Guide to hire in Canada as a US company

Considering hiring employees in Canada? You're not alone. Professional talent in Canada has always been highly desirable to international companies, especially to US companies wanting to hire in Canada. 

Canada boasts a highly skilled and well-educated global workforce. As of 2022, 64% of Canadian adults between the ages of 25 and 34 reported having a higher education degree. 

This makes Canada one of the most educated countries in the world and an attractive place to hire top local talent. Five Canadian cities were named in CBRE’s Scoring Tech Talent 2023 report as top-ranking talent markets, with two of them ranking in the top ten. 

Besides being highly educated, Canada’s workforce is also impressively racially diverse and multilingual. According to a 2021 census, there are over 450 different languages spoken in Canada. 

However, if you're a US company planning to hire in Canada, there are certain legalities to consider. Though they may be similar, The United States and Canada are two distinct countries with differing approaches to hiring and work practices. With that, let’s delve into the intricacies of hiring in Canada.

Can US Companies Hire Canadian Employees

Yes, US companies can hire in Canada. There is no reason that a US company cannot hire employees in Canada. 

However, many local laws and regulations must be considered to ensure your company is abiding by Canadian employment laws. 

This article outlines a few methods that US companies can explore to hire in Canada and a few of the legal aspects to keep in mind. 

Where to Find Top Talent in Canada

If you're a US company seeking talent in Canada, knowing where to look is crucial. Though Canada is home to many established thriving sectors, the tech sector is particularly booming. 

As companies across all industries embrace technology in day-to-day operations, there continues to be a high demand for tech talent in both large and small markets. While there are advantages to hiring in both market sizes, luckily, Canada offers both, so you don't have to choose. 

Toronto: Over the years, Canada's largest city has evolved into a globally recognized tech hub. Its startup-friendly environment is crucial to fostering up-and-coming talent, while its already-established sectors attract tech giants like Microsoft and Google. 

Vancouver: Canada’s biggest west coast city excels in gaming and cloud computing. It has positioned itself as a top North American tech hub after Toronto. Vancouver’s tech industry also saw the highest five-year growth rate (68.6%) between 2017 and 2022 in total tech occupations.

Ottawa: Canada's capital is home to a burgeoning tech sector focusing on cybersecurity, software development, and telecommunications. Its proximity to government agencies also plays a key part in fostering innovation around government tech solutions.

Montreal: This Francophone city is known for AI research and cultural diversity, with many residents fluent in English and French. Montreal’s modern culture lures tech giants like Microsoft and Samsung with an added appeal of thriving gaming and aerospace sectors. Montreal is also a hub for Canadian fashion and beauty brands that include L’Oreal and SSENSE. 

Kitchener-Waterloo: Though lesser known, these cities are major incubators for innovation and startup growth. Communitech, a tech innovation hub, is central to the Kitchener-Waterloo tech ecosystem. As do academic institutions such as The University of Waterloo, Wilfrid Laurier University, and Conestoga College.

Things to Consider When Hiring in Canada

Though the professional working landscape in Canada is not that different from the United States, it's vital to be aware of key factors that shape Canada’s professional landscape. 

Understanding the implications of the Canada Labour Code in different provinces and federal jurisdictions is important when hiring in Canada. Being well-informed about employment laws like the typical notice period in Canada, statutory time off and employer costs and taxes are crucial. 

Language Differences 

Though American and Canadian business cultures are quite similar, you might encounter some differences in language, etiquette, and communication styles when onboarding employees in Canada.

English and French are the primary languages spoken in Canada. French is predominantly used in Quebec, while English is the first language in other parts of the country.

As a potential employer, you must understand that Canada has two national languages. If your company wishes to hire primarily in Quebec, you may be required to use French to communicate. 

Canadian Minimum Wage

The Canadian federal minimum wage varies by province and is adjusted according to inflation and economic conditions. Canada’s current federal minimum wage is $16.65 per hour. Actual wages depend on the employee’s specific roles and responsibilities as defined in their employment contract. 

Local Employment Laws

Overtime pay rules in Canada can be complex, with most employment laws falling under provincial control. Employees are entitled to receive overtime pay when an employee works over 8 hours per day or more than 40 hours per week. 

The Canada Labour Code (CLC) regulates federal employees in areas such as government, telecommunications, and more. As mentioned before, However, certain types of jobs are exempt from federal overtime pay requirements. Employees with managerial roles are an example of this exemption. 

Some workplaces may abide by both federal and provincial rules. Understanding provincial regulations regarding overtime is crucial to fairly compensating employees and remaining compliant. Provincial holidays also vary. 

There’s something else you should know! Canadian employees recognized as having Aboriginal or First Nations ancestry are entitled to five days of unpaid leave each year to participate in Aboriginal rituals, events, and traditional ceremonies.

Termination Process and Acceptable Notice Period in Canada

Unlike the US, Canada does not support at-will termination outside the outlined probation period. Termination of an employee must be supported by just cause such as mutual agreement, misconduct, or contract expiration. 

Termination rules and notice periods in Canada vary by province. It is required that employers provide employees with a minimum of weeks notice or severance pay in place of notice. 

Ontario and Quebec require a minimum of one month's notice. Employees with more than two years of service in Quebec are given additional protections compared with other provinces. 

Canadian Employer Taxes

Employer taxes are a crucial component of the compensation structure in Canada. Outside Quebec, employers must contribute 8.23% of an employee's salary as taxes. Quebec, however, is different, as various factors influence the province’s tax rates.

Employer Costs & Taxes Outside of Quebec

For provinces outside of Quebec, the tax percentage corresponds to specific employer tax categories:

• Employment Insurance (EI): Employers contribute 2.28% to the Employment Insurance fund to ensure employees are supported during unemployment or other leave.
• Canada Pension Plan (CPP): Employers pay 5.95% to fund the Canada Pension Plan, which provides retirement, survivor, and disability benefits.

Employer Costs & Taxes in Quebec

In Quebec, a unique set of employer taxes are in effect to serve a specific purpose:

• Employment Insurance (EI): Similar to other provinces, 1.27% is contributed by the employer to support the Canadian Employment Insurance fund.
• Canada Pension Plan (CPP): Within Quebec, employers contribute 6.40% to the Canada Pension Plan.
• Quebec Parental Insurance Plan: 0.692% is contributed to sustain parental leave benefits within the province.
• Health Services Fund: 1.25% - 4.26% is contributed to the Health Services Fund to contribute to healthcare initiatives within Quebec.
• Labour Standards: Lastly, a 0.06% contribution aids in enforcing labor standards and safeguarding worker rights and safety.

Understanding ‌these employer contributions is essential for foreign companies that want to operate in Canada. These contributions play a significant role in supporting employees and maintaining a strong and healthy Canadian workforce. 

US companies must consider these costs when creating a financial plan and drafting employee compensation strategies. Businesses can ensure they remain compliant with local laws and regulations by partnering with a Canada EOR. They will handle all of the nitty-gritty legalities of employee compensation and ensure you remain compliant with Canadian laws.

Canadian Leave Entitlements and Paid Time Off

Leave entitlements and paid time off for Canadian employees vary depending on their location and circumstances. Understanding and complying with these entitlements is important for US companies to operate in Canada successfully. Let's take a look at some of the common entitlements for employees in Canada

Statutory Leave 

Full-time employees in Canada are entitled by law to ten days of paid vacation per year. This number of days may vary depending on the province and the employee's stay with the company. The longer an employee has been with a company, usually translates to more vacation days.

Personal Leave

It’s natural that employees will need days off for appointments or family events. Requests for days off are typically paid, so long as the number of requested days per year is reasonable. Most companies follow the rule of three paid days off per year after three months with the same employer. Regulations for paid personal days off vary from province to province. 

Public Holidays 

Canada observes the following 12 public holidays per year. The exact number of public holidays varies per province, but the standard ones are:

• New Year: Monday, January 1, 2024
• Good Friday: Friday, March 29, 2024
• Easter Monday: Monday, April 1, 2024
• Victoria Day: Monday, May 20, 2024
• Canada Day: Monday, July 1, 2024 
• Civic Holiday: Monday, August 5, 2024 (excluding Quebec)
• Labour Day: Monday, September 2, 2024
• National Day for Truth and Reconciliation: Monday, September 30, 2024 
• Thanksgiving Day: Monday, October 14, 2024
• Remembrance Day: Monday, November 11, 2024
• Christmas Day: Wednesday, December 25, 2024
• Boxing Day: Thursday, December 26, 2024. 

Medical Leave 

Paid medical leave of up to ten days per year is allowed. This ensures that employees who aren’t feeling well can take time off to recover and still get paid. Certain provinces in Canada have a specific number of paid sick days, while others leave it to the company’s discretion.

Maternity and Parental Leave:

The maternity and parental leave policy in Canada is governed by federal employment standards, specifically the Employment Insurance (EI) program. The policy provides eligible employees, including both mothers and fathers, with the opportunity to take time off work to care for a newborn or newly adopted child.

Maternity Leave:

Maternity leave is designed for birth mothers and provides up to 15 weeks of job-protected leave. This period typically starts around eight weeks before the expected due date.
During maternity leave, eligible employees can receive Employment Insurance (EI) benefits, which provide financial support. The EI benefits are usually 55% of the average weekly earnings, up to a specified maximum amount.

Parental Leave:

Parental leave is available to both biological and adoptive parents and provides up to 35 weeks of job-protected leave.
Parents can share the parental leave, and they can take it at the same time or separately.

Like maternity leave, parental leave is associated with Employment Insurance benefits. The benefits are generally 55% of the average weekly earnings, up to a maximum amount.

Combination of Maternity and Parental Leave:
In total, parents can receive up to 50 weeks of combined maternity and parental leave benefits.

Unpaid Portion:
While the leave is job-protected, not all of it is necessarily paid. The EI benefits cover a portion of the leave, but the remaining portion is unpaid. The exact ratio of paid to unpaid time will depend on how much time the individual chooses to take off and the specific circumstances.

Bereavement Leave: 

When employees in Canada experience the loss of a loved one, bereavement leave allows them time off to grieve. Most companies follow the rule of three paid days off per year after three months with the same employer. The duration can vary by province.

Rules for each of the above-mentioned time off allowances can differ by province and territory in Canada. It's important to check local laws and stay updated on changes in the province or territory in which you plan to do business.

Common Risks for Companies That Hire in Canada

This section will briefly outline a few of the most commonly overlooked risks by US companies who want to hire in the US. 

Employee Misclassification

Misclassification is a common issue among companies hiring abroad. Companies must ensure that all employees, whether engaged as a contractor or hired full-time as employees, are classified correctly. 

To avoid fines and tax implications, consider working with a legal expert, such as an employer of record (EOR), which can help you avoid misclassification through proper contracts, accurate reporting, and correct payroll deductions.

Incorrect Payroll Contributions and Deductions

US companies operating in Canada must correctly calculate, deduct, and contribute the correct amount of government-required contributions and submit it to the CRA each year. Lack of deductions or incorrectness could result in legal complications or fines for the employer. 

Potential Visa Requirements

US companies that hire in Canada must check that employees hold the correct legal authorization to work in Canada. This might involve obtaining a work visa if the employee is not a citizen or does not have proper documentation.

Such visas might include a TN visa (for US citizens), an L-1 visa (for intra-company transfers), or other relevant visas based on the individual's specific circumstances. 

Three Ways US Companies Can Hire in Canada 

1. Engage Canadian Workers as Contractors

Engaging Canadian workers as contractors might appear to be the easiest option. However, US companies must ensure that all legal working conditions are met. 

Independent contractors in Canada are self-employed individuals who provide their services to the company while choosing their own working hours and schedules. Some may even be sole proprietors.

As with the United States, Canadian contractors are treated separately from a company’s full-time or part-time employees. Independently hired contractors are not provided a fixed salary or work equipment by their company of hire, and are exempt from benefits and handle their own taxes.

This allows companies more flexibility and is more cost-effective when hiring for specific services or one-time projects. Independent contractors may also provide their services for extended periods. 

If you are a US employer considering hiring independent contractors, you must know all the legal risks associated with misclassifying contractors as full-time employees. 

Misclassification of Canadian employees hired by a US employer can present significant challenges, with common instances including the inaccurate labeling of employees as independent contractors or the misclassification of full-time and part-time workers. 

This misclassification may impact entitlements such as benefits, overtime pay, and the overall employment relationship. The importance of proper classification is underscored by the potential legal and tax implications, requiring US employers to navigate differences in labor laws and tax regulations between Canada and the United States.

These include paying the government misclassification fines and tax violation fines as determined by the Canada Revenue Agency (CRA).

2. Establish a Foreign Entity in Canada

Another option for U.S. employers to hire in Canada is to set up a foreign legal entity. Establishing an entity in Canada allows you to create a branch or subsidiary to hire workers directly. Setting up a foreign entity gives U.S. companies complete control over hiring local workers, managing payroll, and establishing a local branch.
 
Depending on the nature of the business, your company may need to obtain permits or licenses from Canadian authorities to operate legally in the country. This process involves several key steps, including selecting an appropriate legal structure, registering a unique business name, and ensuring compliance with federal, provincial, and territorial regulations. Essential aspects encompass tax registration, corporate governance, adherence to employment and payroll laws, and securing necessary permits for foreign workers. 

Additionally, the establishment of a registered office, opening a business bank account, and obtaining relevant insurance are integral components. Given the intricate nature of Canada's legal and corporate landscape, seeking advice from local legal professionals is highly recommended to ensure a smooth and compliant entry into the Canadian market.

While foreign entity establishment offers operational autonomy, it is essential to acknowledge the associated costs and time-consuming nature of the process. Companies opting for this path must possess a comprehensive understanding of Canada's legal and regulatory framework to avoid potential pitfalls.

3. Partner With a Legal Employer (Canada EOR)

Your third option is to engage a trusted Employer of Record (EOR) to hire, pay, and manage your Canadian hires. An EOR acts as the legal employer of the new hire, taking care of administrative tasks such as payroll and taxes - all while the client company retains day-to-day supervisory control.

There are several benefits to partnering with an EOR:

Companies can quickly and easily expand their workforce in Canada without having to worry about the associated legal and tax complexities of setting up a foreign entity. 

Many companies convert their contractors to employees by using employers of record. By engaging EORs, they can ensure their new hires are correctly classified and reduce financial, legal and reputational risk. 

Companies need to comply with various local laws and regulations when hiring talent globally. An EOR can help mitigate this risk and give companies peace of mind by absorbing compliance responsibilities - from onboarding to payroll to benefits.

In Conclusion

Navigating the intricacies of hiring in Canada as a US company demands a thorough understanding of the country's legal and regulatory landscape. While engaging Canadian workers as contractors offers flexibility, it comes with the risk of misclassification, necessitating careful adherence to legal conditions. 

Establishing a foreign entity provides operational autonomy but demands extensive knowledge of Canadian laws and regulations, along with significant time and cost investments. Opting for a Canadian Employer of Record (EOR) offers a streamlined solution, ensuring compliance with local labor laws without the need for a legal entity.  

Why Choose Borderless?

Borderless AI is the global HR platform for teams with operations worldwide. We help companies onboard, manage, and pay their international team members in 170+ countries, all on one platform.

Unlike other Employer of Record providers, Borderless AI requires zero upfront costs and offers dedicated in-house support, unrivaled customer experience, and AI-powered global employment law resources.

See for yourself how Borderless AI can help you simplify the hiring process. Book a demo today!

^{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.}