. Minimum notice periods are one week for those with less than two years’ service, after which employees are entitled to one week’s notice per year of service, up to a maximum of 12 weeks.

What is the Minimum Wage in Canada?

Minimum wage rates in Canada vary significantly from province to province. However, on 29 December 2021, a new federal minimum wage of C$15 came into effect. All employees are entitled to this rate unless they live in a province where the provincial rate is higher in which case the higher rate applies.

Bonuses can be paid to employees in Canada, but these are subject to income tax, employment insurance and pension plan deductions. Severance pay is also subject to income tax deductions

Payroll should take place on a consistent, regular basis, but can be done at a frequency of the employer’s choosing, from weekly up to annually.

Rules around overtime also vary but are strictly enforced with severe penalties. Federal rules require all overtime to be paid at a rate at least 1.5 times the employee’s normal hourly rate.

Minimum wage inCanada

What are the Social Taxes in Canada?

Income tax in Canada is applied at both federal and provincial levels. In federal income tax, the first C$14,398 earned by an employee each year is exempt. Earnings above this are taxed at 15% up to $50,197. Beyond this, even higher rates apply, up to a maximum of 33%. Additionally, provincial income tax should also be paid, and these rates vary significantly between provinces.

Tax and social security payments should be withheld by employers and sent to federal or provincial governments as appropriate. Businesses should also be aware of the variations in federal and provincial corporation tax rates, which are highly complex and subject to change regularly. The federal Goods and Services Tax rate is 5% and applies to most property and services made in Canada, although some exemptions apply.

Social security in Canada means making contributions into the Canada Pension Plan (CPP) and Employment Insurance (EI).

Canadian National Holidays & Annual Leave

Paid annual leave in Canada, like many considerations, is set provincially. Generally speaking, employees receive two weeks of paid leave each year, and receive a third week after six years’ service. These figures may vary in those industries that are federally regulated.

There are only five public holidays observed nationally each year, while a variety of further holidays are observed provincially. The five national holidays are:

  • New Year’s Day
  • Good Friday
  • Canada Day (1 July)
  • Labor Day (first Monday in September)
  • Christmas Day

Thanks to new legislation passed in December 2021, federally regulated employees in Canada are now able to get ten days of paid sick leave annually. Provincial regulations vary, although most provinces allow for three or five days of unpaid sick leave.

Maternity Leave in Canada

In Canada, the paid maternity leave entitlement is 15 weeks in every province except Quebec, where it currently sits at 18 weeks. Paid parental leave is up to 35 weeks and can be split between parents however they wish.

Parental benefits are also available, funded by Employment Insurance, at rates that vary between provinces.

Maternity leave inCanada

Why become an Employer in Canada

The constant theme running through this guide is that the rules and regulations of running payroll in Canada vary significantly from one province to another. With Canada comprising 10 provinces, this can make the process of integrating payroll into your existing business highly complex. Especially if your business does not fall within the remit of a federally regulated industry.

This is where TopSource Worldwide, as an expert in international payroll, can make the difference. Whether you’re just starting your expansion into the Americas, into Canada specifically, or you’re already operating within the Canadian market, we have the solutions and expertise to help. To find out more, get in touch with our expert team today.

Are you exploring growth opportunities in other countries? Learn more about how payroll works in the United States and China too.

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Published date: 11th Feb 2022
Review date: 11th Feb 2023