How to Manage and Pay Contractors in Canada

Canada is a large hub for top global talent, especially in tech. The country's diverse workforce makes it an ideal location for hiring contractors. 

Small and large businesses, both inside and outside of Canada, want to hire contractors in Canada. For companies based in countries like Mexico or the US, this also means finding an effective way to make payments across borders without having to deal with transaction fees for wire, digital, and other money transfers when paying contractors. 

When you hire contractors in Canada, you’ll need to understand how to: 

• Pay 

• Manage 

• Maintain compliance

• Hire and recruit 

In this guide, we’ll give you a background on independent contractors in Canada as well as an overview of how to hire, pay, and manage them compliantly. 

What is the difference between an independent contractor and full-time employee in Canada? 

Hiring in Canada means understanding the distinction between full-time employees and independent contractors in the eyes of the government in Canada. 

In the province of Quebec, the Québec Civil Code regulates how businesses classify independent contractors. In other jurisdictions around the country, the Canada Revenue Agency (CRA) sets out the guidelines for distinguishing employees and independent contractors.

Some general distinctions between employees and contractors are: 

• Employees are on payroll while contractors are paid per project 

• Contractors file and deduct their own taxes 

• Employees are entitled to benefits while contractors are not 

• Contractors are not entitled to notice or severance

• Contractors set their own hours and completion of projects while employees have a set schedule 

In general, employees are directly working for a company, while independent contractors are hired by a business to complete a service or project in a specific industry. 

Contractors have more freedom with building the projects they take on and how they complete these projects, while employees have less liberty with their everyday schedule. However, contractors are responsible for deducting their own taxes at the end of the year and finding their own benefits. Full-time employees in Canada, on the other hand, already have taxes taken out of their paycheck and are entitled to specific benefits.

How to determine if you need a contractor in Canada

Determining whether you need to hire a contractor in Canada will depend 1) on the scope of the project & your industry and 2) the amount of time you need the contractor for. 

Ask yourself these questions before you decide to hire an independent contractor: 

• Do I want to put this person on my payroll, or should they be responsible for their own taxes? 

• Is this person going to be working enough to where they are entitled to benefits and other compensations from my company? 

• What qualifications does this person have that make them specialized to complete a specific project? 

• Do they need to put in bids to compete for these projects, or can I assign them everyday tasks like an employee? 

• Can I give this person independence to complete this project without inserting managerial opinion along the way? 

• How long will it take to complete this project? 

Once you go through these questions and determine that you’ll need an independent contractor (instead of hiring a full-time employee), then you can begin the search.

Where to find contractors in Canada

Once you build up your business, it may be better to source contractors from word-of-mouth referrals and recommendations. 

If you don’t have any referrals starting off in Canada, check out job board sites like: 

• LinkedIn

• Indeed

• Upwork

• Fiverr

You can also use online directories and digital bid boards designed for businesses to find independent contractors. 

How to onboard contractors in Canada

An easy way to prevent problems when hiring independent contractors is to create a strong independent contractor agreement that details the scope of the relationship. 

Putting a clear and detailed independent contractor agreement in place protects both you and the contractor, as well as helps you avoid any future misclassification or liability problems. 

Independent contractor agreements outline important details between the contractor and client, including: 

• Description of the services being provided

• Length of the project or service 

• Payment and other billing details (keep track of these payments through your payroll in Canada)

• Dispute resolutions

If a problem arises between either party during the project, the courts in Canada will be able to use the agreement to settle disputes. 

How to pay contractors in Canada

As the first invoice hits from the contractor, you’ll need to know exactly how to pay them. 

You generally shouldn’t put a contractor on your payroll in Canada, as it causes problems with misclassification and compliance. One of the simplest ways to avoid payment and transaction fees when paying contractors is to use a global EOR service like Via. We take the headache out of paying contractors abroad. Partnering with Via is also a good strategy for avoiding unexpected fees, bad conversion rates, and high foreign transaction (FX) fees.

You have a few options to legally pay independent contractors in Canada: 

1. Use a third-party payroll service or EOR. You can use a third-party payroll processing service or hire a global employer-of-record service like Via that can help you properly manage & pay your independent contractors. 

2. Set up a bank account. You can set up a bank account in Canada to pay your contractors. However, you’ll normally need to set up an entity within the country and register with the proper bureaucratic organizations (which can take months). 

3. International money order. One of the common ways to pay a Canadian contractor without an entity is to set up an international money order. They can take awhile to process, and the contractor will have to physically deposit them. This is a good option when you’re only paying someone one time. 

4. Digital wallets. You can set up a digital wallet through multinational peer-to-peer lending companies like PayPal or Duel that help you deposit and transfer money into your contractors accounts. This is one of the quickest ways to pay contractors without partnering with an EOR service like Via. Most of these services do charge fees, so be aware of that before choosing this option. 

5. Money transfer services. Another popular option for companies looking to send large amounts of money across borders is using a money transfer service like Payoneer. This option has a high transfer limit, quick transfer time, and different options for sending money. These transfers can occur relatively fast and usually ensure a prompt payment. But, if you transfer money in a different currency than Canadian dollars, there usually is a conversion fee. Payoneer, for example, charges $1.50 for domestic transfers and a 2% fee for non-currency transfers. 

How Via can help convert Canadian contractors to full-time employees 

If you’ve had a good working relationship with your Canadian independent contractor and are satisfied with their work, you may be thinking about bringing them on as a full-time employee. 

At Via, we can help you convert contractors to full-time employees seamlessly. We have the resources and knowledge about Canada to help ease the transition. 

Determine new hourly rate/annual salary

Using an EOR like Via can easily help you figure out the contractor's hourly rate as an employee. Setting a new payment rate might be the most difficult step when deciding how to transition contractors to full-time employees. As contractors normally charge more for their services because they pay their own taxes, the rate that they charge may not easily align with how much someone performing those same tasks would be paid at your company as a full-time employee. 

Employers take on a lot more expenses for their full-time employees, and we can help you figure out what expenses are required for employees in Canada. 

Employment taxes

Using an EOR like Via can help you determine exactly what taxes need to be deducted from your employees paychecks. 

Remember, in Canada, tax practices and withholdings operate differently than full-time employees. You shouldn’t be withholding taxes or paying payroll taxes for contractors. 

To ensure you’re properly paying your employees and following tax laws, you’ll need to pay employment insurance and Canadian Pension Plan premiums. Employment insurance is 2.21% of insurable earnings. The contribution rate for the Canadian Pension Plan is 11.4%. 

At Via we can help you account for:  

• Additional payroll taxes

• Travel expenses 

• Training and onboarding costs

The average tax rate in Canada for income tax is 27% of the total salary, with a 35% marginal tax rate. So, if your salary increases $100, you will be taxed 35% on that additional salary increase.  

Determine benefits and bonuses 

Another crucial component when converting contractors to employees is determining their benefits and bonuses. As a global EOR service, we know exactly what additional compensation and benefits full-time employees are entitled to in Canada. 

Examples of mandatory benefits in Canada: 

• 2 weeks of paid time off after the first year, 3 weeks of paid time off after 5 years, and 4 weeks of paid time off after 10 years 

• Sick leave

• Paid maternity and paternity leave

• Canadian Pension plan for retirement 

• Canadian medicare 

With our keen knowledge of employment, tax, and labor laws in Canada, we can help you figure out a competitive salary for contractors that you want to convert to full-time employees. 

Why companies partner with Via

Deciding how to hire full-time or contractors in Canada can be a difficult task. You’ll have to understand the country’s complex labor & tax laws, and ensure that you’re always remaining compliant. 

Once you make the choice to convert a contractor to a full-time employee, you’ll need to understand salary, benefits, payroll, and other taxes associated with the transfer. You can start by paying workers as a contractor on the Via platform and transition them to full-time employees with benefits if they become a more integrated member of your team.

At Via, we make understanding this transition seamless. We have on-the-ground legal and tax experts that can guide you through the conversion process and make sure that you’re compliant with all local laws. 

The Via platform

With our-easy-to-use platform, Via manages the local HR processes for global employment such as work visas and permits, benefits, payroll, background checks, and more. As your employer-of-record/entity in Canada, Via assumes responsibility for employment liability, so that you can focus on what matters: recruiting and managing your team. 

Pricing

With Via’s transparent pricing, you can pay full-time employees or contractors in Canada with no hidden set-up fees, no foreign exchange or transaction fees, and no minimums–start with 1 employee and scale up at your own pace. You can get started in 1-2 business days. That’s why a lot of businesses partner with an EOR service like Via. We expedite the process of hiring and recruiting, setting up HR, and adhering to all employment laws within the country.