Canadian Labour Laws Vs US
If you are a US company looking to expand your business internationally by hiring Canadian employees to work remotely, then it’s important for you to be aware of the local labor laws in Canada. Being noncompliant with the Labor Standards Act of Canada as well as other employment laws could result in penalties and fines. As an employer trying to expand your company, the last thing you want to deal with is the repercussions that come with noncompliance.
While Canadian and American employment laws are similar in many respects, there are a few key differences that American employers need to be aware of if they are hiring remote Canadian workers.
Unfortunately, it is all too easy to violate labor laws, especially for foreign companies that are unfamiliar with local legislation.
Canadian Payroll Services is a Professional Employer Organization (PEO) that works with US companies looking to hire employers that will work remotely from Canada. Working with us means you never have to worry about whether or not your company is maintaining compliance with the local labor laws. We keep up to date on how to maintain compliance with Canadian labor laws so you don’t have to.
Similarities in Canadian and American Employment Standards
Canadian and American work cultures are similar. The countries share time zones, a long border, a language, and similar demographics. Our and industrial histories are similar, too.
The typical full-time Canadian employee is paid a fixed annual salary and works 37-40 hours a week. They typically receive 2-3 weeks of paid vacation a year and 8-10 paid statutory, or government mandated, holidays a year.
Like many American states, in Canada there are mandated overtime rates for hourly workers, a minimum wage, and employment laws governing working conditions, severance, leave of absences, termination notice, and dismissal. Employment laws are set at the provincial level and can, therefore, differ from province to province. However, taxes are collected nationally (except for Quebec which has its own tax arm called Revenu Quebec) through the Canada Revenue Agency (CRA), which is Canada’s equivalent to the IRS.
Employee Pay and Taxes
Canadian workers are typically paid bi-weekly, but some are paid semi-monthly or monthly. Their employers are also required to issue them a T4 income remuneration statement (like the W-2) at the end of the year so they can file their personal income taxes in April of the following year.
Just like in the US, Canadian employers are responsible to deduct personal income taxes, Canada Pension Plan (same as Social Security), and unemployment insurance (called EI in Canada) off their employee incomes and remit them to the CRA. Just like with the IRS, there are heavy employer penalties for late remissions.
Mandatory Employer Payroll Taxes
Employers in Canada are also subjected to mandatory employer payroll taxes when employing people. This is on top of the employee taxes that they are required to deduct and remit to CRA, as mentioned above.
Employer payroll taxes in Canada are structured nearly identically to US payroll taxes and so are the costs. Canadian payroll taxes consist of worker compensation premiums, Canada Pension Plan employer contributions (equivalent to Social Security), Employment Insurance employer contributions (a twist on the word “unemployment insurance”), and in the provinces of Manitoba, Ontario and Quebec – a universal healthcare tax similar to Medicare.
As in the US, many of these payroll taxes are funded between the employee and employer. The cost of these mandatory employer-side payroll taxes are between 7-10% of the employee wage depending on the province. These costs are very much in line with US employer payroll taxes.
Differences Between Canadian and American Employment Laws
Despite all these similarities, there are some vital differences that American employers should be aware of when hiring a remote Canadian worker.
No “Employment-at-Will” in Canada
As there is no “Employment-at-Will” in Canada, many boilerplate American job offer letters cannot be used in Canada as they contravene Canadian employment standards and laws. On a practical level, this means the employer must provide 1-3 weeks termination notice before they can let go of an employee (unless it is for causes such as fraud or criminal activity, in which an employee can be let go on the spot).
Due to the lack of “Employment-at-Will,” it is also customary for Canadian employers to include a 3-month probationary period in their offer during which they are allowed to terminate the employee without notice. Because of this, the employer would not enroll the employee in its group benefits plan until after the employee passes this probationary period, similar to many probationary periods in the United States.
Maternity Leave
A Canadian worker can take 12-18 months of unpaid leave of absence to raise a newborn child. During this time, the employer may hire a temporary worker to fill that position, but must give the position back to the worker after the maternity/paternity leave period.
As economic conditions may change for the employer between the time the employee leaves for maternity and returns, there are flexible provisions for the employer in accepting the employee back, but the spirit and directive of the law is to ensure that the worker’s job has been reserved for her return after the maternity period.
Universal Healthcare
Canada’s universal healthcare shifts the financial burden of healthcare away from employers to general taxation. This means there is no legal expectation or need for Canadian employers to provide medical benefit plans for their employees. This is also the reason why personal income taxes in Canada may be higher than in the US, as healthcare costs make up a significant portion of each province’s budget (healthcare being a provincial jurisdiction in Canada).
Although this is good news for employers, Canadian universal healthcare is not entirely burden-free for them either. Some provinces, such as Manitoba, Ontario and Quebec levy a universal healthcare tax as a mandatory employer payroll tax (think Medicare, but employer-side only).
It is important to note that Canada’s universal healthcare doesn’t cover prescription drugs, dental care, vision care, chiropractic care, and a host of other paramedical care. Many established Canadian employers do provide these ancillary healthcare benefits for their employees, even though it is not mandatory to do so.
Statutory Holidays
Although many Canadian and US statutory holidays are on the same day, there are some that are not. Canadian provincial employment laws protect the Canadian employee’s strict observance of those statutory holidays, but they can voluntarily exchange them for US statutory holidays if they wish. The only recourse for a US employer is to request that the Canadian employee use one of his/her PTO vacation days on a US statutory holiday if they are closed that day and cannot support their Canadian remote worker.
Maintain Canadian Labor Law Compliance as a US Company
While Canadian and American labor laws are similar in some aspects, they vary greatly in others. Knowing these differences is important for US companies looking to hire remote Canadian employees to work for them. Compliance with local labor laws is of the utmost importance, and unfortunately, it is very easy to violate those laws especially if you are from a different country.
Canadian Payroll Services has a vast understanding of the Canadian labor laws and we are fully equipped to assist US companies that are interested in expansion. Working with a PEO like Canadian Payroll Services will help your company stay on top of cross-border employment compliance.
Contact us today to learn more about how we may be able to help with PEO services.
