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Canada Payroll, Taxes and Contributions

All Countries > Canada > Payroll in Canada
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Capital

Ottawa

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Official Language

English, French

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Currency

Canadian Dollar

Payroll Desktop

Payroll cycle

Bi-Monthly

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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.

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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.

Global Payroll

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:

  1. Update your Business Number (BN) from the Canada Revenue Agency (CRA)

  2. Register with the Workplace Safety board for your specific province, if required

    1. 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.

    2. 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.

  3. Find out if there are any deductions you may need to make.

  4. Set up the new employee, which includes obtaining all of the below items and documentation:

    1. Full legal name

    2. Current Canadian address

    3. Social Insurance Number (SIN)

    4. Date of hire

    5. Date of birth

    6. Amount to be paid, i.e., salary, hourly wage, bonuses, etc.

    7. Pay type: salaried or hourly

    8. Form TD1

    9. Personal Tax Credits Return

  5. 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)

  6. Calculate deductions and contributions

    1. Canada Pension Plan (CPP) contributions

    2. Employment Insurance (EI)

    3. Income tax deductions

  7. Determine when and how to pay CPP contributions, EI, and Income tax deductions

  8. Remit deductions to the CRA

  9. Report a nil remittance or correct a remittance

  10. Confirm payment

  11. 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.

Welcome

Employment and payroll taxes you should know about

When it comes to Canada payroll deductions, there are several to be aware of, including:

  • Canada Pension Plan Contribution

  • Employment Insurance premium

  • Federal income tax

  • Provincial and territorial

  • 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.

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Frequently asked questions

  • How do I do payroll in Canada?

    An employer must take several steps to process payroll in Canada. Such steps include updating your Business Number from the Canada Revenue Agency (CRA), registering with the Workplace Safety board of your province, setting up new employees, and opening a payroll program account.

  • How often is payroll in Canada?

    The most common practice in Canada is to pay employees on a bi-monthly basis. Most companies pay employees on the 15th and final day of the month.

  • What does an employer pay for an employee in Canada in terms of benefits?

    Typically, the employer’s cost for employee benefits is 5,000 to 7,000 Canadian dollars per year, and that includes insurance for medical, optical, dental, accident death and dismemberment, and possibly disability coverage, depending on the employer’s plan.

  • How do I close a payroll account if my business is being closed?

    If you are the business owner with level two authorization, you can request to close a payroll account with CRA. There will also be different forms to fill out depending on your province.

  • What is Canada’s tax rate for payroll?

    Tax rates for Canada payroll vary based on the employee’s income level and the province in which they work. In addition, employers have to consider the Canada Pension Plan contribution, Employment Insurance premium, the federal income tax, the provincial and territorial income tax, and whether the employee wishes to contribute to a private pension plan.

  • What is a payroll account in Canada?

    A payroll program account is an account number identifying the employer/business with the Canada Revenue Agency (CRA). The 15-digit account number includes your Business Number (BN). Being enrolled in the payroll program account enables a business to deduct and submit payroll remittances to the CRA.

  • Can you do payroll yourself?

    A business can process payroll in-house or use a third-party payroll processor. If a business is comfortable handling all aspects of HR admin, compliance, taxes, and deductions, then managing payroll themselves is a good option. Otherwise, a business can engage the services of a third-party payroll processor or an EOR like Via.

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