Expanding to Canada has many benefits for US employers, but they should tread carefully when it comes to payroll. The Canada Revenue Agency (CRA) is paying close attention to US companies that are doing business in Canada. Just like in the US, Canadian payroll taxes have federal and provincial (state) components, and some provinces have additional taxes earmarked for the healthcare system. Because of this, learning how to calculate payroll taxes in Canada isn’t easy, not even for Canadian employers.
US companies not complying with local tax laws are subject to penalties and fines. Maintaining compliance can be really difficult for someone who isn’t familiar with the local laws.
Provincial Payroll Taxes
In Canada, employers pay federal and provincial payroll tax, contribute to Canada Pension Plan (CPP) and Employment Insurance (EI), and in some provinces, pay a special Employer Health Premium/Tax designed to fund the public health system. This structure should be familiar to US employers who pay federal and state payroll taxes and make contributions to Medicare and Social Security.
Provincial payroll taxes in Canada vary widely, with each province setting its own income tax rate and establishing its own tax brackets. Just like in the US, the answer to the question, how much is payroll tax in Canada, depends on salary, location and many other factors.
| Province | Federal Payroll Tax | CPP | EI | Provincial Payroll Tax | Provincial Health Premium |
|---|---|---|---|---|---|
| Ontario | ✓ | ✓ | ✓ | ✓ | ✓ |
| Quebec | ✓ | QPP | EI + QPIP | ✓ | ✓ |
| British Columbia | ✓ | ✓ | ✓ | ✓ | ✓ |
| Alberta | ✓ | ✓ | ✓ | ✓ | |
| Manitoba | ✓ | ✓ | ✓ | ✓ | ✓ |
| Saskatchewan | ✓ | ✓ | ✓ | ✓ | |
| Nova Scotia | ✓ | ✓ | ✓ | ✓ | |
| Newfoundland and Labrador | ✓ | ✓ | ✓ | ✓ | ✓ |
| New Brunswick | ✓ | ✓ | ✓ | ✓ | |
| PEI | ✓ | ✓ | ✓ | ✓ | |
| Yukon | ✓ | ✓ | ✓ | ✓ | |
| Nunavut | ✓ | ✓ | ✓ | ✓ | |
| Northwest Territories | ✓ | ✓ | ✓ | ✓ |
In order to set up a US business to process payroll in Canada, you must register with the Canada Revenue Agency (creating a permanent establishment), request a payroll account, open a Canadian bank account, and purchase compliant, Canadian payroll software. Canada Revenue Agency payroll taxes are due on the 15th of every month following collection.
US companies that opt to hire independent contractors instead of hiring employees are not required to pay payroll taxes in Canada. However, the CRA closely examines employer-contractor relationships for cases of worker misclassification and levies steep fines for tax evasion and filing errors.
Benefits Of Working With A Canadian Peo
Creating a permanent establishment in Canada to payroll your new Canadian team has its advantages, but it has its disadvantages, too. Keeping things in house lets you do things your way, but it also requires you to develop enough internal expertise to know what the right way looks like. Working with a PEO can help your company maintain compliance with local tax laws and prevent any fines or penalties from happening, while at the same time, simplifying your Canadian business processes.
By hiring a PEO to handle your Canadian payroll you can:
Avoid Business Registration and Permanent Establishment
When you work with a PEO there is no need to register a branch or subsidiary in Canada. Your Canadian team is hired and onboarded by the PEO and then leased back to you to manage their day to day. With your team compliantly hired by a Canadian business, you can avoid going through the hassle of registering your business in the country or creating a permanent establishment.
Avoid Buying Software or Hiring Staff
Setting up a new payroll in a new jurisdiction isn’t easy, and the learning curve is steep. When you turn your payroll over to a PEO, you get the benefit of an experienced staff of payroll and HR professionals, using the best tools, without having to do any of the setup yourself.
Avoid Fines and Lawsuits
Canadian payroll taxes for employers can be confusing. PEOs are experts in payroll taxes and employment law and will help you stay compliant with local laws with compliant contracts, accurate deductions, and on time remittances. Leave all your questions and concerns in the hands of a PEO expert so you can worry less about what payroll tax is in Canada and worry more about growing your business.
Let A PEO Take Care of Your Canadian Provincial Payroll Taxes
Canadian remote workers are a great resource for growing US companies but setting up payroll for your new team can quickly become complex. Working with a Canadian PEO allows you to leave provincial payroll tax compliance in the hands of trusted experts.
Canadian Payroll Services handles all the details of provincial payroll taxes, employment law compliance, and employee onboarding, so that you can focus on your core business. If you’d like to learn more about how we can help you grow your team in Canada, contact us today!
