Employing Canadian workers requires U.S. companies to navigate a complex web of federal and provincial regulations. Non-compliance can result in significant penalties, legal liability, and damage to your business reputation. This comprehensive guide covers everything U.S. companies need to know about compliance when employing Canadians.
Understanding Canadian Employment Law Structure
Canadian employment law operates on two levels:
- Federal: Applies to federally regulated industries (banking, telecommunications, interprovincial transportation)
- Provincial: Applies to most other industries (varies by province)
Most U.S. companies hiring Canadian tech workers will be subject to provincial employment standards, which vary significantly across Canada’s 10 provinces and 3 territories.
Federal Compliance Requirements
Canada Revenue Agency (CRA) Registration
All employers of Canadian workers must:
- Obtain a Business Number (BN)
- Register for a payroll program account
- Register for GST/HST if applicable (generally if revenue > $30,000 CAD)
Penalty for Non-Compliance: Fines up to $25,000 and potential criminal charges for tax evasion.
Tax Deductions and Remittances
Employers must deduct and remit:
- Federal Income Tax: Based on employee’s TD1 form
- Provincial Income Tax: Based on employee’s province of work
- Employment Insurance (EI): 1.58% employee, 2.21% employer (2024)
- Canada Pension Plan (CPP): 5.95% employee, 5.95% employer (2024)
Remittance Deadlines:
- Monthly remitters: 15th of following month
- Accelerated remitters: Varies (bi-weekly or weekly)
- Quarterly remitters: Last day of month following quarter
Penalty for Late Remittance: 3-10% of amount owing, plus interest.
Record Keeping
Employers must maintain records for 7 years, including:
- Employee personal information
- Hours worked
- Wages paid
- Deductions made
- T4 slips issued
- Employment contracts
- Payroll remittances
Provincial Employment Standards
Minimum Wage
Each province sets its own minimum wage (2024):
| Province | Minimum Wage (CAD) |
|---|---|
| Ontario | $16.55/hour |
| Quebec | $15.25/hour |
| British Columbia | $16.75/hour |
| Alberta | $15.00/hour |
| Manitoba | $15.30/hour |
| Saskatchewan | $14.00/hour |
| Nova Scotia | $15.20/hour |
| New Brunswick | $15.30/hour |
| Newfoundland | $15.60/hour |
| Prince Edward Island | $15.40/hour |
Key Point: Minimum wage applies to all employees, regardless of whether they’re paid salary or hourly. Salaried employees must earn at least minimum wage for all hours worked.
Overtime Requirements
Overtime rules vary by province:
Ontario:
- Overtime after 44 hours/week
- 1.5x regular rate
- Some exemptions for managers, IT professionals (with conditions)
Quebec:
- Overtime after 40 hours/week
- 1.5x regular rate
- Different rules for IT professionals
British Columbia:
- Overtime after 40 hours/week
- 1.5x regular rate (first 4 hours), 2x rate (after 4 hours)
- Averaging agreements allowed
Key Point: IT professionals may be exempt from overtime in some provinces, but specific conditions must be met. Don’t assume all tech workers are exempt.
Vacation Entitlements
Minimum vacation entitlements:
| Province | Minimum Vacation |
|---|---|
| Most Provinces | 2 weeks after 1 year |
| Saskatchewan | 3 weeks after 1 year |
| Quebec | 2 weeks (can accrue from start) |
Vacation Pay: Typically 4% of gross wages (2 weeks = 4% of annual salary).
Key Compliance Issue: Vacation must be taken within 10-12 months of accrual in most provinces. Employers cannot simply pay out vacation without employee consent.
Statutory Holidays
Each province has different statutory holidays:
Ontario: 9 public holidays
- New Year’s Day, Family Day, Good Friday, Victoria Day, Canada Day, Labour Day, Thanksgiving, Christmas Day, Boxing Day
Quebec: 8 public holidays
- New Year’s Day, Good Friday/Easter Monday, National Patriots’ Day, Fête Nationale, Canada Day, Labour Day, Thanksgiving, Christmas Day
British Columbia: 10 public holidays
- New Year’s Day, Family Day, Good Friday, Victoria Day, Canada Day, B.C. Day, Labour Day, Thanksgiving, Remembrance Day, Christmas Day
Holiday Pay: Employees who work on a statutory holiday are typically entitled to:
- Premium pay (1.5x or 2x regular rate), OR
- Regular pay plus a day off with pay
Termination and Severance
Notice Requirements:
Most provinces require notice or pay in lieu based on length of service:
Ontario (example):
- Less than 3 months: No notice required
- 3 months - 1 year: 1 week
- 1-3 years: 2 weeks
- 3-4 years: 3 weeks
- 4-5 years: 4 weeks
- 5-6 years: 5 weeks
- 6-7 years: 6 weeks
- 7-8 years: 7 weeks
- 8+ years: 8 weeks
Severance Pay (Ontario):
- Required if employee has 5+ years of service AND company has payroll of $2.5M+ OR terminates 50+ employees
- 1 week per year of service (up to 26 weeks)
Key Point: Canadian termination requirements are generally more generous than U.S. “at-will” employment. Wrongful dismissal claims can result in significant damages.
Employment Contracts
Canadian employment contracts should specify:
- Job title and description
- Compensation (salary, benefits)
- Work location
- Hours of work
- Vacation entitlements
- Termination provisions (must comply with minimum standards)
- Confidentiality and non-compete clauses (enforceability varies by province)
Key Compliance Issue: Termination clauses that attempt to limit notice to less than statutory minimums are generally unenforceable and can void the entire termination provision.
Workers’ Compensation
Each province has mandatory workers’ compensation insurance:
- Ontario: Workplace Safety and Insurance Board (WSIB)
- Quebec: Commission des normes, de l’équité, de la santé et de la sécurité du travail (CNESST)
- British Columbia: WorkSafeBC
Premium Rates: Vary by industry (typically 0.5-5% of payroll).
Coverage: Required for all employees, including remote workers.
Health and Safety
Provincial health and safety legislation requires:
- Safe work environment
- Training and education
- Incident reporting
- First aid provisions
- Workplace violence and harassment policies
Key Point: Even for remote workers, employers have health and safety obligations, including ergonomic assessments and mental health support.
Privacy and Data Protection
Personal Information Protection and Electronic Documents Act (PIPEDA)
Applies to private sector employers in most provinces. Requires:
- Consent for collection, use, and disclosure of personal information
- Security safeguards
- Individual access rights
- Breach notification
Provincial Privacy Laws:
- Quebec: Private Sector Act (similar to PIPEDA)
- British Columbia: Personal Information Protection Act
- Alberta: Personal Information Protection Act
Common Compliance Violations
1. Misclassifying Employees as Contractors
Risk: Significant penalties, back taxes, employment standards violations.
Test: Canadian courts use a multi-factor test focusing on control, ownership of tools, chance of profit/risk of loss, and integration into business.
Key Point: Canadian rules are stricter than U.S. rules. Many workers classified as contractors in the U.S. would be employees in Canada.
2. Incorrect Payroll Deductions
Risk: CRA penalties, interest, potential criminal charges.
Common Errors:
- Wrong provincial tax rates
- Incorrect CPP/EI calculations
- Missing remittances
- Late remittances
3. Violating Employment Standards
Risk: Orders to pay wages, penalties, potential criminal charges.
Common Violations:
- Not paying overtime
- Not providing vacation time
- Incorrect termination notice
- Not paying statutory holiday pay
4. Inadequate Record Keeping
Risk: CRA penalties, inability to defend against claims.
Requirement: 7 years of records (longer than U.S. 4-year requirement).
How EOR Services Ensure Compliance
Employer of Record services handle all compliance requirements:
✅ Tax Compliance: Accurate deductions, remittances, T4 preparation ✅ Employment Standards: Compliance with provincial minimums ✅ Workers’ Compensation: Proper registration and premiums ✅ Record Keeping: Complete documentation and retention ✅ Employment Contracts: Legally compliant agreements ✅ Termination: Proper notice and severance calculations ✅ Ongoing Updates: Staying current with law changes
Best Practices for U.S. Employers
- Work with Experts: Partner with EOR providers or Canadian employment lawyers
- Understand Provincial Differences: Don’t assume one-size-fits-all
- Maintain Proper Documentation: Keep all employment records for 7 years
- Stay Current: Employment law changes frequently
- Get Employment Contracts Reviewed: Ensure they comply with Canadian law
- Classify Workers Correctly: When in doubt, classify as employee
- Plan for Termination: Understand notice and severance requirements upfront
Getting Started
Ensuring compliance when employing Canadians requires expertise in:
- Federal tax law
- Provincial employment standards
- CRA requirements
- Workers’ compensation
- Privacy law
- Health and safety
For most U.S. companies, working with an EOR provider is the most efficient and cost-effective way to ensure full compliance while focusing on your core business.
Ready to ensure full compliance for your Canadian employees? Contact InfraDev to learn how our EOR services handle all compliance requirements for your team.