Businesses that stand the test of time proactively focus on global employment to find top talent. As a promising locale, many companies have set their eyes on Canada, which houses some of the world’s most capable experts in multiple fields. But international recruiters who’d like to hire them remotely must find the right ways to do so.
An Employer of Record (EOR) is your expert guide to hiring remote employees in Canada. In this article, we’ll explore how an Employer of Record Canada can be your partner in acquiring a stronger team—without getting lost in the maze of Canadian employment laws.
How an EOR Can Benefit Hiring in Canada
Remote work in Canada is an increasingly attractive venture supported by the statistics. In early 2023, 85% of Canadians expressed interest in hybrid or fully remote work.
The North American country boasts some of the best-educated professionals on the market, particularly in technology and engineering—two fields exploding with no sign of stopping. (Additionally, the shared time zones between the U.S. and Canada are a nice bonus).
However, hiring Canadians from outside Canada requires a few more steps than hiring US citizens. There isn’t one hiring playbook for the whole country, but several. In fact, each of Canada’s 10 provinces and three territories implement and enforce their own specific employment laws.
This means employer organisations have a lot more to consider when hiring remote employees in Canada. For most companies, it’s impractical (or even impossible) to spend valuable time and internal resources sifting through these legislative subtleties.
However, EORs offer a solution to this. EORs take away the hassle of hiring remote workers in Canada or any other country. They’re third-party organisations that act as legal employers, and they take care of the more administrative labour law and tax requirements, which are specific to an employee’s location in Canada.
Weighing Your Options: EOR vs. Legal Entity
If you’re operating a business outside of Canada and you’re looking to hire Canadian employees, you might be considering all your options. The primary alternative to Canadian EORs is setting up a legal entity. You might consider doing this in a narrow range of circumstances:
- Your team is growing – The costs associated with legal entities may edge out those tied to EORs as your company expands. There’s also the potential to access financial incentives the Canadian government offers, like tax credits and development grants.
- You’re in it for the long run – Companies who commit to a location could have expanded control, investment avenues, and government support as a legal entity.
However, those perks aren’t without significant responsibility. If you’re not up to the task, it can prove to be quite the arduous task with little return. That’s because the more traditional process of setting up a legal entity is resource-intensive and complex. Some of the demands and limitations include:
- Lengthy and costly setup – Expect a setup time of up to 6 months while you secure the necessary licences to comply with provincial and federal laws. The costs vary, but they can exceed several thousands of dollars.
- Expert consultant required – You’ll need experts onsite to tackle the complex regulations, ensure compliance, and mitigate operational risks.
- Manual accounting and administration – You’ll also have to keep track of everything from payroll to onboarding in-house, which opens the door for errors with payroll and tax deductions, the misclassification of employees, or legal disputes regarding unlawful terminations.
Why an EOR is the Best Option
An EOR takes most of these responsibilities off your plate and ensures that hiring your global talent gets done correctly. Additionally, outsourcing this process to a team of professionals awards you the time and resources to focus on your business.
A few other Employer of Record benefits involve handling HR tasks such as:
- Handling termination processes.
- Payroll service and tax.
- Employee benefits.
- Employment law compliance.
Canada also has its work culture nuances which an EOR is equipped to handle with care. For example, there are specific expectations around payment structure—which is typically bi-weekly— along with stipulations around overtime and holiday pay.
Additionally, contracts are subject to stringent regulations to protect employee rights. An EOR for Canadian employees has a thorough understanding of local employment laws and practices, especially as they differ between provinces.
How to Hire and Pay Employees in Canada With An EOR
When hiring and paying a Canadian remote worker, there are some minor formalities and important decisions your EOR can guide you through (such as the specific manner in which ‘vacation pay’ accrues and when it is to be paid). As the legalities and admin requirements weigh in, your EOR can handle all the heavy lifting for you.
So how does an Employer of Record work? Here’s everything you need to know:
1. Define your needs – Approach an EOR to determine if it is capable of assisting you to accomplish your specific needs. For example, do you need to hire permanent staff? Interns?
2. Partner with the right EOR – Research potential organisations and assess their reputation, services, availability, data protection, and track record of operating in Canada.
3. Clarify their expertise – Perform due diligence to ensure the EOR can adhere to Canadian labour laws, provincial variations, and proper hiring practices.
4. Collect information – You’ll need to gather the necessary information from your new hire before their employment contract is prepared. These details include:
- Full Government Name.
- Date of birth.
- Date of hire.
- Contact information; including their Canadian residential and mailing address.
- Bank account information.
- Social Insurance number.
- Payment amount (in Canadian dollars).
- Completed Personal Tax Credits Return (TD1) forms.
5. Draft contracts – Once a candidate is selected, the EOR drafts an employment contract compliant with Canadian regulations. There are stipulations regarding working hours, overtime, holidays, benefits, and more tailored to each province's specifications. Mandatory benefits, as established by Canada’s Employment Standards Act, include:
- Public holidays
- Sick leave
- Paternity and maternity leave
- Workers’ compensation
6. Onboard – The EOR can also provide remote onboarding solutions to integrate employees into the company's culture and set them up for success in their role.
7. Manage compensation – Handling payroll requires adherence to Canadian federal and provincial tax regulations, benefits disbursements, and other deductions. The EOR:
- Manages monthly payroll for timely and accurate payments to the employee.
- Handles tax withholdings, remittances to Canadian authorities, and end-of-year tax formalities.
- Ensures compliance with provincial benefits mandates, such as health insurance or retirement contributions.
8. Continue compliance – The EOR remains vigilant about any changes in labour laws or tax regulations so your company stays compliant.
With an EOR on your side, hiring talent in Canada becomes swift and efficient–an EOR can compliantly onboard your employee in as little as two weeks. You’ll avoid the bureaucracy, fees, and delays associated with setting up a legal entity.
Compliance Risks When Paying Canadian Employees
As stated previously, regulations among Canadian provinces can vary significantly. When it comes to payroll, a perfectly legal contract for one Canadian employee could violate the rights of another.
Here are some of the most pressing global payroll challenges when paying employees in Canada:
- Violating employment agreements – Payments comprise remuneration and benefits to which every Canadian employee is entitled. Minimum standards are enforced on federal and provincial levels for minimum wage, overtime, vacation pay, bereavement, paternity leave, severance pay, and more.
- Employee misclassification – If you classify an employee as a contractor, you could face catastrophic penalties, from fines to legal disputes. If you’re not clear on your employee’s working conditions, you risk misclassifying their status.
- Failing to withhold tax and remittances – Canadian employers must withhold the appropriate income tax from employees’ wages. The amount—along with the employer's payroll tax—should be regularly remitted to the Canada Revenue Agency (CRA). Failure to accurately withhold or remit can result in substantial penalties and interest.
- Neglecting benefits and deductions – Canada's employment laws mandate certain benefits, such as the Canada Pension Plan (CPP) contributions, Employment Insurance (EI), and in some provinces, health insurance premiums. Mismanagement or neglect of these responsibilities can again lead to financial penalties and legal repercussions.
- Poor record keeping – Adequate and accurate documentation is another fundamental component of Canadian employment law. Employers are required to maintain precise payroll records for several years. The inability to present these records in the event of an audit can incur heavy penalties.
- Overlooking end-of-year obligations – Employers must provide employees with T4 or T4A slips summarizing their annual earnings and deductions. These slips are a primary document for employees filing their income tax returns. Delays, errors, or omissions can result in serious legal repercussions.
Global payroll compliance is nothing to overlook. That’s why it’s vital to employ an experienced partner in this area. With a Canada Employer of Record, you can confidently hire Canadians remotely without fearing those risks.