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Hiring in Canada
Canada, a country in North America, is the second largest country in the world. Ottawa is the capital and Toronto is the largest city of Canada. Canada is one of the world’s largest and a highly globalized economy. Manufacturing, mining and the service sector are some of the main drivers of economic growth. Canada’s main trading partners are the United States, United Kingdom, China, Japan, Mexico and Germany. Global PEO or Employer of Record (EOR) play a pivotal role in providing companies with services related to hiring employees, and ensuring compliance with Canada’s legal and tax regulations. The Labor Code stipulates that employees are entitled to 2 weeks of paid annual leave. An individual resident in Canada is taxable on worldwide income. Nonresidents are taxed on Canadian-source income only. Global PEO’s or Employer of Record (EOR) facilitate companies by ensuring compliance with Canada’s Labor Code and tax laws.
statutory labor requirements
Probation Period
- The typical probationary period is 3 months.
- The maximum probationary period allowed depends on the province and generally range from 3 to 6 months.
Annual Leave
- The national minimum entitlement in Canada is two weeks for every 'year of employment'.
- After six consecutive years of employment with the same employer, workers are entitled to three weeks of paid annual leave
Public Holidays
There are 4 Federal public holidays that are celebrated nationwide for which employees are given paid days off, and the remainder are Provincial public holidays:
- New Year’s Day (National) (1st January)
- Good Friday (National except QC) (10th April)
- Canada Day (National) (1st July)
- Labor Day (National) (7th September)
- Christmas Day (National) (25th December)
Maternity Leave
- Every female employee in Canada who has completed six consecutive months of continuous employment and provides her employer with a certificate from a qualified medical practitioner certifying that she is pregnant, is entitled to maternity leave of up to 17 weeks.
- This leave may begin 12 weeks prior to the estimated date of the birth of the child and end no later than 17 weeks following the birth.
Paternity Leave
- Basic paternity leave can be taken for up to five weeks at 70% of weekly earnings. Special leave is up to three weeks at 75% of weekly earnings.
- This starts between the week of the birth and up to one-year after
Sick Leave
- Sick leave is generally unpaid in Canada, but employees may qualify for benefits under the Canada Pension Plan or Employment Insurance in certain cases of long-term absence.
- But, in the case of a serious illness or injury, an employee is entitled to 12 weeks of protected leave
Work Hours
- Employment standards legislation in each jurisdiction sets restrictions on working hours.
- Most jurisdictions limit the number of hours that can be worked in a week.
- In Ontario, for instance, an employer cannot allow an employee to work more than 48 hours a week without obtaining prior approval from the Director of Employment Standards.
Overtime
- Although hours of work and overtime rules vary significantly across Canada, most jurisdictions have established an overtime rate equivalent to 1 and ½ times an employee’s regular rate of pay.
- In Ontario, the entitlement begins at 44 hours; in Québec, it is 40 hours.
Notice Period
- Employees with continuous employment of at least one month but less than two years are entitled to at least one week's notice from the employer.
- Employees with two years' continuous employment or more are entitled to one week's notice for each complete year, up to a maximum of 12 weeks' notice.
Severance
- In Federal and Provincial Jurisdictions, employees dismissed without cause may be entitled to severance payments in addition to notice of termination (or pay in lieu of notice).
- The Canada Labor Code (Federal Jurisdiction) provides that:
-
- Employees with 12 months of continuous service receive the greater of two days’ wages at their regular wage rate for each completed year of employment or five days’ wages at their regular wage rate.
- The Ontario Employment Standards provides that:
- An employee with five or more years of service will be entitled to severance pay if the employer’s payroll in the province is Can$2.5 million or more or if the employer permanently discontinues the employment of 50 or more employees within a six-month period due to a permanent discontinuance of all or part of its business.
- Severance pay in Ontario is calculated by multiplying the employee’s regular wages for a regular work week by the sum of:
-
- The number of complete years of employment; and
- The number of complete months of employment divided by 12 for a year that is not completed (partial year).
- The maximum amount of severance pay required to be paid under Ontario Employment Standards is 26 weeks.
13th / 14th Month Pay
- No
- There is no statutory requirement to pay the 13th or 14th month salary.
- However, employers do give Christmas bonuses but only 15% of those bonuses is monetary.
income tax
- An individual resident in Canada is taxable on worldwide income. Nonresidents are taxed on Canadian-source income only.
- Income from employment includes salaries, wages, directors’ fees and most benefits received from employment.
- Directors’ fees derived from Canada or a foreign country are taxable to a Canadian resident as employment income.
- Tax treaties signed by Canada generally do not allow a resident of Canada to be exempt from tax on directors’ fees received from a foreign (nonresident) company or to otherwise receive favorable tax treatment.
- In general, amounts received as a result of severance pay in recognition of long service at retirement, and spousal support payments (deductible to the payer, subject to certain limitations) are also includible in income.
- The federal government, as well as the provinces and territories, impose income taxes on resident individuals.
- However, only the province of Quebec collects its own individual income tax and requires filing a separate return.
- The federal government collects the tax on behalf of all other provinces and territories, which means that only one combined return must be filed.
- Canada has five tax brackets for federal income tax purposes.
- These brackets are indexed annually by the inflation rate for the period from 1 October to 30 September of the previous year.
- The federal tax brackets and rates for 2019 shown below are based on known and proposed amounts as of 1 July 2019.
|
Taxable Income |
Tax on lower amount (CAD) |
Rate on excess (%) |
|
|
Exceeding (CAD) |
Not Exceeding (CAD) |
||
|
0 |
47,630 |
0 |
15 |
|
47,631 |
95,259 |
7,145 |
20.5 |
|
95,260 |
147,667 |
16,908 |
26 |
|
147,668 |
210,371 |
30,535 |
29 |
|
210,372 |
- |
48,719 |
33 |
deductible expenses
Employment Expenses
- Taxes and interest (except interest related to the earning of business and property income), most life insurance premiums, and casualty losses are not deductible.
- Allowable deductions in computing employment income include travelling and certain other expenses of officers or employees required as a condition of employment.
- A deduction is available with respect to an employee's contributions to a Registered Pension Plan (RPP), a Pooled Registered Pension Plan (PRPP), or to a Registered Retirement Savings Plan (RRSP), within certain limits.
- For both employed and self-employed individuals, the deductible contribution to an RRSP is generally 18% of the total employment, self-employment, and rental income that was subject to Canadian tax in the preceding year, to a maximum annual contribution amount (CAD 26,500 in 2019).
Personal Deductions
- Deductible non-business expenses include alimony and maintenance payments (if taxable to the recipient), certain child care expenses, and eligible moving expenses for relocation within Canada (usually in connection with a change of employment).
- Periodic alimony payments made by a taxpayer under a divorce decree (or under the terms of a written divorce or separation agreement) to a former or separated spouse (or for the spouse's benefit) are generally deductible, subject to restrictions as to the precise nature of these payments.
- Neither alimony nor child support is subject to WHT if paid to a non-resident.
- Canada allows working parents to deduct child-care expenses if certain conditions are met.
- The maximum yearly deduction is generally CAD 8,000 per child under seven years old and CAD 5,000 per child from seven to 16 years old.
Interest Expense
- Interest on money borrowed to acquire investment property or to invest in a business is usually deductible.
- Interest on loans used for personal purposes, including mortgage interest on a loan to purchase a home for personal use, is not deductible.
Business Deductions
- Business deductions for self-employed individuals generally include all reasonable expenses that have been incurred to earn business income.
- A self-employed individual can also deduct expenses for the business use of a work space in the individual's home, if the home is the individual's principal place of business, or the individual uses the work space only to earn business income and it is used on a regular and ongoing basis to meet business clients, customers, or patients.
- Home expenses that may be deducted include utilities, home insurance, property taxes, mortgage interest, and capital cost allowance.
|
Deductible Expenses |
|
|
Employment Deductions |
|
|
Interest Expenses |
|
|
Business Deductions |
|
|
Personal Deductions |
|
immigration
- With few exceptions, most individuals providing services in Canada’s labor market require a work permit, regardless of duration of stay or source of income.
- Admission to Canada is generally granted for a specific purpose and is time-limited.
- All foreign nationals seeking entry to Canada must ensure that they have the appropriate status for their intended activities and length of stay.
- In general, unless a foreign national meets the criteria for an exemption, a LMIA (Labor Market Impact Assessment) is required before the foreign national can apply for a work permit
- In general, the LMIA process requires the employer to demonstrate to Service Canada that a job offer to a foreign worker is likely to have a positive or neutral impact on the Canadian labor market.
- The most commonly relied on LMIA confirmation-exempt category is for intracompany transferees. T
- he exemption for intracompany transferees is designed to facilitate the transfer of “executive,” “senior or functional managerial” and “specialized knowledge” personnel from companies affiliated with those established in Canada.
- The applicant must be employed by the foreign related company for at least one year in the three years preceding the transfer, and must come to Canada to take a similar role in a “senior management,” “executive” or “specialized knowledge” position.
- Foreign workers employed in lower-skilled and lower-wage occupations have greater restrictions on their ability to work in Canada or apply for permanent residence.
- The Global Talent Stream, which is a subset of the Temporary Foreign Worker Program, allows innovative firms in Canada a more streamlined process to hire highly skilled foreign talent when Canadians are not available.
- In June 2017, the Canadian federal government launched the Global Skills Strategy (GSS) to support faster access to high-skilled talent in Canada and to help Canadian businesses support the creation of jobs for Canadians.
- There are 2 types of work permits: open work permits and employer-specific work permits.
- An open work permit allows you to work for any employer in Canada, except for an employer:
- who is listed as ineligible on the list of employers who have failed to comply with the conditions or
- who regularly offers striptease, erotic dance, escort services or erotic massages
- You may be eligible for an open work permit if:
- You are an international student and are eligible for the Post-Graduation Work Permit Program
- You are a student who’s no longer able to meet the costs of your studies (destitute student)
- You have an employer-specific work permit and are being abused or at risk of being abused in relation to your job in Canada
- You applied for permanent residence in Canada
- You are a dependent family member of someone who applied for permanent residence
- You are the spouse or common-law partner of a skilled worker or international student
- You are the spouse or common-law partner of an applicant of the Atlantic Immigration Pilot Program
- You are a refugee, refugee claimant, protected person or their family member
- You are under an unenforceable removal order
- You are a temporary resident permit holder
- You are a young worker participating in special programs
- An employer-specific work permit allows you to work according to the conditions on your work permit, which include:
- the name of the employer you can work for
- how long you can work
- the location where you can work (if applicable)
- Some of the main categories of work permits are for Professionals, Intra-company transferees, and Temporary resident permit holders.
- You can only apply for a work permit from inside Canada if:
- you, your spouse or parents have a valid study or work permit,
- you have a work permit for one job but want to apply for a work permit for a different job,
- you have a temporary resident permit that is valid for six months or more, or
- you are in Canada because you have already applied for permanent residence from inside Canada. You will have to pass certain stages in the main application process before you can be eligible for a work permit.
|
Type of Visa/Permit |
Documentation |
Validity |
Eligibility |
|
Professionals |
|
|
|
|
Intra-company transferees |
|
|
|
|
Temporary Work Permit |
|
|
|
value added tax
- Generally, the federal goods and services tax (GST) applies to taxable goods and services supplied in Canada. The harmonized sales tax (HST) is a blended federal/provincial sales tax that includes a 5 percent federal component and a provincial component of 8 percent or 10 percent
- Canadian Federal GST is charged at 5%.
- This is combined in most Provinces with the local PST, which are set between 5% and 9%, to create a Harmonised Sales Tax (HST) rate.
|
VAT / GST / HST / QST / PST |
|
|
GST: - |
|
|
Standard Rate |
5% |
|
Reduced Rate |
0% |
|
HST: - |
|
|
Standard Rate |
13% and 15% |
|
Reduced Rate |
0% |
|
QST: - |
|
|
Standard Rate |
9.975% |
|
Reduced Rate |
0% |
|
PST: - |
|
|
Standard Rate |
6% to 8% |
withholding tax
Dividends
- Dividends paid by a Canadian resident corporation to a nonresident are subject to a 25% tax, unless the rate is reduced under a tax treaty
Interest
- Interest paid by a Canadian resident to a nonresident generally is subject to a 25% tax, unless the rate is reduced under a tax treaty.
- Certain exemption may apply, including an exemption for nonparticipating interest paid to arm’s length foreign lenders.
Royalties
- Royalties paid by a Canadian resident to a nonresident are subject to a 25% withholding tax, unless the rate is reduced under a tax treaty.
- Copyright payments made in respect of literary, dramatic, musical or artistic works are exempt from withholding tax under domestic law
Technical Service Fees
- Depending on the facts, certain technical service fees may be subject to a 25% withholding tax
Branch Remittance Tax
- A 25% branch profits tax is levied, unless the rate is reduced under a tax treaty.
|
WHT |
|
|
Dividends |
25% |
|
Interest |
25% |
|
Royalties |
25% |
|
Technical Service Fees |
25% |
|
Branch Remittance Tax |
25% |
termination
- An employer must provide an employee with at least two weeks written notice of their intention to terminate the employment of an employee. In lieu of written notice, the employer must pay two weeks’ wages at the regular rate to the employee.
- This notice period requirement applies to any employee whose employment is being terminated except as follows:
-
- an employee who has not completed three consecutive months of continuous employment;
- an employee who terminates their own employment;
- an employee who is dismissed for just cause;
- an employee who is on a lay-off that does not constitute a termination of employment (see question 6); where the contract provides an end and that the work ends on that date.
- An employee who has completed at least 12 consecutive months of continuous employment qualifies for severance pay.
statutory benefits
- These are mandatory benefits as postulated by law
- These include probationary period, public holidays, annual leave, maternity leave, paternity leave, sick leave, notice period, severance pay, and overtime pay
- Statutory benefits also include social security benefits
|
Statutory Benefits |
|
Probationary Period |
|
Annual Leave |
|
Public Holidays |
|
Sick Leave |
|
Maternity Leave |
|
Paternity Leave |
|
Notice Period |
|
Severance Pay |
|
Overtime Pay |
|
Social Security Benefits |
payments and invoicing
- Married persons are taxed separately, rather than jointly, on all types of income.
- Therefore, spouses must file separate tax returns. Individuals must file tax returns if they owe tax or if they are specifically requested to do so by the tax authorities.
- Nonresident individuals generally must file Canadian income tax returns if they earn employment or business income (including resource income, which is generally oil, gas and mineral rights) in Canada or if they have capital gains from dispositions of “taxable Canadian property” (TCP),
- The tax year for individuals in Canada is the calendar year. Annual income tax returns must generally be filed on or before 30 April of the year following the tax year.
- The filing due date is extended to 15 June for individuals earning self-employment or business income.
- This extended due date also applies to these individuals’ spouses.
- No other extension of time to file income tax returns is available in Canada.
- Any unpaid income taxes are due on or before 30 April of the year following the tax year, regardless of the due date of the individual’s return.
- Penalties are levied if any tax due is not paid on time, and interest is charged on unpaid taxes.
- Individuals may be required to make quarterly installment payments if the difference between tax payable and the amount withheld at source is greater than CAD3,000 (for Quebec residents, CAD1,800 of federal tax payable after federal withholding) in both the current year and either of the two preceding years.
- The amount of the quarterly installments is based on the lesser of the liability calculated by the tax authorities on installment notices, the liability for the preceding year or the liability projected for the current year after deduction of withholdings.
ease of doing business
- The ease of doing business index is an index created by Simeon Djankov, an economist at the Central and Eastern Europe sector of the World Bank Group.
- Higher rankings (a low numerical value) indicate better, usually simpler, regulations for businesses and stronger protections of property rights.
- According to the World Bank Canada ranked 23rd in the World in 2019 in terms of ease of doing business.
employee accruals
| Christmas Bonus% | 0% |
| Christmas Bonus Over Vacations % | 0% |
| Severance per Year % | Employees are entitled to severance pay that equals 2 days of pay for each completed year of servcie and is capped at 5 days of pay (1.37% of annual salary) |
| Vacations % | The national minimum entitlement in Canada is two weeks for every 'year of employment' (2.74% of annual salary) |
| Notice % | Employees are entitled to 2 weeks of notice after one year of service (2.74% of annual salary) |
| Christmas Bonus Over Notifications% | 0% |
| Vacations Plus% | 0% |
| Total percentage of Salary (yearly) | The total employment accruals as a percentage of salary per anum are equal to 6.85% |
employer accruals
Additional information (Country Accruals)
| Employer Health tax |
1.95% |
| CPP |
5.25% |
| Employment Insurance |
2.21% |
| Maternity Leave |
50 weeks |
| Vacation |
8.22% |
| Severance per year of service |
0.55% |
| Description |
For 2020, Canadian-resident employees are required to pay government pension plan contributions of up to CAD 2,898.00 and |
Employer Accruals Additional information
| Employment Accruals | ||
| Annual Leave | The national minimum entitlement in Canada is two weeks for every 'year of employment'. | This equals 3.84% (2/52 weeks) of annual income |
| Maternity Leave | Every female employee in Canada who has completed six consecutive months of continuous employment and provides her employer with a certificate from a qualified medical practitioner certifying that she is pregnant, is entitled to maternity leave of up to 17 weeks. | This equals 32.6% (17/52 weeks) of annual income |
| Paternity Leave | Basic paternity leave can be taken for up to five weeks at 70% of weekly earnings. Special leave is up to three weeks at 75% of weekly earnings. | This equals 70% of 9.6% (5/52 weeks) of annual income |
| Overtime | Although hours of work and overtime rules vary significantly across Canada, most jurisdictions have established an overtime rate equivalent to 1 and ½ times an employee’s regular rate of pay. | Normal hourly rate is around 14.25 CAD. Overtime is paid at an additional 7.125 CAD. |
| Severance | Employees with 12 months of continuous service receive the greater of two days’ wages at their regular wage rate for each completed year of employment or five days’ wages at their regular wage rate. | This equals 1.36% (5/365 days) of annual income |
| Social Security | Employers must make the following social security contributions: - Canada Pension Plan 5.1%; Employment Insurance 1.62%. | This equals 6.72% of annual income |
