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Canada's GDP was about $2 trillion in 2020, an indicator of the country's robust economic standing. Employers from other countries can expect to hire independent contractors and remote workers in Canada who are experts from various industries including tech, finance, health, and more.
Canada is known for highly educated and capable workers. However, hiring remote workers in Canada comes with some complexities, such as risks of worker misclassification, misunderstanding of taxation laws, and more.
To help you hire remote employees in Canada and stay compliant with local laws, we cover all the relevant information in this guide. Here you can learn everything you need to know about Canadian regulations for foreign companies.
Employers have two options when paying remote workers in Canada. They can either open a legal entity in the country or work with an employer of record. The latter is the faster and more cost-effective option for most companies.
Let's take a look at these two options in more detail:
You can open a legal entity in Canada to work with locals. This option is usually more appropriate for larger businesses with long-term Canadian plans. First, you must have a banking account in the country. Keep in mind that you cannot do this online or through a phone call. A representative from the company must be in Canada in-person to open an account.
Second, the business needs a physical location in Canada. You cannot establish a local entity with a postal box. Moreover, the local legal entity must be in the province where your employees work. If your employee lives in one area but travels to another for work, you may have to follow and comply with the laws of different provinces.
Unlike the U.S., Canadian tax laws typically apply based on where the employees reside and not where they perform work. Managing all of this can be challenging, especially if it's not financially feasible for you to establish a physical location in Canada. This brings us to the second option.
Working with an employer of record to hire and pay remote workers in Canada is a much easier and cost-effective option, especially if you only need to hire a handful of employees or if you need to start hiring quickly. If you partner with the right employer of record (EOR), everything related to payroll compliance in Canada is handled for you.
A trustworthy and experienced EOR will help you stay compliant with laws and requirements in Canada without requiring manual work on your part. Working with an EOR means you do not have to open your own local legal entity — or entities in multiple provinces, as the case may be — but you can always start with an EOR and open an entity later if your plans change.
You can also pay Canadian workers as contractors if you hire them for limited periods or fixed projects. Be sure your contractors are not misclassified, though. Otherwise, you could land in legal trouble for misclassifying employees. We'll explain this in more detail later on.
You also need to send T4A statements to Canadian contractors paid over $500 in the past year. Generally speaking, a trusted employer of record can help you with this part as well, managing your payrolls and compliance when working with independent contractors in Canada.
Companies pay remote workers and independent contractors in Canada in Canadian dollars via payroll processors. Currency conversion fees will apply, but these fees tend to be small. To ease the process and reduce conversion fees, many companies decide to seek help from employers of record. Remote Contractor Management lets you pay contractors from more than 170 countries, including Canada, in their local currencies.
Every country has a different tax code. In Canada, people typically pay two income taxes. One of these goes to the provincial or territorial government, while the other runs to the federal government.
The federal income tax rate for different tax brackets in Canada is as follows:
$48,535 or less: 15%
$48,535 to $97,069: 20.5%
$97,069 to $150,473: 26%
$150,473 to $214,368: 29%
More than $214,368: 33%
For more information about where remote workers pay taxes, follow our comprehensive guide.
In Canada, you can calculate your taxable income yourself by counting the income gathered through different sources. These include, but are not limited to:
Wages and salaries
Net rental property income
Net capital gains income
Net self-employment income
The wage paid by the employer incurs full taxes. Employees are also liable for the following taxes outside the province of Quebec:
5.25%: Canada Pension Plan, up to $2,899 per year
1.58%: Employment Insurance, up to $856.36 per year
Meanwhile, employees in Quebec have to pay the following rates:
5.4%: Quebec Pension Plan, up to $2,980.80 per year
0.526%: Quebec Parental Insurance Plan, up to $402.39 per year
1.2%: Employment Insurance, up to $650.40 per year
Some components of a Canadian employee's salary, such as tips and gratuities, incur partial or no taxes, depending on provincial laws. For these additional earnings, it's best to check the regulations within each particular province.
Per diem is not a taxable benefit according to Canadian law. It can be excluded from taxable income if all of these conditions are met:
Your employee travels away from the office.
A reasonable allowance is being paid. The law considers up to $23 to be a reasonable allowance for meals.
The allowance isn't an extra form of salary.
Per diem allowances refer to the money you give to your employees for incidental expenses, meals, and lodging when traveling. The laws surrounding per diem payments are different in every country. Employers may be required to add these allowances to the employees' incomes if the amount is not reasonable. In most cases, per diem of $23 can be excluded from taxation in Canada.
As mentioned above, per diem payments are given to employees for additional expenses when traveling for work. Employers may pay per diem allowances to clergy and salespeople, too. These payments are not included in employees' incomes if they were for expenses associated with the performance of official duties.
Also, the allowances do not have to be included in the income if:
The employee is an agent negotiating contracts or selling property for the employer.
The employee is a member of the clergy.
Reimbursements and allowances are defined differently in Canada, although they both fall under the umbrella of a “benefit.”
An allowance is either a lump sum or multiple payments made to employees on top of their wages to help them pay for anticipated expenses. This amount is:
Usually determined without knowing the actual cost of the anticipated expenses
Meant for a specific purpose
Used by the employee without explicit instruction from the employer
Allowances are calculated on various factors. For instance, a meal allowance is based on the number of meals an employer provides every day.
Meanwhile, reimbursement is the amount an employer pays to their employees to repay expenses incurred while performing work duties. Employees must typically show receipts for expenses to be reimbursed.
Reimbursements are not additional parts of employees’ salaries. They simply pay for costs employees have already covered themselves. On the other hand, allowances are extra monetary perks a company may offer to attract and retain top talent.
As an employer, it is your responsibility to:
Identify any taxable benefits.
Calculate the values of those benefits.
Calculate payroll deductions.
File information returns
Remote’s employer of record services make it easy for businesses to provide all the necessary financial perks their workers require.
Employers must make the following payroll deductions:
Employment insurance: Canadian employment insurance covers government-run unemployment programs. It also covers expenses for parental and maternity leave.
Pension plan contributions: There are two pension plans in Canada. The Canada Pension Plan is applicable everywhere except Quebec. The Quebec Pension Plan is only applicable in Quebec.
Both employees and employers must pay a fixed amount to insurance plans. Depending on the individual circumstances, the employer may have to deduct other payments, such as additional pension plans, premiums for private health insurance, and union dues.
The minimum wage in Canada differs by province and is periodically adjusted to factor in inflation. Here's a short overview of province hourly wages in CAD for 2021:
British Columbia: $14.60
New Brunswick: $11.70
Newfoundland and Labrador: $12.15
Northwest Territories: $13.46
Nova Scotia: $12.55
Prince Edward Island: $12.85
Overtime pay in Canada varies by province. For example, overtime pay in Ontario is 1.5 times the employee's regular pay. Overtime pay is sometimes called “time and a half” in places with similar rules. If an employee's regular salary is $20 an hour, their overtime pay will be $30. Your employer of record can help you understand the overtime laws that apply to your employees’ specific provinces.
Local labor laws in Canada vary greatly among provinces and territories. Here are a few examples of these laws:
The minimum wage ranges from $11.70 to $16.00.
Common benefits offered to employees include paid holidays, dental insurance, vision insurance, life insurance, a pension scheme, and flexible schedules. Some of these benefits are mandatory in certain areas.
Canadian federal law requires employers to give two weeks of paid time off to employees who have been working for the company for a year. The duration is increased to three weeks after five years and four weeks after 10 years of employment.
Paying contractors in Canada is, fortunately, quite simple. You can use a payment service like Remote Contractor Management to receive, pay, and manage invoices from your Canadian contractors (and other contractors all over the world). However, if you have contract workers in Canada, you must comply with Canadian law. That means avoiding issues of misclassification.
Contractor misclassification can lead to legal problems and loss of intellectual property. If you have contractors, be sure they have sufficient autonomy in the eyes of the law, or you could be on the hook for fines and penalties.
If you think you're ready to convert contractors into employees, you can do that too. An employer of record like Remote can help you convert Canadian contractors to employees easily and quickly. If you have your own Canadian entity, converting a contractor is as simple as extending an employment contract and making the switch.
If you do not own your own legal entity in Canada, your only options are to work with an employer of record (for any full-time or part-time employees) or to pay workers as contractors. Your EOR not only allows you to pay Canadian employees but also shields you from potential compliance headaches. Gaining the ability to hire from other countries quickly, easily, and with little to no risk can be a massive benefit for your business.
Canada is incredibly rich in professionals with vast expertise and skill sets, but it does have specific labor laws and hiring requirements you cannot overlook. If you plan to hire remote employees in Canada, complying with these regulations is essential. We know it can seem challenging at first glance, especially for companies hiring in Canada for the first time. However, things don't have to be complicated if you have the right partner.
Remote is on a mission to help businesses expand their hiring operations into new countries, democratizing access to global talent. We handle Canadian payroll processing, benefits management, employee onboarding, and many other demanding tasks, so you can focus on other important business operations.
Contact us today for more information, or sign up for free now to start building your Canadian remote workforce.
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