Payroll Requirements in Canada
More and more U.S. companies are looking to Canada to fill key roles in their organizations. Canada’s workforce is diverse, highly educated and most importantly, ready, and eager to work remotely for global companies. Payroll requirements in Canada and the U.S. differ significantly and understanding how payroll works in Canada is key to successfully expanding your team.
Hiring across borders – setting up a local branch, drafting new agreements, starting payroll – can get complicated, that’s why so many companies work with a PEO. Canadian PEOs deliver employee leasing services that take care of hiring and payroll compliance for international companies expanding into Canada.
Payroll Requirements in Canada
While there are many similarities between U.S. and Canadian employment law, there are enough differences that U.S. employers looking to hire in Canada can easily get tripped up.
Provincial/Territorial Payroll Laws: Employment standards, which govern minimum wage, vacation pay, holidays, sick pay, and notice period differ by province, and 90% of Canadian workers fall under provincial employment law jurisdiction. Canadian work and payroll law favours employees over employers so businesses must keep meticulous records, deduct and remit on time, and ensure that when employees leave, they’re severed correctly.
Canada Pension Plan (CPP): All working Canadians between the ages of 18 and 70 must pay CPP (or QPP in Quebec). Employers deduct CPP every payroll cycle and remit it to the CRA along with their own equal contribution.
Employment Insurance (EI): All working Canadians between the ages of 18 and 70 must pay EI. Employers deduct EI every payroll cycle and remit it to the CRA along with their own contribution which is 1.4 times higher than the employee. Employers and employees in Quebec also pay into the Quebec Parental Insurance Plan (QPIP).
Benefits: In Canada, benefit plans can provide supplemental health coverage (basic care is covered by provincial health plans), dental, prescriptions, and insurance. While health and dental are nontaxable benefits for employees, other benefits may be taxable and affect CPP and EI contributions.
Taxable Expenses: Allowances, work perks, and expenses reimbursed without a receipt are considered taxable benefits in Canada and affect CPP and EI contributions.
Tax Forms: Employers must create T4 tax forms, documenting all monies paid, and T2200 expense forms for remote workers by the last day of February.
No Employment at Will: Canada work laws differ by province and territory, but all prohibit the at will employment model. Canadians can be fired if there is a documented cause, defined by the Employment Standards Act; or in the case of restructuring, if sufficient notice is given. If notice is not given, employers must pay out the notice period along with any unused vacation.
Setting Up Payroll in Canada
To start payroll in Canada you must:
- Register with the CRA for a business number and a payroll account
- Register for Employer Health Tax and Worker’s Compensation (Ontario, BC, Manitoba, Quebec) in all provinces you operate
- Open a bank account
- Select a payroll software that is CRA compliant and accounts for Canada’s work laws and payroll laws
- Ensure that you can keep meticulous records of hours worked and amounts paid, deducted and remitted for six years, in Canada
To onboard a worker for payroll in Canada, employers must collect their full legal name, current address, contact information, Social Insurance Number, date of birth, and banking details. Employers are responsible for keeping this data secure and liable for any breaches. Onboarding should be completed within a week of hire, and TD1 tax forms completed by the new employee within 7 days of their start date. Failure to correctly onboard can result in fines.
Keeping Records of Payroll Taxes
Payroll requirements in Canada are complicated and favour employees over employers. In addition to following all provincial and territorial payroll requirements, you should also maintain detailed and accurate records of hours worked, vacation and sick time, and all forms of compensation including expenses and corrections. Wrongful dismissal lawsuits, fines, and late penalties in Canada are higher and more common than in the U.S.
Businesses and individuals in Canada are required to maintain accurate records of their dealings in English or French, backed up by documents, and store them so that they can be easily produced for audit by the Canadian Revenue Agency (CRA). Records should be kept for six years, fiscal for corporations and calendar for individuals, and stored in Canada. It is your responsibility to maintain the accuracy, integrity, and security of your records, even if you’ve engaged a third party to generate or process them, and even while being audited by the CRA.
Let a PEO take Care of Your Payroll
Canada is an important talent market for American businesses, but the complexities of Canadian payroll requirements can make it difficult for them to handle payroll alone. That’s why so many companies leave the details of Canadian payroll in the hands of a Canadian PEO.
Canadian Payroll Services uses our local expertise to ensure U.S. businesses are compliant with all federal and provincial/territorial tax, work, and payroll laws through employee leasing services. We hire your workers and lease them back so that you manage their day to day. All the difficult details of setting up and managing payroll stay in our hands.
If you’d like to learn more about how working with a PEO can help you stay compliant in Canada, contact us today!
