Remote’s guide on hiring remote workers in Canada covers the basics of employment in Canada, Canadian labor laws, and how requirements vary from one province to another. This guide answers some common questions about paying remote workers in Canada.
Payroll for employees in Canada (and payroll for contractors in Canada) requires employers to understand Canadian rules about classification, taxes, and other important requirements. To ensure your business can pay Canadian employees, workers, and contractors on time and without unnecessary complications, use this helpful guide.
To pay remote employees in Canada, companies have two options.
The first option is to open a local legal entity in the province where the employee works. If the employee lives in one province but commutes to work in another, laws of two different provinces may apply. Canada typically levies taxes based on residence, not where the work is performed, unlike the US.
Businesses choosing this option must open a business banking account in Canada in person. These accounts cannot be opened by phone or online. Further, to establish a legal entity in Canada, the company must operate a physical location in the country. P.O. boxes are not acceptable.
The second option is to work with a global employment solution, or employer of record, like Remote. With the right employer of record, companies can hire international employees in Canada without worrying about issues of payroll compliance. Remote handles payroll processing, benefits management, and compliance with Canadian law to keep employers of remote workers in Canada protected.
Employers in Canada must deduct at least two things from their employees’ pay stubs: employment insurance and one of two pension plan contributions.
Employment insurance, or EI, covers unemployment programs run by the Canadian government. EI contributions also cover payments for maternity and parental leave, as a form of temporary unemployment.
Canada has two pension plans. The first, the Canada Pension Plan (CPP) applies everywhere but Quebec. The Quebec Pension Plan (QPP) applies only in Quebec. All employers and employees must contribute a fixed amount to these plans, up to a yearly maximum.
Employers may also deduct union dues, premiums for private health insurance, contributions to additional pension plans, and other payments for benefits. In some cases, employers show deductions on paychecks to account for paid time off, as many Canadian provinces require employers to provide a certain percentage of pay across time off taken during the year (for example, 4% of pay spread across two weeks of PTO).
For the Canada Pension Plan in 2020, employers and employees both contribute a statutory amount of 5.25% of the employee’s salary to make a total of 10.5% plan contribution. These contributions only apply to income between CAD $3,500 and $58,700. The maximum contribution in 2020 is CAD $5,798 from both employer and employee, and half of that per party. Neither side can contribute more than the other: the rate is set for the specified salary range.
The Quebec Pension Plan works similarly to the CPP, but the total contributions are slightly higher. Employees and employers both pay 5.4% for a total of 10.8%. The maximum total contribution for the QPP is CAD $5,961.60.
Different provinces enforce different overtime rates in Canada. This applies both to the hours at which overtime pay begins and the actual rates paid.
Some provinces start overtime pay after 40 hours in a week, while others start after 44 or 48 hours. Most provinces mandate 150% pay after the employee has worked more than the allotted number of hours. Some provinces also enforce daily limits, such as eight working hours per day, before overtime begins. In a few cases, provinces enforce higher overtime rates depending on the amount of overtime worked.
Be cautious, as even salaried exempt employees are often eligible for overtime pay in Canada. If you have questions about overtime compliance for your employees in Canada, contact Remote to ensure you stay fully compliant in every province.
The minimum wage in Canada varies by province and can increase or decrease yearly depending on economic factors. You can view current minimum wages in Canada here.
Foreign employers may pay contractors in Canada directly using tools like Remote’s free contractor payments platform. Paying contractors in Canada works much the same as paying contractors anywhere else. As long as the employee is genuinely a contractor and not a misclassified employee, companies may pay contractors directly without the need to withhold taxes or funds for Canadian social programs.
In Canada, contractors and self-employed workers are liable for the full 10.5% contribution to the CPP (or 10.8% if in Quebec for the QPP).
Independent contractors in Canada should note that they are not eligible to receive EI benefits if they stop receiving work from client companies.
Companies working with Canadian contractors must send T4A statements to any contractors paid more than CAD $500 in the last year.
Foreign employers must pay Canadian employees in Canadian dollars through Canadian payroll processors. Companies working with contractors may be able to pay those contractors in different currencies, but any money paid will be converted to Canadian dollars when calculating taxes.
Canada is home to brilliant talent across a variety of industries. No matter what your business does, you can find great employees and contractors in Canada to help your company grow.
Remote’s global employment and global contractor solutions make it easy for businesses all over the world to pay employees and contractors in Canada without opening a legal entity. Our full employer of record solution provides a superior experience for your Canadian employees for one low flat rate with no hidden fees and no long-term commitments. Contact us today to learn more about our Canada payroll solutions.
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