Hiring Employees in Canada: A Comprehensive Guide

If you plan to expand your business abroad, Canada may be the perfect location to do it. With a GDP of 1.644 trillion USD, Canada is not only an ideal foreign market to expand into, but its strategic location makes it easier to establish business relations with the USA. 

Apart from access to the US market, Canada’s relatively lower corporate tax rates and stable financial systems make the country an attractive destination for foreign businesses and investors. Additionally, the country is rich with a highly-educated and skilled workforce, making hiring staff in Canada an exciting yet challenging task for most companies. 

If you are new to the Canadian market, the recruitment process in Canadian companies is one of the first things you must understand before setting up business in the country. So, let’s dive into the details on how to hire employees in Canada.

Canada’s employment laws and work culture will significantly impact your hiring process in the country. Below is a compilation of the essential things you must know before hiring staff in Canada.

Federal vs. provincial laws‍

Both Canada’s federal and provincial governments have jurisdiction over labor and employment matters. As an employer, you must comply with the federal laws and the laws of the province where you set up a business. Moreover, conditions of employment such as work hours, wages, overtime pay, leaves of absence, holidays, employee benefit plans, termination, etc., vary with jurisdictions. Therefore, it’s essential to establish a system for identifying the requirements of the position you want to fill while having hiring policies that are fair, inclusive, and compliant with the country’s laws.

Employee-related policies‍

Before hiring employees in Canada, Canadian law requires employers to draw up employee-related policies. While the requirements of these policies vary with provinces, they primarily center around occupational health and safety, harassment, anti-discrimination, human rights, and the like. You may also need to put in place policies concerning overtime work, attendance, standard work hours, computer use, etc. 

Employment contracts‍

During the hiring process in Canada, ensure that all employment agreements and offer letters comply with Canadian federal and provincial laws. For instance, employers cannot fire any employee without due notice unless the employer has just cause to do so. Employees who are dismissed without cause are entitled to minimum statutory compensations.

Deductions and remittances‍

Employers in Canada must withhold a part of their employees’ salaries as part of income tax deductions and contributions towards other employee benefit schemes. Like any other country, Canada has its tax laws, and employers must deduct the right amount of income tax from their employee’s paychecks. 

In addition, working individuals above 18 years who earn more than $3,500 per year must contribute to the Canada Pension Plan. Employers cover half the amount of the contributions while the employee pays the other half. The CCP applies to all provinces except Quebec. 

Besides income tax and CCP, employers must deduct the appropriate amount from their employees’ paychecks towards Employment Insurance (EI) premiums. The employer also pays a share of their employees’ EI premiums. The deduction continues until the employee has contributed the maximum premium amount or their earning has surpassed the maximum insurable income. Finally, the employer has to remit the amounts to the Canada Revenue Agency.

Vacation leave and pay‍

Before hiring employees in Canada, remember that Canadian federal law governs employees’ vacation leave and payment. For example, employees are entitled to two weeks of vacation for every completed year of employment. But, if an employee has completed five years of service, the entitlement increases to three weeks. Likewise, completing ten years of service entitles an employee to four weeks of vacation. 

Calculating the vacation pay is equally critical. As per the federal law of Canada, vacation pay is computed by multiplying the gross wages of an employee during a year of employment by a percentage. The percentage depends on the vacation entitlement as given below:

• Vacation entitlement: 2 weeks; Vacation pay: 4% of earnings
• Vacation entitlement: 3 weeks; Vacation pay: 6 % of earnings
• Vacation entitlement: 4 weeks; Vacation pay: 8% of earnings

Cultural and linguistic differences‍

While hiring employees in Canada, companies often face cultural and linguistic barriers. For instance, if you are acquainted with the American work culture, you might not find the Canadian work culture very different. Canadians take more breaks during the day, get more vacation time, and usually work less than their average American counterparts. 

You may also encounter linguistic differences when hiring staff in Canada. While English and French are the two national languages, French-speaking Canadians are more common in Quebec. While most Quebecois are well-versed in English, they can’t be denied a job if they don’t speak English. Hence, regardless of the province, brace yourself for workplace bilingualism.

You have to factor in several components to calculate the actual recruitment fees in Canada. Apart from salaries and wages, the hiring process in Canada includes many direct and indirect expenses that form a critical part of your investment in recruiting suitable candidates for your organization. While it is impractical to pinpoint an exact figure, below is a list of some of the probable components of the cost you will incur during the recruitment process in Canada:

• Cost of benefits: The cost of benefits includes employee compensation expenses such as savings plans, paid leaves, insurance, etc.

• Hiring costs: You have to pay the internal hiring committee for recruitment-related tasks such as writing the job adverts, shortlisting applications, and interviewing candidates.

• Training costs: Simply hiring the candidate is not the end of your expenses. Once you recruit a new employee, you must train them to do the specified job.

• Background checks: A significant component of the hiring expenses in Canada is the cost incurred to run reference checks to verify that an applicant is legally eligible to work in Canada.

Before hiring employees in Canada, you must fulfill specific legal requirements besides following Canadian labor and employment laws. The pointers below give an overview of the steps you need to follow for legally hiring staff in Canada:

1. Set up a legal business entity in Canada‍

If you are an overseas business, you need to establish a legal business entity in Canada to hire foreign workers. You can either open a subsidiary or a branch. While a subsidiary is a separate legal entity, a branch is more closely associated with its parent organization. 

2. Incorporate your business in Canada‍

If you are an overseas business, you must register your company as an extra-provincial corporation in the Canadian province where you plan to set up the business. 

3. Open a payroll deductions account‍

You need to get a Business Number (BN) from the Canada Revenue Agency (CRA) and use it to open a payroll deductions account. You will use this account to remit deductions from your employees’ paychecks to the CRA.

4. Obtain workers’ compensation insurance‍

Canadian labor laws require employers to extend workers’ compensation insurance. You have to register with your province’s Workers’ Compensation Board (WCB) to obtain this coverage. 

5. Obtain licenses and permits

Depending on your business or industry, you may obtain specialized licenses and permits from the Canadian government.

You primarily have two options for hiring staff in Canada; you can either hire people as independent contractors or take the help of Professional Employer Organizations or PEOs. Let’s walk you through each option in detail:

• Hiring employees in Canada as independent contractors: Hiring workers as independent contractors or freelancers means that they are not regular employees of your company. Therefore, independent contractors work according to their time zone and schedule, unlike full-time employees. Since the situation is not a traditional employer-employee relationship, you do not have any legal obligation concerning the workers’ taxes and contributions. 
• Hiring employees in Canada through PEOs: If you do not want to hire employees internally, you can outsource your hiring needs to PEOs. These are registered third-party companies that act as your employees’ Employer of Record (EOR) and help you hire a foreign workforce without establishing a payroll or business entity abroad. While you will have complete control over employees’ duties and responsibilities, the EOR will handle your employees’ payroll on your behalf. Further, the EOR ensures that every step in the hiring and payroll process is compliant with the local laws. 

The steps of the hiring process in Canada are pretty standard. But regardless of the business or industry, it is mandatory to comply with the rules and regulations that govern the hiring practices in Canada. Given below are the steps that you broadly need to follow when hiring employees in Canada:

1. Advertise the job position: Determine the qualities you’re looking for in a prospective employee and post the job advertisement on standard Canadian job portals. 

2. Shortlist applicants: Conduct a preliminary screening process to determine which applicants are eligible for an interview.

3. Conduct interviews: Schedule an interview (virtual or in-person) to assess the shortlisted candidates. 

4. Hire: Once you’ve chosen the most eligible candidate(s) for the position(s), hire them. Follow it up with a formal job contract, either verbal or written.

5. Verify the hire’s Social Insurance Number (SIN): The SIN of an employee is used for providing government benefits in Canada. Ensure that you record details of your employees’ SIN cards within three days of their joining date. In addition, verify that the employee has a legal right to work in  Canada.

‍6. Make the employee fill out relevant forms: You must ensure that new hires fill out the federal Form TD-1 Personal Tax Credit Return to know their tax liability. In Quebec, the provincial counterpart of TD-1 is Form TP1015.3-V.

Do you find the hiring process in Canada confusing? Well, Multiplier has you covered. 

Our EOR solution can help you hire global talent without setting up a local business entity. We will act as the legal employer of your overseas employees and manage their payroll, taxes, expenses, and benefits. Regardless of the country you are expanding in, we ensure compliance with the local employment and tax laws.