Employer of Record Guide in 

Canada

Vacation Leave

All employees are entitled to paid vacation time:

• Minimum entitlement: 2 weeks after 12 months of continuous employment
• Enhanced entitlement: 3 weeks after 5 years (varies by province)
• Vacation pay: 4% of gross earnings (2 weeks), 6% after 5 years (3 weeks)
• Scheduling: Employers control timing but must provide reasonable notice
• Payout: Unused vacation must be paid out upon termination

Sick Leave

Sick leave provisions vary significantly across jurisdictions:

Federal employees: 10 days of paid sick leave annually (effective December 2022)

Provincial variations:

• Ontario: 3 unpaid personal emergency days
• British Columbia: 5 paid days plus 3 unpaid days annually
• Quebec: 2 paid days for illness or accident
• Alberta: No statutory paid sick leave

Medical certification may be required for extended absences, typically after 3-5 consecutive days.

Maternity Leave

Pregnant employees are entitled to job-protected maternity leave:

• Duration: Up to 17 weeks
• Timing: Can begin up to 13 weeks before due date
• Benefits: Paid through Employment Insurance (55% of average earnings)
• Eligibility: Must have worked 600 insured hours in previous 52 weeks
• Job protection: Right to return to same or comparable position

Parental Leave

Parental leave is available to all new parents:

Standard option:

• Duration: Up to 40 weeks (35 weeks per parent maximum)
• Benefits: 55% of average earnings through EI
• Sharing: Can be shared between parents

Extended option:

• Duration: Up to 69 weeks (61 weeks per parent maximum)
• Benefits: 33% of average earnings through EI
• Total family leave: Combined maternity and parental can reach 78 weeks

Other Statutory Leave

Bereavement leave:

• Federal: Up to 10 days (first 3 days paid)
• Provincial: Typically 2-5 days (mostly unpaid)

Family responsibility leave:

• Quebec: Up to 10 paid days
• Other provinces: Generally 3-5 unpaid days

Domestic violence leave: Available in most provinces (5-10 days, partially paid in some jurisdictions)

Leave Summary Matrix

Termination Categories

Termination with cause:

• No notice or severance required
• Must involve serious misconduct (theft, fraud, willful disobedience)
• High burden of proof on employer
• Immediate dismissal permitted

Termination without cause:

• Permitted if not discriminatory or retaliatory
• Requires statutory notice or pay in lieu
• May require additional severance
• Most common termination type

Notice Requirements

Minimum notice periods based on length of service (common provincial standard):

Employers may provide working notice or pay in lieu of notice.

Severance Pay

Severance is separate from notice and applies in specific circumstances:

Federal requirement:

• Applies after 12+ months of continuous employment
• 2 days' pay per year of service (minimum 5 days)
• Required for layoffs affecting 50+ employees

Provincial variations: Some provinces don't mandate severance unless specified in employment contracts.

Final Pay Requirements

Employers must issue final pay within prescribed timeframes:

• Ontario: 7 days or next scheduled payday (whichever is later)
• Quebec: Within 48 hours
• Alberta: Within 10 consecutive days
• British Columbia: Within 48 hours

Final pay must include all earned wages, vacation pay, and other entitlements.

Legal Protections

Employees cannot be terminated for:

• Taking protected leave (maternity, sick, family emergency)
• Filing complaints or exercising legal rights
• Protected grounds under human rights legislation
• Union activities or organizing

Violations can result in wrongful dismissal claims, human rights complaints, and significant financial penalties.

National Statutory Holidays

Federal statutory holidays apply to federally regulated employees and serve as a baseline:

Provincial Variations

Each province adds additional statutory holidays:

British Columbia: Family Day (February 17), BC Day (August 4) Ontario: Family Day (February 17), Civic Holiday (August 4) Quebec: St. Jean Baptiste Day (June 24), Patriots' Day (May 19) Alberta: Family Day (February 17), Heritage Day (August 4)

Some provinces recognize Boxing Day, Easter Monday, or other regional observances.

Holiday Pay Eligibility

To qualify for statutory holiday pay, employees typically must:

• Have worked for 30 calendar days before the holiday
• Work their last scheduled day before and first scheduled day after the holiday
• Meet provincial-specific criteria

Holiday pay calculation varies by province but generally equals average daily earnings.

Working on Statutory Holidays

Employees who work on statutory holidays receive:

• Premium pay: 1.5× to 2× regular wage
• Substitute day: Another paid day off
• Specific rules: Vary by province and collective agreements

Regional Considerations

Quebec: Unique holiday schedule includes Patriots' Day and St. Jean Baptiste Day Atlantic provinces: Some recognize additional maritime-specific holidays Territories: May have different holiday schedules reflecting local culture

Required Documentation

Employment contracts must include:

• Job title, duties, and reporting structure
• Salary, benefits, and working hours
• Vacation entitlements and leave policies
• Termination clauses and notice periods
• Confidentiality and intellectual property provisions

Government forms:

• TD1 forms: Federal and provincial tax withholding
• Social Insurance Number (SIN): Required for all employees
• Direct deposit information: Banking details for payroll

Identity verification: Photo identification (driver's licence, passport) for employment eligibility.

Work Authorization

All employees must be legally entitled to work in Canada:

• Canadian citizens: No restrictions
• Permanent residents: Full work authorization
• Temporary foreign workers: Require valid work permits
• International students: Limited work authorization with study permits

Employers must verify work authorization but cannot discriminate based on citizenship status.

Background Checks

Background checks are permitted but must be:

• Job-relevant: Directly related to position requirements
• Consensual: Written employee consent required
• Compliant: Must follow privacy legislation

Permitted checks:

• Criminal record checks (for relevant positions)
• Employment and education verification
• Credit checks (financial positions only)
• Professional licence verification

Privacy and Data Protection

Canadian privacy laws govern employee data collection and use:

Federal: Personal Information Protection and Electronic Documents Act (PIPEDA) Provincial: Various provincial privacy acts (Quebec's Law 25, BC's PIPA)

Key requirements:

• Obtain consent for data collection and use
• Limit collection to necessary information
• Secure storage and transmission
• Provide access to personal information upon request

Intellectual Property and Confidentiality

Employment contracts must address:

• IP ownership: Work-related inventions and creations
• Confidentiality: Protection of business information
• Non-competition: Limited enforceability in most provinces
• Non-solicitation: Protection of client and employee relationships

Probationary Periods

Most employment contracts include probationary periods:

• Duration: Up to 3 months (6 months in some provinces)
• Termination: Reduced notice requirements during probation
• Benefits: May be delayed until probation completion
• Performance: Regular evaluation and feedback required

Onboarding Timeline

Understanding Work Classifications in Canada

Hiring in Canada means navigating one of the most worker-protective employment landscapes in the world. Whether you're a global company expanding into the Canadian market or a local startup scaling fast, it’s critical to understand how Canadian work classifications function, and how they impact compliance, taxes, and worker rights.

Why Work Classification Matters

In Canada, how you classify a worker determines everything from payroll taxes and benefits to employment standards and liability. Misclassification, whether accidental or intentional, can lead to:

• CRA audits and penalties

• Retroactive payroll tax obligations

• Breach of employment standards legislation

• Legal claims for unpaid vacation, overtime, or severance

Understanding the difference between employees, independent contractors, and other worker types is foundational to compliant hiring.

The Two Primary Worker Types in Canada

1. Employees (Full-Time, Part-Time, Fixed-Term)

Employees are hired under an employment agreement and covered by provincial or federal employment standards. This classification comes with a host of entitlements:

• Statutory benefits (like vacation, sick leave, and public holidays)

• Employer contributions to Employment Insurance (EI) and the Canada Pension Plan (CPP)

• Severance obligations upon termination

• Workplace protections like anti-harassment and minimum wage

Subtypes include:

• Full-Time Employees: Typically work 30+ hours per week on a permanent basis.

• Part-Time Employees: Work fewer hours but still receive proportional entitlements.

• Fixed-Term Employees: Employed for a set duration or project; if extended repeatedly, they may be deemed permanent.

Best for: Long-term hires, roles with supervision or integrated into company operations, and when employers want control over how work is done.

2. Independent Contractors

Independent Contractors (or freelancers) are self-employed individuals who provide services to businesses under a service contract rather than an employment agreement.

Key characteristics:

• Set their own hours and work autonomously

• Provide their own tools and equipment

• Take on financial risk or have the opportunity for profit

• Work with multiple clients

• Invoice for services instead of being paid a salary

Because they are not considered employees, contractors:

• Do not receive employment benefits or protections

• Must handle their own taxes and deductions

• Are not covered by Employment Standards Acts

Best for: Specialized project work, flexible engagements, and when the business doesn’t need direct control over how the work is completed.

Key Criteria for Determining Worker Status

There’s no single test in Canada for determining a worker’s status—but courts and regulators typically use a multi-factor analysis, including:

• Control: Who decides how, when, and where the work is done?

• Ownership of Tools: Does the worker use their own tools?

• Chance of Profit / Risk of Loss: Can the worker make or lose money based on how they perform?

• Integration: Is the work central to the company’s core business?

• Intent of the Parties: What does the contract say, and how does that compare to the reality?

If a contractor is working like an employee, they may be reclassified by the Canada Revenue Agency (CRA) or provincial regulators.

The Rise of Dependent Contractors

Canada also recognizes a third category in certain jurisdictions: the dependent contractor.

A dependent contractor:

• Operates like an independent contractor

• But earns most or all income from a single client

• Has limited economic independence

In Ontario and British Columbia, for example, dependent contractors are entitled to reasonable notice of termination, just like employees. Misunderstanding this category can lead to surprise severance claims and liability.

Provincial vs. Federal Jurisdiction

Most employment in Canada is regulated at the provincial level, and each province has its own employment standards legislation (e.g., Ontario’s ESA, British Columbia’s ESA). However, some industries—like telecommunications, banking, and airlines—fall under federal jurisdiction, governed by the Canada Labour Code.

Key implications:

• Vacation, termination, hours of work, and leaves vary by province

• Quebec has unique employment laws and contractor rules

• Employers must understand and apply the correct jurisdiction based on the role, not the HQ location

What Employers Need to Do

Whether you’re hiring employees or engaging contractors in Canada, it’s important to:

1. Use a Written Agreement
   Clearly outline the nature of the relationship, pay structure, scope of work, and termination terms.

2. Structure the Relationship Properly
   Don’t blur the lines—contractors shouldn’t use company email, report to company managers, or be subject to company-wide policies unless properly classified.

3. Stay Updated on Local Laws
   Employment laws evolve. For example, Ontario has increased enforcement on misclassification, and Quebec requires advance registration for contractors in certain fields.

4. Work with a Local Expert or EOR
   If you’re hiring across provinces or from abroad, consider using an Employer of Record (EOR) like Borderless AI to handle payroll, compliance, and contracts in full alignment with local laws.