Similarities in US & Canada Employment Standards
Generally speaking, Canadian and US employment laws and standards are very similar.
Canadian work culture mirrors that of the US in many ways. For example, a typical full-time Canadian employee is paid a fixed annual salary (sometimes with bonuses and commissions) and works 40 hours a week. They typically receive 2-3 weeks of paid vacation a year (depending on seniority, with some getting as much as 4-5 weeks) and 8-10 paid statutory holidays a year depending on the province in which they live. There are also employment laws which govern overtime rates (typically applying to hourly workers only and not professionals), minimum wage (around $10-$15/hr CAD depending on province), working conditions, severance, leave of absences, termination notice, and dismissal.
Employment laws are governed provincially and can therefore differ 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 (Source Deductions)
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. It consists 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 US & Canadian Employment Standards
Despite all these similarities, there are some vital differences that US 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 US 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 an employee (unless it is for cause 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.
A Canadian worker can take a 12-18 months 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.
Canada’s universal healthcare shiftss 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 makes 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 taxes (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. Fortunately, such employee benefits coverage is comparatively cheap by US standards, typically costing between $150-$350 per month.
Observance of Statutory Holidays
Although many Canadian and US statutory holidays are on the same day (i.e. Christmas, New Years, Labor Day), there are some that are not (such as Canada Day on July 1 vs US Independence Day on July 4). 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 to 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.