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Hiring in Canada

Background checks in Canada

Hiring options in Canada

Language requirements in Canada

Corporate presence requirements and payroll setup in Canada

Easily hire employees in Canada with our EoR solution

Employer of record in Canada

Hiring workers in Canada usually means setting up a local legal entity — which can be both costly and time-consuming. Canada also has a complex regulatory landscape for employers, who must understand and comply with both federal and provincial legislation.

One alternative to hiring employees is to engage workers as independent contractors instead. However, this comes with a significant risk of misclassification, which carries fines, penalties and other legal consequences. There is a simpler solution: hiring employees through an employer of record (EoR).

What is an employer of record (EoR)?

An employer of record (EoR) is a company that hires workers on behalf of other organisations. EoRs act as the legal employer for their clients’ workers, meaning they’re responsible for things like withholding taxes and social security contributions, complying with labour laws, and providing employees with mandatory benefits. These companies typically also take on HR processes like payroll, onboarding, and absence management.

Working with an employer of record in Canada

Engaging an employer of record in Canada can help you to quickly and easily hire local employees without the hassle and expense of setting up a legal entity. Employer of record companies in Canada will be able to handle HR tasks like payroll, benefits administration, and more. They will also ensure compliance with both federal and provincial labour laws — so all you need to worry about is finding the right people for the job.

Hiring without an employer of record in Canada

If you choose to engage workers in Canada without relying on the services of an EoR, you’ll need a thorough understanding of the laws, regulations, and employment customs that apply in your particular province or territory. We’ve put together this guide to take you through everything you need to know to compliantly and confidently hire employees in Canada.

Hiring in Canada

Canada is ranked as the most educated country in the world, with more than half of the working population holding a post-secondary education. Alongside the country’s strong economy and strategic location in North America, this makes it a very popular destination for international business expansion.

However, hiring in Canada requires a significant amount of local compliance and legal knowledge. Employers must comply with both federal and provincial/territorial tax and labour laws — which are constantly evolving. Read on for some of the basic information you’ll need before hiring in Canada.

Employment law in Canada

Employers hiring in Canada must comply with the various labour laws that apply there. These include those related to minimum wage, benefits, discrimination, and other employment rights. Some laws in Canada are federal, which means they apply to certain employers across the entire country. The most important federal labour laws in Canada include:

Canada Labour Code.
Canadian Human Rights Act.
Canada Occupational Health and Safety Regulations.

Other labour laws are set at the provincial or territorial level. For example, here are some of the most important labour laws in Canada’s largest province, Ontario:

Employment Standards Act.
Ontario Human Rights Code.
Labour Relations Act.
Workplace Safety and Insurance Act.
Occupational Health and Safety Act.

Federally regulated industries in Canada

To understand whether federal labour laws like the Canada Labour Code apply, employers in Canada must determine whether they are operating in a federally regulated industry. These include.

The federally regulated public sector, including Parliament and the federal public service.
Federally regulated private sectors, which include air transportation, radio and television broadcasting, telecommunications, and interprovincial road transportation services.
Private-sector firms and municipalities in Yukon, the Northwest Territories and Nunavut.

For more information, employers should consult the dedicated page on the Canadian government website.

The role of unionisation in Canada

Employees working in Canada have the right to join trade unions under the Canadian Charter of Rights and Freedoms. Unions aim to protect their members while reducing workplace disruptions. They act as bargaining agents for groups of workers, negotiating with employers and groups of employers for specific rights. Under certain circumstances, unions may organise worker strikes.

Statutory employment benefits in Canada

Canada is known as a country with generous employment rights and benefits. Businesses hiring in Canada must have an understanding of the minimum statutory requirements to ensure they comply with the law. For example, all employees in Canada are entitled to at least two weeks of paid vacation per year. Employees also have the right to various other forms of leave, including maternity and parental leave, compassionate care leave, and personal leave.

In addition, employees in Canada are also entitled to:

A state pension.
Minimum wage.
Overtime pay.
Holiday pay.

While not a legal obligation, many employers also choose to offer additional benefits like private health insurance, long-term disability insurance and health care spending accounts (HCSAs). These can help to improve your employer value proposition when hiring in Canada, enabling you to better attract and retain Canadian workers.

Taxes and payroll contributions in Canada

Employers in Canada are required to withhold taxes and certain other payroll contributions from their employees’ wages. Income tax rates vary according to the province where the employee is engaged. Employers and employees in Canada must each contribute 5.95% of the employee’s pensionable earnings to the Canada Pension Plan, up to an annual maximum of CAD 3,867. Both employers and employees must also pay an Employment Insurance (EI) contribution.

The cost of hiring in Canada

Employers hiring in Canada should take into account various factors to calculate the cost of engaging an employee. These include taxes and other employer contributions, as well as the cost of mandatory and optional benefits, recruitment fees, training costs, office space, and more.

Background checks in Canada

Employers in Canada may conduct various forms of background checks to confirm a candidate’s suitability for a role. However, there are some restrictions you should be aware of. Read on for everything you need to know about employment background checks in Canada.

Required background checks in Canada

Employers in Canada are required to ensure that the people they employ have the legal right to work in the country. They can do this by obtaining the candidate’s Social Insurance Number (SIN). However, this should only be done after the employer has made the candidate a conditional offer of employment.

In certain circumstances, employers may also be required to perform a criminal records check on potential employees. For example, this is usually required for positions that involve working with children or vulnerable adults. For federal government positions requiring security clearance, a mandatory credit check is also part of the screening process.

Other permissible background checks in Canada

Employers may also choose to conduct various other types of background checks in Canada, depending on the role the employee has applied for and the province where they are based. Here are some of the most common types of background checks in Canada:

Criminal record checks: Even when they are not required by law, criminal record checks are often permissible if they are relevant to the position. In some provinces (such as Quebec), employers may not refuse employment because of a past criminal offence if it is not related to the job.
Credit checks: Credit checks are a permissible form of background check in Canada for roles that involve financial responsibility. However, employers must obtain candidate consent before carrying them out.
Driver’s abstract check: A driver’s abstract check provides employers with information about a candidate’s driving record, including their history of infractions and accidents. This type of background check is only permissible when it is directly relevant to job duties.
Reference checks: Employers in Canada may verify information received during the application process and obtain further information about the candidate by contacting their references. Reference checks should be focused on the requirements of the job.
Education checks: It’s also permissible to verify a candidate’s educational history by contacting their former schools or other educational institutions. Employers should seek consent from the candidate before carrying out this type of check.
Social media checks: Employers in Canada may review publicly available information on a candidate’s social media profiles to help determine their suitability for a role.

However, caution is advised to avoid infringing on the candidate’s right to privacy.

Restrictions on background checks in Canada

Background checks in Canada should always be relevant to the job in question and comply with privacy and human rights laws. Employers should obtain informed consent from the candidate before carrying out any type of background check. It’s usually not permissible to conduct a background check before a formal offer of employment has been made.

There are also several restrictions on background checks in Canada that apply in specific provinces only. For example, employers in British Columbia and Alberta can collect personal information about a candidate without their consent if it is for the purpose of establishing an employment relationship. However, they must inform the candidate that they will be collecting this information.

Hiring options in Canada

Before jumping straight to hiring an employee in Canada, it’s important to consider whether this is the best option for your organisation. For example, if you only need a worker for a specific, short-term project, it may be better to engage an independent contractor or even an agency worker instead. Canada is also unusual in that it has another employment status, the dependent contractor. We’ll discuss all of these in more detail below.

Main hiring options in Canada

Here are the main options you have to choose from if you want to engage a worker in Canada:

Employee: Employees in Canada can be hired on a full-time, part-time, fixed-term, or indefinite basis. Regardless of the arrangement, they are protected under employment standards legislation, which guarantees rights such as minimum wage, paid leave, and notice of termination. Correctly classifying workers as employees is essential to ensure legal compliance and avoid fines and penalties.
Independent contractor: Independent contractors are self-employed individuals hired to perform specific services. They may be engaged directly or through a personal services company. They are not covered by employment standards laws. Employers must assess each working relationship carefully to avoid misclassification, which can lead to fines, penalties, and other legal consequences.
Dependent contractor: In some Canadian provinces, courts have recognised the concept of a dependent contractor. They are similar to independent contractors except that they are economically dependent on one employer. While they are not entitled to full employment rights, dependent contractors have the right to receive reasonable notice upon termination. In most jurisdictions, they are also entitled to participate in collective bargaining.
Agency worker: Agency workers are workers who are hired through third-party staffing firms and placed with client companies. The use of agency workers is common in some industries in Canada. Some provinces have special laws in place to protect agency workers and may hold the contracting company responsible if the agency fails to meet its legal obligations.
Temporary foreign worker: The Temporary Foreign Worker Program is a program that allows employers in Canada to use foreign workers to fill short-term labour gaps where no Canadians are available. Employers must meet strict compliance rules and may need a Labour Market Impact Assessment (LMIA) to benefit from the scheme.

The risk of employee misclassification in Canada

Because independent contractors aren’t entitled to the same employment rights as employees, Canadian federal and provincial authorities take issues of employee misclassification very seriously. Ensuring each worker is correctly classified is a crucial part of hiring employees in Canada. However, employment status isn’t just determined by the written agreement that’s in place, but by the actual circumstances of the relationship. That might include factors like:

Control and direction: The degree of control the employer has over the worker’s tasks and schedule.
Ownership of tools: Who provides the tools and equipment needed for the job.
Chance of profit/risk of loss: Whether the worker can realise a profit or suffer a loss from the work.
Degree of integration: The extent to which the worker’s services are integrated into the employer’s business.

Misclassifying employees as independent contractors in Canada can have various consequences for an employer, including financial penalties, prosecution, and public naming on the Government of Canada website. Employers may also be required to back pay taxes and contributions.

Language requirements in Canada

Canada has two official languages: English and French. Under the Federal Languages Act, federal institutions are required to provide services in both languages. There are also specific language laws that apply in the French-speaking region of Quebec.

Specific language requirements in Quebec

In Quebec, communications, documents, and publications must generally be made in French. Employment contracts and other important documents related to the employment relationship must be provided in French first, with an English version provided only on request of the employee. Job offers, promotions, and other employment-related communications must also be in French (employers can provide translations, but the French version must be predominant).

Employers in Quebec are prohibited from requiring proficiency in any language other than French in order to qualify for a role, unless the language is required due to the nature of the work in question. Employers are expected to take reasonable measures to minimise the need for jobs requiring proficiency in another language.

Other language requirements in Canada

There is no federal mandate requiring employers to provide workplace materials in multiple languages beyond English and French. However, it’s considered best practice to ensure that essential employment documents, such as health and safety materials, can be understood by all employees. This may involve translating materials into other languages that are prevalent in the workforce.

Language requirements for Canadian visas and citizenship

Most Canadian visa programmes require applicants to demonstrate at least some level of proficiency in either French or English, though specific requirements vary by programme. Applicants must generally prove their proficiency by providing a language test result from within the last two years. Even native speakers are required to take a language test to demonstrate their ability.

Applicants for Canadian citizenship must also demonstrate adequate proficiency in English or French, equivalent to Canadian Language Benchmarks (CLB) Level 4 or higher in speaking and listening. They must prove their level of proficiency by providing either:

Results from an approved language test (e.g. IELTS, CELPIP, TEF, or TCF).
A certificate from a government language programme (e.g. LINC or CLIC).
Evidence of completing secondary or post-secondary education in English or French.

Corporate presence requirements and payroll setup in Canada

A foreign entity may technically engage workers in Canada, subject to certain payroll registrations, compliance requirements, and corporate tax planning considerations. In many cases, it is necessary to set up a local legal entity or corporate subsidiary. Read on to learn what you need to know about payroll setup in Canada.

How to set up payroll in Canada

Employers who want to hire and pay employees in Canada must complete several key registration processes. Here are the steps to follow:

Register with the Canada Revenue Agency: The first step is to register for a Business Number (BN) and open a payroll program account with the Canada Revenue Agency (CRA). You can do this quickly online through the Business Registration Online (BRO) portal.
Gather employee information: Next, you’ll need to collect each employee’s Social Insurance Number (SIN) and have them fill out the federal and provincial/territorial TD1 tax forms. These forms determine how much tax you should withhold from each employee’s pay.
Determine the province of employment: Employers must then determine the province of employment (POE) for each worker, since this determines the applicable provincial tax deductions and remittance requirements. The employee’s POE depends on whether they ‘report for work’ at any of your establishments.
Calculate payroll deductions: Use the CRA’s Payroll Deductions Online Calculator to figure out how much to deduct for Canada Pension Plan (CPP) contributions, employment Insurance (EI) premiums, and both federal and provincial/territorial income tax.
Send deductions to the CRA on time: Employers must remit all payroll deductions to the CRA by the appropriate due dates. Most employers need to remit by the 15th of the month after paying their employees.
Maintain accurate records: Canadian employees are required to maintain records of wages paid, hours worked, and deductions taken. You’ll need to keep this information for at least 36 months.
File year-end reports: At the end of the calendar year, employers must issue T4 slips for each employee and file a T4 Summary with the CRA to report total earnings and deductions.

Do you need a local bank account to run payroll in Canada?

It’s technically possible to run payroll in Canada without opening a local bank account. However, having one will help you to pay employees in the local currency (CAD) and comply with provincial and federal payroll regulations. If you don’t want to open a bank account in Canada, consider partnering with an employment solutions partner like an EoR to help you run payroll for your Canadian employees.

Easily hire employees in Canada with our EoR solution

Hiring employees in Canada usually means setting up a legal entity, which can be costly and time-consuming. Employers can avoid this hassle by working with an Employer of Record (EoR), like CXC.

Through our EoR solution, you can confidently hire employees in Canada, without worrying about compliance issues. We’ll handle everything from payroll to benefits to employment contracts on your behalf — so all you have to think about is finding the right person for the job.

Read about EoR services

Compliantly hire employees anywhere with CXC

With our EoR solution, you can engage workers anywhere in the world, without putting your business at risk. No more worrying about local labour laws, tax legislation or payroll customs — we’ve got you covered.

Our EoR solution

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