Any company that wants to grow can experience significant economic opportunities by expanding into the Canadian market. It has one of the world’s largest economies and is home to many world-class schools and a talented and hard-working labor force.
That said, it’s not always easy to hire in Canada. Companies will need to have an understanding of both federal and provincial employment laws and Canada employment contracts in order to remain compliant with Canadian employment standards. This is where engaging an Employer of Record (EOR) in Canada can help.
An employer of record will act as a local entity in Canada for you to legally hire in the country, meaning the EOR will handle all the complicated aspects of expanding your talent pool in Canada. This will ensure that your long-term plans for growing in the country will go smoothly.
This guide will tell you everything you need to know about an employer of record in Canada, including what one can do for you, how they work, and what to expect.
What Is an Employer of Record (EOR)?
An employer of record is an organization that acts as a legal employer for companies when hiring internationally. The EOR is responsible for handling most traditional employment tasks, such as drafting valid employment contracts and handling payroll taxes. This allows companies to employ full-time workers without the risk of violating any important local labor laws within that country.
The employer of record in Canada also assumes responsibility for all costs and liabilities that are associated with hiring employees. An EOR like Borderless can help you remain compliant at each stage of the hiring process without needing to set up your own local entity.
If you choose to set up your own local entity to legally hire in Canada, your company will need to handle all aspects of hiring and cover all the required costs. Hiring through an employer of record can also help your business grow sustainably.
Benefits of Working with an Employer of Record in Canada
Hiring through an employer of record in Canada can benefit companies in several significant ways. In addition to a more streamlined hiring process, companies will no longer need to worry about complicated local labor laws and regulations.
Expand Your Workforce
Companies that opt to use an employer of record for hiring in Canada can access a much wider talent pool than would otherwise be available. An EOR in Canada helps you seamlessly add qualified employees to your workforce, which can lead to significant productivity gains.
Additionally, your employer of record will handle the entire onboarding process for your new hires. This means you can spend more time and focus on building an effective strategy, managing your staff, and implementing an inclusive workplace culture.
Efficiently expanding your workforce can help your company build a major presence in Canada. Accessing the Canadian economy can provide significant growth opportunities, as the country is currently home to the ninth-largest global market in terms of GDP.
Prevent Noncompliance
One of the major responsibilities of an employer of record in Canada is ensuring that all local labor laws and important employment standards are met. Noncompliance penalties in Canada can include reputational damage, harsh financial penalties, potential legal punishments, additional sanctions against hiring employees in the future, and more.
An employer of record in Canada can help your company ensure that all employees and independent contractors are classified properly. Failing to do so could result in noncompliance.
In Canada, an employee is a permanent worker who is entitled to various statutory benefits, such as paid time off and other leave entitlements. The employer is responsible for handling all payroll deductions and social security contributions. The worker also receives greater job security, including a minimum notice period depending on their length of service and additional termination requirements.
An independent contractor is hired to complete a specific project or works for a given duration. Contractors are not entitled to statutory benefits and must handle their own tax withholdings and contributions to welfare programs.
Protect Your Intellectual Property
Hiring employees through a Canadian EOR prevents disputes over intellectual property. This is particularly important due to the rising popularity of flexible working arrangements. Intellectual property can include works of authorship, patents, and trademarks.
For example, an independent contractor or employee may claim ownership of intellectual property they created after they leave the company. However, companies using an employer of record in Canada can reduce the risk of intellectual property issues with former workers. An EOR can also provide expert guidance regarding Canada’s IP laws and greater control over how workers access or transfer important data.
What Can an Employer of Record Do For You?
In addition to the several benefits companies can access by hiring through an EOR in Canada, an employer of record will handle all of the complicated aspects of employment on your behalf.
Payroll
Your employer of record in Canada will ensure that all the necessary tax withholdings are done properly and payroll is processed compliantly. The EOR will also make sure that your company remains compliant with other tax necessities, such as additional provincial or local requirements. They will deliver employee paychecks on time, which is typically done bi-monthly.
Canadian laws encourage employers to have a thorough understanding of provincial and federal taxes and have a foolproof system in place for making tax deductions and contributions.
In Canada, employees are taxed on a progressive scale based on their yearly income. The federal tax brackets in 2023 are:
- 15%: incomes up to $53,359
- 20.5%: $53,359 and $106,717
- 26%: $106,717 and $165,430
- 29%: $165,430 and $235,675
- 33%: over $235,675
Provincial taxation rates vary between jurisdictions. For example, employers in Newfoundland and Ontario will likely pay different rates. Your EOR can help you obey all the rules when it comes to tax requirements.
Your Canadian EOR will also ensure that all social security contributions are taken care of for each employee. In Canada, employers will generally need to withhold:
- 2.28% for employment insurance
- 5.95% for the Canada Pension Plan
However, employers hiring in Quebec will be responsible for other employment costs and taxes.
Employment Contracts
Hiring through an EOR in Canada will ensure that all employment contracts are valid and legal. Employment contracts in Canada should clearly define the terms of employment, including the hours of work, compensation, benefits, a description of the job’s responsibilities, and more.
Several types of contracts can be used to recruit skilled Canadian workers.
- Indefinite-term contracts: These are the standard type of employment agreement and are used to hire employees on a permanent basis, meaning they do not have a specified end date. Employees under this contract are entitled to benefits and other job protections. Terminating an employment agreement without a justified reason can result in penalties such as severance pay.
- Fixed-term contracts: These are used to hire workers on a temporary basis and have a set end date within the contract. Employers are not required to pay severance after the employment agreement ends. However, they will be required to pay employees the remaining value if the employment agreement is terminated before the set date.
- Part-time contracts: These agreements limit the number of hours an employee will work, and workers are hired on a permanent basis.
- Project-based contracts: These are used to hire independent contractors to complete a specific project or task. The employer is not responsible for any tax withholdings or other requirements.
Wages
Engaging an employer of record (EOR) in Canada can also help you remain compliant with the local regulations for wages. Canada has a federal minimum wage of CA $16.65 per hour as of April 1, 2023. However, minimum wages can vary depending on the province. For example, the minimum wage in Yukon is $16.77.
Employees are also entitled to overtime pay after a certain amount of hours worked.
Termination and Severance
Hiring through an employer of record in Canada can ensure compliance with the termination and severance procedures federally and provincially. In Canada, providing a minimum notice period before ending an employment agreement is necessary, though specific requirements can vary. Employees who have worked consecutively for the same employer for at least three months are generally entitled to:
- 1 week if they have less than one year of service
- 2 weeks' notice if they have one to three years of service
- 3 weeks' notice for three to four years of service
- 4 weeks’ notice for four to six years of service
- Five weeks for six to eight years of service
- Six weeks for eight to ten years of service
- Eight weeks for over ten years of service
Additionally, the probation period in Canada is typically three months. Employees terminated before the end of this period do not require notice, and employers are not liable for damages by ending the agreement. Employers can also provide a lump sum payment instead of a formal notice.
Canada doesn’t have at-will employment, and companies that wish to end an employment agreement can only do so for certain reasons. An employment agreement can legally be terminated in the event of:
- Misconduct, such as harassment, incompetence, insubordination, theft, fraud, and more
- A mutual agreement
- Expiration of the employment contract
Employees with at least 12 consecutive months of employment also qualify for severance pay. An employer of record in Canada can help you understand all legal requirements when terminating an employee.
Leave Entitlements
Employers of record in Canada ensure that all employees receive the necessary amount of time off throughout the year. Canadian employment law states that permanent Canadian workers are entitled to at least two weeks of annual paid vacation after one year of consecutive employment with the same employer, three weeks after five consecutive years, and four weeks after ten consecutive years.
Canadian employees are also entitled to take time off for maternity leave and paternity leave. Workers can qualify for up to 17 weeks of sick leave. It’s also important to know that Canada has 5 public holidays and 6 for federal employees:
- New Year’s Day (January 1)
- Good Friday
- Canada Day (July 1)
- Labor Day (First Monday of September)
- Christmas Day (December 25)
It’s also important to know that provinces in Canada may have different local holidays that can be observed.
Benefits Packages
Employees in Canada are entitled to various statutory benefits under Canadian employment insurance. However, many companies may choose to offer supplemental coverage for healthcare, dental, vision, and prescription medication to remain competitive when hiring skilled Canadian workers.
An employer of record can enroll your employees in a comprehensive benefits program and take care of all administrative requirements.
What to Look for in an Employer of Record
When looking to partner with an employer of record to hire in Canada, there are several factors companies must consider to ensure long-term success.
Specialized Knowledge of Canadian Labor Laws
An employer of record in Canada should understand important Canadian laws in-depth to keep you compliant. Many employers of record operate in several countries, so it’s important to make sure you’re partnering with one that will help you hire your team in Canada. This includes understanding the difference between provincial and federal laws.
Easy-to-Use Online Solutions
An EOR should have its own platform that’s easy to use, effective, and comprehensive enough to offer a range of important functions. The online solution should also allow you to send payments and all other necessities at the click of a button.
Strong Customer Support
Finding an effective partner that lets you efficiently pay and manage your staff is important. A quality customer support team can help you if any issues arise at any point.
Why Borderless?
Borderless is an employer of record service that can help you compliantly hire Canadian skilled workers from across the country. We handle all aspects of the hiring process, including onboarding, drafting employment contracts, taking care of provincial tax requirements, other payroll deductions, and more.
We know Canadian labor laws, so you can spend more time finding the right employees for the job. We also have an intuitive platform that makes accessing a wide pool of talented individuals easy.
Speak with our team today to see how we can help you attract some of the most talented workers in Canada. Or, check out some of our other blog posts to learn more about the Canadian labor market.
Disclaimer: Borderless does not provide legal services or legal advice to anyone. This includes customers, contractors, employees, partners, and the general public. We are not lawyers or paralegals. Please read our full disclaimer here.
