Canada Payroll, Taxes and Contributions
Capital
Ottawa
Official Language
English, French
Currency
Canadian Dollar
Payroll cycle
Bi-Monthly
Quick facts about Canada
Canada is one of the United States' most important economic partners. Home to one of the best public education systems in the world, Canada is a booming talent hub across all industries, including tech, financial services, healthcare, and agriculture. Despite being a relatively small country by population, Canada's GDP is approaching $2 trillion. Companies looking to expand globally can hire top Canadian talent by partnering with an EOR service like Via.
Payroll in Canada is the process of managing onboarding, payments, benefits, deductions, compliance, taxes, terminations, and severance for both full-time employees and contractors.
Companies have two options for running payroll abroad: 1) open an entity and partner with a PEO service provider for payroll or 2) use a global EOR service like Via. Effectively processing payroll in Canada payroll is crucial for businesses and companies looking to hire Canadian employees. Employers are responsible for completing a number of tasks and filling out government-mandated forms.
In this article, we’ll cover how to run payroll in Canada without an entity as well as options you have to outsource payroll while remaining compliant with employment law.
Internal payroll in Canada
Internal payroll in Canada is when you open an entity and hire your own internal HR team to manage all aspects of payroll.
Setting up payroll in Canada can be complicated because you are required to register with a number of local bureaucratic entities, register for the Canadian Pension Plan, and set up a specialized HR team that understands how to run payroll in the country.
Performing payroll in Canada
To properly perform Canada payroll, employers will need to carry out the following steps and tasks:
Update your Business Number (BN) from the Canada Revenue Agency (CRA)
Register with the Workplace Safety board for your specific province, if required
For example, the Workplace Safety Insurance Board (WSIB) ensures that businesses provide employees with compensation when an injury or illness occurs at the workplace and is applicable in Ontario.
WorkSafe BC is a statutory agency that works as an insurance system paid by employers to cover physical and psychological injuries sustained by employees on-site and is applicable in British Columbia.
Find out if there are any deductions you may need to make.
Set up the new employee, which includes obtaining all of the below items and documentation:
Full legal name
Current Canadian address
Social Insurance Number (SIN)
Date of hire
Date of birth
Amount to be paid, i.e., salary, hourly wage, bonuses, etc.
Pay type: salaried or hourly
Open a payroll program account. This grants you a 15-character payroll program account number that includes your nine-digit BN (Ex. 12345 6789 CA 0001)
Calculate deductions and contributions
Canada Pension Plan (CPP) contributions
Employment Insurance (EI)
Determine when and how to pay CPP contributions, EI, and Income tax deductions
Remit deductions to the CRA
Report a nil remittance or correct a remittance
Confirm payment
Complete a year-end summary of payroll information returns ( T4 Slip )
To open a payroll in Canada program account, and you’ll need to provide the following documentation in order to process Canada payroll (Note: some of these items may not apply to your situation):
Date employees received their first wages
Months covered for payroll of employees’ wages
Type of pay period
Number of employees
Payroll service name
Country of the parent company, if this is a foreign-owned company
Name of franchisor, if applicable
Country of franchise’s head office, if applicable
Employers are also responsible for obtaining employee Social Insurance Numbers (SIN) and completing form TD1 – Personal Tax Credits Returns.
Payroll outsourcing in Canada
If all these HR admin-related processes seem daunting, you have the option of hiring an EOR or a PEO to handle everything affiliated with payroll.
PEO in Canada
A PEO in Canada allows you to outsource payroll to a third-party service provider. With a PEO, you still need to open an entity in the country. Opening an entity in Canada can be costly and time consuming. If any legal problems arise, the PEO partner shares the responsibility with the parent company (you).
EOR in Canada
An EOR can also manage background checks, compliance, reporting, contracts, taxes, immigration, and benefits. Feel free to contact us at Via if you want more information about working with an EOR.
Suppose you are a new employer in Canada. As such, there is much to learn and several requirements to keep in mind, including creating a business plan, naming your business, registering with the government, applying for permits and licenses, and obtaining financing.
There are many resources and blog posts online to guide new employers in Canada so make sure you and your team are using reliable and vetted sources.
Employment and payroll taxes you should know about
When it comes to Canada payroll deductions, there are several to be aware of, including:
Contributions to a private pension plan or union dues, also known as Registered Pension Plans (RPPs)
The above mentioned payroll deductions apply to all employed in Canada. Employers also have the option to sign you up for a registered pension plan (RPPs) which are voluntary contributions to a retirement plan.
Canada has different federal and provincial laws, so make sure you research each province's laws for payroll contributions and deductions.
Below we’ll look at some of the typical taxes for Ontario (federal employees).
Ontario payroll contributions
Employer contribution | Percentage |
Canada Pension Plan (CPP) | 5.7% |
Employment Insurance (EI) premiums | 2.15 |
Workers compensation | $1.37 CAD for every $100 CAD |
Total Employment Cost: 7.91% + 1.37 CAD for every 100 CAD
Employee contributions | Percentage |
Canada Pension Plan (CPP) | 5.70% |
Employment Insurance | 1.58% |
Ontario Health Premium:
Tax rate percentage | Income |
.98% | Up to $200,000 CAD |
1.101% | $200,000 CAD to $230,000 CAD |
1.223% | $230,000 CAD to $260,000 CAD |
1.344% | $260,000 CAD to $290,000 CAD |
1.465% | $290,000 CAD to $320,000 CAD |
1.586% | $320,000 CAD to $350,000 CAD |
1.708% | $350,000 CAD to $380,000 CAD |
1.829% | $380,000 CAD to $400,000 CAD |
1.95% | More than $400,000 CAD |
Total employee cost: 7.28% and Health Premium cost
Income tax
Federal:
Gross Income | Percentage |
$0-$50,197 CAD | 15% |
$50,197.01-$100,392 CAD | 20.5% |
$100,392.01-$155,625 CAD | 26% |
$155,625.01-$221,708 CAD | 29% |
$221,708+ CAD | 33% |
Ontario:
Gross Income | Percentage |
$0-$46,226 CAD | 5.05% |
$46,226.01-$92,454 CAD | 9.15% |
$92,454.01-$150,000 CAD | 11.16% |
$150,000.01-$220,000 CAD | 12.16% |
$220,000.01+ CAD | 13.16% |
Tax year
The fiscal year in Canada is the 1st of April, 2023 to the 31st of March, 2024.
Employer Health Tax
The Employer Health Tax (EHT) is an additional payroll tax that helps provide funding for healthcare in specific provinces. Participating provinces in the EHT are Ontario, British Columbia, Manitoba, Newfoundland and Labrador, and Quebec. Each province’s tax varies, so it’s good to be familiar with your area’s EHT.
Common penalties and interests
Penalties will be applied to employers who do not comply with taxes connected to Canada payroll. Late filing, failure to file, failure to provide identification numbers, and negligence to correctly fill out a tax return may accrue penalties ranging from fines to imprisonment.
Pay cycle
In Ontario, pay cycles can occur monthly, semi-montly, bi-weekly, or hourly. Monthly employees must receive their pay within ten consecutive day of the end of the pay period.
Minimum wage
The federal minimum wage increased in April of 2023 from $15.55 to $16.65. The minimum wage rate may change depending on the province employees are working in.
Working hours
The maximum amount of hours employees can work in Canada is 8 hours per day with 40 hours per week. The standard working week is Monday-Friday.
Overtime
The maximum amount of overtime employees can work is 8 hours or a 48 hour work week.
Employers are required to pay employees an overtime rate of 150% of their normal salary or 1 hour of time off in lieu of overtime payment.
Paid time off (PTO)
Employees in Canada are entitled to 2 consecutive weeks off after their first year of employment. After 5 years, they are entitled to 3 consecutive weeks off.
Vacation pay is 4% of their regular salary for their first 5 years and 6% of their regular salary after 5 years of employment.
There are 9 national public holidays in Canada that employees should receive off. Employees that work on these statutory holidays must be paid 1.5x their regular salary plus a different day off with public holiday pay.
Sick days
Employees that have worked for at least 3 consecutive months are entitled to 10 days of unpaid time off for illness, personal emergency, or injury.
Maternity leave
New mothers are entitled to 15 weeks of paid time off if they have worked for a company for at least 1 year before their due date. Maternity leave is paid at 55% of the employee’s base salary.
This leave may not start before the 17th week of pregnancy and can end no later than 18 weeks after the due date.
Parental leave
New parents are entitled to up to 76 weeks of unpaid leave to care for a newborn or an adopted child.
Parental leave can only begin the week of the birth or adoption. If a parent plans to take parental leave, they need to take it before 78 weeks pass after the birth or adoption of the child.
Paternity leave falls under the same regulations as parental leave.
Pay Transparency Act
On May 11, 2023, the Pay Transparency Act was passed in the province of British Columbia.
The act was created specifically to end discrimination and unequal pay in the workplace. Under this act, employers will be required to create a pay transparency report that details the pay and position of every employee working for them. The report must be filed with the government and made publicly available.
Immediate changes under the act include employers being unable to suspend, dismiss, demote, discipline, or harass employees for:
Asking their employer about their pay
Revealing their pay to another employee or potential employee
Asking the employer about their pay transparency report
Giving information to the Director of Pay Transparency about their employer (if they feel they’re practicing unequal pay practices)
Coming in November of 2023, more in-depth changes are set to move forward including:
Employers being required to include the pay or pay range in job ads
Employer being required to create and post job transparency reports for all of their employees
Employers being exposed for pay discrepancies between men and women working the same position
Listing non-compliant employers in the BC’s government annual report
Canadian payroll deduction calculator
The Canadian government has a great online tool to help determine Canada payroll deductions. This will streamline the payroll process if you’re not collaborating with an EOR.
Why companies partner with Via
Via makes hiring talent around the world and building your global team seamless by helping you onboard workers in as little as 2-3 business days. With our easy-to-use platform, Via helps you manage local HR processes for direct employment such as work visas & permits, employee data privacy compliance, benefits, global payroll, background checks, and more. Our team of local labor lawyers and on-the-ground experts provide 24-hour local support and ensure that your company remains compliant while expanding abroad. As your employer-of-record/entity abroad, Via assumes responsibility for employment liability, so that you can focus on what matters: recruiting and managing your team.
