At Bradford Jacobs, our Employer of Records (EOR) platform provides reliable solutions for companies wishing to establish their presence in the Canadian economy. From the first steps of setting up operations to ensuring compliance with the local payroll laws and regulations, we offer dedicated Canada Payroll solutions that can be personalized to your requirements.
We aim to make business expansion easy. At Bradford Jacobs, we navigate the administration of the Canada payroll system for you, and we also make the returns and associated payments for income tax and social security contributions directly from our payroll system to the local tax authorities. We do the work, so you do not have to.
When expanding into a new country, you may encounter some challenges regarding payroll. The mysteries of Canadian and Québec taxation can be daunting but allow us to take the reins and answer any of your questions and concerns with our trusty guide on payroll for Canada.
What Canada Payroll Options are available for Companies?
- Remote payroll - This option allows businesses to operate under a single payroll system, by adding employees in Canada to your parent company’s payroll. However, these employees must operate under different regulations, which is likely to cause problems.
- Internal payroll - You may operate payroll for your subsidiary, especially if you are committed to growing your company’s presence in Canada. However, this does require hiring dedicated HR staff who understand Canadian employment and compliance laws.
- Canada payroll processing company - If you are considering outsourcing, then working with a Canadian payroll company will help in processing your payroll – but not when it comes to compliance.
- Canada payroll outsourcing - However, there is another option available that solves both concerns – by working with Bradford Jacobs. We can manage payroll and compliance for all your employees in Canada. We take the administrative stress off your shoulders so you can focus on what you do best.
Canada Payroll Services
Companies expanding their operations into Canada open up a world of opportunity – but challenges come alongside the benefits. Payroll management is among those challenges, whether your company is considering moving employees abroad or hiring fresh staff in-country. Employment laws, payroll regulations and income tax requirements vary between the federal government and the 10 provinces and three territories.
Bradford Jacobs’ Employer of Record (EOR) payroll solutions will navigate around these potential pitfalls effectively and efficiently by putting into action our comprehensive knowledge of federal and provincial taxes and payroll regulations.
As part of our service, we file returns and associated payments for wages tax and social security contributions directly from our payroll system to the relevant authorities. Staying up to date with federal and provincial laws is a vital element of our payroll services. Our role in consulting with the Canada Revenue Agency includes:
- Confirming the requirement to make payroll deductions. Any remuneration relating to employment requires registering for payroll
- Obtaining the employee’s Social Insurance Number (SIN) within three days of their starting work, and completing Form TD1 (Personal Tax Credits Return) within seven days of starting and before paying the employee
- Obtaining a Business Number (BN) from the federal government or a Québec Enterprise Number for those incorporating in that province
- Opening a payroll program account to obtain the payroll number needed to remit deductions and file returns. We register for the program account as soon as hiring begins
- Calculating deductions and contributions for Canadian Pension Plan (CPP), Employment Insurance (EI) and income tax
- Submitting payroll information returns, completing, and filing year-end summary of all employees’ pay and deductions and remitting deductions for CPP, EI and income tax. In most cases deductions are filed by the 15th of the month after employees are paid. Remuneration includes taxable benefits and allowances. Different rules may apply to Small and Medium Enterprises (SMEs)
Additional payroll support includes:
- Negotiating any tax exemptions for skilled expats (where applicable)
- Reconciling federal, and any provincial, territorial and local taxes to assess for refunds or extra payments
- Calculating employees’ monthly salary and sending their pay slips
- Researching for any available tax incentives
- Submitting employees’ and employers’ wage tax returns
- Creating and submitting your company’s annual accounts and year-end statements
- Creating payment schedules for salaries and any insurance contributions (if applicable)
- Ensuring accurate personal income tax returns are filed for you and your employees, where required
The above checklist highlights why the vast percentage of foreign companies expanding into Canada’s strictly regulated business environment hand their payroll to EOR providers such as Bradford Jacobs. By outsourcing payroll, your company complies with tax and employment regulations without risking sanctions or financial penalties for late or incomplete filing.
You focus on your goals and expansion, free of any concerns over payroll.
What is required to set up Payroll in Canada?
Companies expanding into Canada must meet basic legal requirements with running payroll, in addition to complying with minimum wage, overtime pay and employee benefits which vary between federal government and provincial regulations.
- All companies must be established as legal entities to process payroll, either under federal or provincial/territorial laws
- Federal incorporation allows a business to trade overseas and in any Canadian province or territory; provincial incorporation allows a company to trade overseas but only in the Canadian province or territory where they are incorporated
- Employers running their own payroll must check every employee’s Social Insurance Number (SIN) card within three days of starting work and ensure the employee completes Form TD1 for personal tax credits return. The TD1 governs the amount of tax withheld from employment or other income, such as a pension scheme
- Taxes must be remitted to federal or provincial authorities at the risk of severe penalties for failure to file on time
- Employers must also withhold contributions for Canada Pension Plan (CPP) and Employment Insurance (EI) premiums
What Entitlement and Termination Terms apply to Canada Payroll?
Workers’ compensation programs vary between federal, provincial, and territorial regulations. The Labor Code and Canada Labor Standards Regulations form the structure of laws and regulations covering termination and entitlements. Arrangements can differ between Canada’s 10 provinces and three territories. Provisions include:
National Minimum Wage: On December 29, 2021, Canada introduced a new Federal Minimum Wage affecting all private sector federally regulated employees of CAD 15 (US$11.92), regardless which province or territory they work in. This is the lowest hourly rate which can be paid, although if the province mandates for more than CAD 15, the higher rate applies.
For those workers not covered as federally regulated private sector employees, the minimum wage will still be set according to which of the 10 provinces or three territories they work. For example, as of October 2021, rates included Alberta CAD 15 (US$11.92), Newfoundland and Labrador CAD 12.50 (US$9.93), Northwest Territories CAD 13.46 (US$10.69) and Nunavut CAD 16.00 (US$12.71).
Sick Leave: Federal Employment Insurance (EI) sickness benefits allow for up to 15 weeks’ allowances at 55% of salary to a maximum of CAD 595 (US$472). Certification is required to prove inability to work due illness, injury, quarantining or any other designated condition. Arrangements can differ between Canada’s 10 provinces and three territories.
Working Hours and Breaks: Standard working hours in a federally regulated industry are eight per day in a period of 24 consecutive hours, for a total of 40 in a week, stretching from midnight Saturday till midnight the following Saturday.
Employees are entitled to one full day of rest, usually the Sunday. Except in certain circumstances the maximum working hours should not exceed 48 in a week. Employers are entitled a minimum 30-minute for each five-hour period worked.
Overtime: Any hours worked over the standard week are considered overtime and reimbursed at 1.5 times the normal hourly rate. Managers and executives and professions such as doctors, lawyers, dentists, architects, and engineers are precluded from overtime.
Paid Vacations: Federally regulated employees receive two weeks’ paid vacation for a completed ‘year of employment,’ with an increase to three weeks after five years with the same employer and four weeks after 10 years’ employment.
The employee’s qualifying ‘year of employment’ begins on the date they were hired, or a 12-month period decided by the employer within parameters of the Canada Labor Standards Regulations. Arrangements can differ between Canada’s 10 provinces and three territories.
Maternity Benefits: These are federally administered for all jurisdictions from Employment Insurance (EI) except for Québec. Benefits depend on the type of benefit chosen and the pre-tax earnings in the previous 52 weeks or since the last claim, whichever is shorter.
The benefit is 55% of average insurable weekly pay up to a maximum of CAD 595 (US$478) in 2021. Québec employs an independent Parental Insurance Plan (QPIP), with rates assessed according to which plan is chosen. Québec is the only province that identifies “paternity leave” as a separate benefit.
Parental Leave: Job-protected entitlements vary between regulations for federally regulated private sectors and those of the 10 provinces and three territories.
Typically, parental leave is for 35 weeks from when the baby is born until the baby is one year old.
Parents can choose between standard benefits at 55% of average weekly insurable earnings to a maximum of CAD 595 (US$478), or extended benefits up to a maximum of 61 weeks, at 33% of average insurable weekly earnings capped at CAD 357 (US$286), plus family supplement if the parents are entitled.
Notice Periods, Termination and Severance: An employer must provide an employee with at least two weeks written notice of their intention to terminate employment. In lieu of written notice, the employer must pay two weeks’ wages at the regular rate.
Employers must give severance pay regardless of the length of service or the company’s size. Written notice or pay in lieu does not apply in certain circumstances – if the employee has not completed three months’ continuous service, is being dismissed for just cause or the contract specifies an end date for employment.
An employee is not legally required to give notice, but contracts usually include a notice period clause for both employer and employee. Also, each province/territory has its own rules and regulations.
Public Holidays: Not all public holidays are celebrated throughout Canada so employers and employees should check with each province or territory.
- New Year – January 1
- Good Friday – March / April (except Québec)
- Victoria Day – Monday preceding May 25
- Saint-Jean-Baptiste Day – June 24 (Québec only)
- Canada Day – July 1 (or July 2 if it falls on a Sunday)
- Civic Holiday – First Monday in August
- Labor Day – First Monday in September
- National Day: Truth and Reconciliation – September 30
- Thanksgiving Day – Second Monday in October
- Remembrance Day – November 11
- Christmas Day – December 25
- Boxing Day – December 26
Healthcare and Social Security: Health, education, unemployment, family and child assistance, old age, disability, and survivors’ benefits are all covered by the Canadian social security and social assistance programs. Canada Pension Plan (CPP) and Québec Pension Plan (QPP) are compulsory, earnings-related social insurance programs providing income for retired and disabled workers and their survivors. Their benefit formula also contains significant flat-rate categories for the disabled and survivors under the age of 65.
What Taxation Rules exist for Canada Payroll?
Canadian residents must pay income tax on their worldwide income, wherever it is earned or received, but they may receive credits or deductions regarding foreign taxes paid on foreign-earned income.
Individuals without significant residential ties to Canada but who have stayed in Canada for 183 days in a 12-month period, may be considered a ‘deemed resident’ of Canada and liable for taxes. They can be liable for taxes on the entire year in which they spent 183 days, or more, in the country.
Those without residential ties who have been in Canada for fewer than 183 days in a tax year are considered a non-resident for tax purposes.
Neither the Canadian Revenue Agency (CRA) nor the Income Tax Act provide fixed rules, which means rulings are usually decided on a case-by-case basis. Companies should download forms NR73 or NR74 from the CRA for guidance on the tax status of their employees for payroll.
The Canadian Revenue Agency (CRA) stipulates the following procedure for companies establishing payroll:
- Employers paying any amounts relating to employment must register for payroll
- Register the new employee by obtaining their Social Insurance Number (SIN) within three days of starting work, and complete Form TD1 (Personal Tax Credits Return) within seven days of starting and before you begin salary payments
- Open a payroll program account and obtain the payroll number for making and remitting deductions. Employers need a program account to remit and file the return. Register for the program account as soon as you start hiring employees
- Calculate deductions and contributions for the Canadian Pension Plan (CPP), Employment Insurance (EI) and income tax
- Send payroll information returns – complete and file year-end summary of all employees’ pay and deductions
- Remit deductions for CPP, EI and income tax. When companies remit payments depends on business category and payment schedule. Deductions are usually remitted by the 15th of the month after employees are paid. Remuneration includes taxable benefits and allowances. Different rules may apply to new companies or Small and Medium Enterprises (SMEs)
Federal Income Tax: In Canada, taxpayers pay income tax to the federal government and to the government of the province/territory where they reside. The government collects both federal and provincial taxes on behalf of the Canada Revenue Agency.
The tax year ends on December 31 and under the self-assessment system returns are due by April 15. In all provinces/territories, except Québec, the federal government collects the provincial/territorial tax and gives it back to them in the form of various programs.
Canada’s income tax system is graduated, meaning low-income earners are taxed at a lower percentage than high earners. Income tax rates for 2021 ranged from 15% for income up to CAD 49,020 (US$38,940) through bands of 20.5%, 26.5%, 29.0% up to a top rate of 33.0% for income over CAD 216,511 (US$171,995).
Social Insurance Tax: All Canadian employers and employees must pay into the Employment Insurance (EI) fund, which provides income for workers who lose their jobs, and into the Canada Pension Plan (CPP). Québec has its own pension plan, the QPP.
Employee EI contributions were 1.58%, up to a maximum employee premium of CAD 889.54 (US$706) in 2021 and CAD 952.74 (US$756) in 2022. Employer EI contributions are 2.212% to a maximum of CAD 1,245.36 (US$989) in 2021 and CAD 1,333.84 (US$1,058) in 2022.
The CPP rate is 5.25% for both employers and employees with maximum pension contributions capped at CAD 55,900 (US$44,406). There are also tax brackets and credits applying to Canada’s 10 provinces and three territories complementing federal arrangements.
The deadline for filing is April 21 of following year.
Rules on other taxes:
Corporate Income Tax (CIT): The federal rate is 15%, but provinces also apply corporation taxes. These range from 8% in Alberta up to 14% in New Brunswick, 15% in Newfoundland & Labrador and 16% for Prince Edward Island.
Under the small business deduction scheme, Canadian-controlled private corporations have reduced rates of CIT up to a limit of CAD 500,000 (US$405,050) on ‘active business income’, but this concession reduces when taxable income reaches CAD 10,000,000 (US$8,100,120) and is removed at CAD 15,000,000 (US$12,150,176).
Withholding Tax (WHT): A rate of 25% (depending on any tax treaties) applies to non-residents’ income from such as dividends, royalties and rent.
Indirect Taxes: The federal Goods and Services Tax (GST) and Harmonized Sales Tax (HST) apply to most goods and services at 5%. Rates vary between provinces, for example HST is 13% in Ontario and 15% in four others. Some provinces also apply a Provincial Sales Tax (PST). Exemptions include groceries and health services, among others.
Capital Gains Tax: The rate is 50% of the capital gain.
Stress Free Global Expansion
Bradford Jacobs’ Employer of Record (EOR) solutions smooth your route into Canada and every unfamiliar territory targeted for worldwide expansion. Registration procedures, tax laws and dealing with relevant authorities are potentially hazardous barriers to your expansion, risking severe fines for non-compliance or late returns.
Bradford Jacobs is on call every step of the way to ensure your company clears all the hurdles to establishing a successful presence in Canada.
For more information, contact us today.