Paying remote staff in Canada is a complex task. There’s so much to think about, in particular the drastically different regulations across provinces and territories. But this shouldn’t dissuade you from tapping into Canada’s highly educated talent pool.
In this article, you’ll learn what it takes to pay remote staff in Canada compliantly and efficiently - and that some approaches are easier than others. We outline the step-by-step payroll process and suggest a time-saving solution to make paying global talent easier.
Your Business Needs Canadian Payroll Expertise
Paying staff abroad is never simple, but Canadian payroll can be particularly tricky. In addition to complying with ever-changing federal employment laws, you must consider province and territory-specific regulations too. Things like minimum wage, paid leave entitlement, income tax, and contributions can differ from province to province and territory to territory. This can cause your payroll workload to increase exponentially.
That’s not all; as a global employer, you must also consider the following when paying staff in Canada:
- Typical payroll frequencies
- Strict overtime laws
- Pay equity & transparency regulations
- Record-keeping requirements
- And much more.
The bureaucracy associated with paying remote workers in Canada is time-consuming and costly, and it can seriously distract from higher ROI activities. If you get it wrong, non-compliance with federal, provincial, and territorial regulations could also lead to penalties and legal action.
That’s why we suggest you seek local expertise through a partner like Omnipresent.
Reduce Risk & Save Time with an EOR
Partnering with an Employer of Record (EOR), such as Omnipresent, gives you unparalleled access to local expertise. An EOR employs your chosen talent for you, taking care of payroll, administration, and compliance, so you can focus your efforts on more important tasks instead.
EORs are responsible for setting up payroll, withholding contributions, and complying with local laws and regulations. This makes hiring and paying remote talent in Canada (and the rest of the world!) much simpler and less risky. It’ll also save you a lot of time in the long run.
How to Pay a Remote Employee in Canada
If you’re still thinking of managing Canadian payroll yourself, here are the key steps you should follow to remain compliant.
1. Establish a Local Business Presence
To hire and pay employees in Canada without using an EOR, you’ll need to establish a local entity - typically a branch office or foreign subsidiary. This process can be time-consuming and costly, so it’s wise to use an EOR unless you’ve already validated the market and would like to proceed with expansion.
Once you’ve set up a local entity, you need to register your business with the Canada Revenue Agency (CRA) to pay staff. The CRA will give you a nine-digit business number (BN), which federal, provincial, and municipal governments use to identify your business.
Depending on your local entity’s location, you may also need to register with provincial tax authorities like Revenu Québec and Workplace Safety and Insurance Boards like Ontario’s.
2. Open a Payroll Program Account
You should now open a payroll program account with the CRA to pay your employees compliantly. You’ll need the following information:
- Date employees received their first wages
- Months covered for payroll and employees’ wages
- Type of pay period (twice a month is the most common option for salaried employees in Canada; monthly is rare)
- Number of employees
- Payroll service name (if applicable)
- Country of parent or affiliate company (if applicable)
- Name of the franchisor (if applicable)
- Country of the franchisor’s head office (if applicable)
Once registration is complete, the CRA will give you a 15-digit payroll account number, which consists of:
- Your nine-digit business number
- A two-letter code identifying the type of program (“RP” is used for payroll)
- A four-digit reference number to identify each account that a business has.
3. Set up a New Employee
When you hire talent in Canada, you need to set them up as a new employee within your payroll program account. For this, you need to gather important employee information such as their Social Security Number (SIN) and employment contract information.
You also need to ensure your employee submits a Form TD1, Personal Tax Credits Return. This form records any changes to their personal tax credits for the year. In addition to a federal Form TD1, they may also need to submit a provincial/territorial form. If an employee fails to submit these forms, they may receive a fine, so it’s important to remind them at the start of their employment.
Even if you can’t obtain the SIN or Form TD1 from your new employee, your business is still required to calculate and withhold applicable payroll deductions.
4. Calculate Income Tax & Contributions
As an employer in Canada, you’re responsible for calculating, deducting, withholding, and paying relevant employee income taxes and contributions. These are called “source deductions.” On top of this, you will have to calculate and pay employer contributions too.
It's worth noting that income tax and certain contributions are based on the employee’s total taxable income, which may include taxable benefits. What counts as taxable benefits differs from province to province and territory to territory, as does the applicable taxable rate, so you should seek local expertise before proceeding.
Employee Income Tax
In Canada, employees pay both federal and provincial or territorial income tax.
Tax rates across Canada are progressive, meaning typically, the more an employee earns, the more tax they must pay. Currently, federal taxation starts at 15% and goes up to 33%.
Provincial and territorial income tax rates differ significantly, so you’ll need to consult the relevant payroll deductions table on the CRA website to determine the amount of income tax the employee owes.
Employee & Employer Contributions
For each employee on your payroll (outside of Québec), you also need to calculate and withhold the following deductions and contributions:
Each province and territory has its own way of calculating the above deductions, so you can use this calculator to help you out.
If your business entity is based in Québec, you’ll have to calculate the following deductions and contributions using this calculator instead:
5. Pay Your Employee(s)
Once you’ve made any necessary deductions, you should pay your employee(s) according to the payroll frequency outlined in the employment contract.
If you’re using payroll software, you can automatically generate and send pay stubs to your employees. If you don’t, you should still provide pay stubs manually. This will help your employees to keep track of their earnings, check the tax they’ve paid, and apply for credit.
A pay stub should include gross earnings, deductions (including vacation pay), overtime pay, and net pay for the period of work it applies to as well as the year to date.
6. Remit Deductions and Contributions
Except for Québec-specific deductions, the CRA collects all income tax, Employment Insurance, and Canada Pension Plan deductions. It then distributes relevant sums to each province or territory. This centralized system aims to make the whole process a little smoother, but it can still be pretty confusing for employers.
You have to remit (pay) deductions and contributions to the CRA according to your remitter type. This is based on your Average Monthly Withholding Amount (AMWA) over the last two years. Your AMWA is calculated as follows:
The total of all Canada Pension Plan, Employment Insurance, and income tax paid for the year (for all employees), divided by the number of months paid in a year.
Use this figure to determine your remitter type and consequent remitting frequency. This could be:
- Quarterly; or
- Monthly; or
- Up to twice a month; or
- Up to four times a month.
The CRA will check your remitter status each year and inform you of any changes.
It’s worth noting that the remitting frequency is separate from your pay periods, so you may pay staff more or less frequently than you remit deductions. That’s why it’s important to withhold all deductions in a separate business account.
For Québec-specific deductions, like Québec income tax and Québec Pension Plan, you will need to remit through Revenue Québec according to a separate remittance frequency.
It’s a similar case for health tax, which you’ll have to register for and remit through the relevant province or territory’s system. For example, in Ontario, employers have to remit Employer Health Tax (EHT) through the Ontario Ministry of Finance.
7. File Your Payroll Information Returns
Each year, you need to file your payroll information returns, which declare all the payroll payments you’ve made within that year. This includes salaries, income tax, deductions, contributions, and taxable allowances for all your employees.
To do this, you will need to fill out a T4 summary for each payroll program account your business holds, as well as T4 slips for each employee. The T4 summary sums up all employee earnings and deductions for the calendar year, while the individual slips break it down per employee.
You must send both the summary and all the slips to the CRA by the last day of February of the following calendar year. You should also send each slip to its respective employee by the same date. This can be done electronically.
You can find more information about how to fill out and file T4 summaries and slips on the Government of Canada’s website.