Employer of Record in Canada

Hiring talent in Canada presents significant opportunities for global businesses, yet navigating its distinct employment laws, payroll regulations, and benefits requirements can be a complex undertaking. For companies looking to expand their team into the Canadian market in 2025, understanding the various pathways to compliantly onboard employees is crucial.

Businesses generally have a few primary methods for engaging staff in Canada, each with its own set of administrative burdens and legal considerations. Choosing the right approach depends on the company's long-term strategy, desired level of control, and tolerance for local compliance risks.

Hiring Options in Canada:

• Establishing a local entity: This involves incorporating a business in Canada, registering with provincial and federal authorities, setting up local bank accounts, and directly managing all payroll, tax, and HR functions. This option provides full control but requires significant time, cost, and administrative resources.
• Utilizing an Employer of Record (EOR): An EOR, like Rivermate, acts as the legal employer for your Canadian workforce, handling all compliance, payroll, taxes, and benefits while you retain full operational control over your employees' day-to-day work.
• Hiring independent contractors: Engaging individuals as independent contractors can seem simpler, but it carries a significant risk of misclassification under Canadian law. If a contractor is deemed an employee by tax or labor authorities, the hiring company could face substantial penalties, back taxes, and fines.

How an EOR Works in Canada

An Employer of Record simplifies global hiring by taking on the legal and administrative responsibilities associated with employment in Canada. When partnering with an EOR, your company maintains direction over daily tasks and performance management, while the EOR ensures full compliance with local regulations. They handle:

• Payroll processing and administration: Ensuring timely and accurate salary payments, withholdings, and contributions.
• Tax compliance: Managing federal and provincial income tax, Canada Pension Plan (CPP), and Employment Insurance (EI) contributions.
• Benefits administration: Providing compliant and competitive benefits packages, including health, dental, and retirement plans.
• Employment contracts: Drafting and managing compliant employment agreements tailored to Canadian labor laws.
• HR support and compliance: Navigating local labor laws, leave policies, and workplace regulations.
• Termination compliance: Ensuring any employee separations adhere to Canadian legal requirements, minimizing risk.

Benefits of Using an EOR in Canada

For companies seeking to enter the Canadian market quickly and compliantly without the burden of establishing a local legal entity, an EOR offers distinct advantages:

• Rapid market entry: Onboard employees in Canada within days, not months, bypassing lengthy entity registration processes.
• Reduced legal and compliance risk: Eliminate the need to understand complex Canadian labor laws, as the EOR assumes this responsibility.
• Access to top talent: Hire the best candidates across Canada without geographical limitations or the need for local infrastructure.
• Cost-effectiveness: Avoid the significant financial outlay and ongoing administrative costs associated with setting up and maintaining a local subsidiary.
• Focus on core business: Free up internal resources from administrative HR and payroll tasks, allowing your team to concentrate on strategic growth initiatives.

Rivermate's transparent pricing model eliminates complexity with a single, competitive monthly fee per employee. Unlike traditional PEO providers, our pricing in Canada includes comprehensive HR support, benefits administration, compliance management, and access to our proprietary dashboard for real-time workforce analytics. No hidden costs, no setup fees—just straightforward pricing that scales with your business needs while ensuring full legal compliance in Canada.

Canadian employers must comply with federal and provincial tax obligations, including contributions to the Canada Pension Plan (CPP), Employment Insurance (EI), and provincial payroll taxes such as Ontario's Employer Health Tax (EHT). For 2025, employer CPP contributions are approximately 5.95% of pensionable earnings, with maximum contributions increasing slightly annually. EI contributions are about 1.4 times the employee's premium, with rates adjusted yearly. Provinces like Ontario impose EHT based on payroll, with thresholds and rates varying.

Employers must meet these contribution deadlines and ensure proper employee tax deductions, especially when managing foreign workers or multi-provincial payrolls. Staying compliant involves understanding both federal and provincial tax rules, timely remittance, and accurate payroll record-keeping.

Canada's salary landscape varies by industry, location, experience, and skills, with major cities like Toronto, Vancouver, and Calgary offering higher compensation due to cost of living and demand. Typical salary ranges for key roles include Software Engineers ($80,000–$150,000+ CAD), Financial Analysts ($65,000–$110,000+ CAD), and Construction Project Managers ($80,000–$130,000+ CAD). Employers should conduct market research to set competitive wages aligned with these benchmarks.

Minimum wage rates differ across provinces, ranging from $14.00 CAD/hour in Saskatchewan to $16.77 CAD/hour in Yukon, with specific occupational rates in some regions. Employers must comply with provincial regulations, ensuring wages meet or exceed these minimums. Compensation packages often include bonuses such as performance, signing, and year-end bonuses, as well as allowances for housing, transportation, and education, which vary by industry and company.

Payroll is typically processed bi-weekly via direct deposit, with deductions for taxes, CPP, and EI remittances. Trends for 2025 indicate wage growth driven by inflation, skills shortages, remote work normalization, and economic growth, requiring employers to adapt compensation strategies to stay competitive.

Canada's vacation and leave policies are primarily governed at the provincial and territorial levels, resulting in varied entitlements across the country. Employers must stay informed of local laws to ensure compliance. For annual vacation, minimum requirements typically include 2 weeks after 1 year of employment, with additional weeks and higher pay percentages (up to 6%) accruing after specific years of service, as summarized below:

Public holidays are nationally recognized, with additional regional holidays like Family Day and Louis Riel Day. Employees are entitled to paid days off or premium pay when working on holidays.

Sick leave varies; some provinces provide paid sick days (e.g., BC, NS, Yukon), while others do not. For example, BC offers 5 paid sick days, whereas Alberta provides unpaid leave up to 5 days. Employers may offer more generous benefits.

Parental leave includes maternity (around 15-18 weeks) and shared parental leave (up to 40 or 69 weeks). EI benefits, typically 55% of insurable earnings, support income replacement during this period, with eligibility based on insurable hours.

Other leave types like bereavement, study, family responsibility, and domestic violence leave are available but vary by jurisdiction. Employers should consult local employment standards to ensure compliance with specific leave entitlements.

Canada's employee benefits landscape combines mandatory and optional offerings to attract and retain talent. Employers must provide core benefits such as the Canada Pension Plan (CPP), Employment Insurance (EI), workers' compensation, provincial healthcare, and paid vacation and holidays. These vary slightly by province but establish a baseline of employee security.

In addition to mandatory benefits, many employers offer optional perks like extended health insurance, dental, vision, life and disability insurance, Employee Assistance Programs (EAPs), wellness initiatives, professional development, and paid time off. Extended health plans often cover prescription drugs, dental, and paramedical services, with costs shared between employers and employees.

Retirement plans are vital, with options including RRSPs (often with employer matching), defined contribution (DC), and defined benefit (DB) pension plans, alongside tax-advantaged TFSAs. Larger firms tend to offer more comprehensive packages, whereas SMEs and non-profits may have more limited benefits. Employers must consider costs, employee expectations, and industry benchmarks, ensuring clear communication and compliance with legal standards, including privacy, tax, and pension regulations.

Employers should align benefits with legal requirements, industry standards, and employee needs, maintaining transparent communication to foster satisfaction and compliance.

Employment agreements in Canada define the terms of employment, ensuring clarity and legal protection. They must comply with federal and provincial laws, which set minimum standards for wages, hours, vacation, and termination. Agreements cannot specify terms less favorable than these statutory minimums.

There are two main types:

Key clauses include job responsibilities, compensation, benefits, and termination conditions. Employers should ensure agreements meet legal standards and include essential clauses to mitigate disputes.

Remote work in Canada has grown significantly, with legal frameworks primarily based on existing employment, human rights, occupational health and safety, and privacy laws. Employers must ensure compliance with provincial employment standards, provide reasonable accommodations for disabilities, maintain a safe remote working environment, and protect personal data under laws like PIPEDA.

Flexible work options include telecommuting, flextime, compressed workweeks, job sharing, part-time work, and leaves of absence. These arrangements enable employees greater control over schedules and locations, supporting productivity and work-life balance.

Terminating an employee in Canada involves compliance with federal and provincial laws, especially regarding notice periods, severance pay, and grounds for dismissal. Notice requirements vary by length of service, with minimums ranging from no notice for less than 3 months to 8 weeks for employees with 8 or more years. For example, the table below summarizes statutory notice periods:

Employers must also consider severance pay, especially for employees with longer service or under specific provincial rules. Ontario, for example, requires severance pay if the employee has at least five years of service and the employer's payroll exceeds $2.5 million, typically amounting to one week's pay per year of service, up to 26 weeks.

Terminations can be "with cause" or "without cause." Just cause involves serious misconduct (e.g., theft, harassment) and requires proof, while without cause allows for termination with notice or pay in lieu, often accompanied by severance obligations. Proper procedural steps—such as documentation, clear termination letters, benefits continuation, and legal review—are essential to mitigate wrongful dismissal risks. Employees are protected against wrongful dismissals, discrimination, and constructive dismissals, with the burden on employers to justify reasons and ensure fair process.

Canada is experiencing a notable increase in independent work, with many professionals opting for freelancing or independent contracting. This trend provides individuals with flexibility and autonomy while allowing businesses to access specialized skills on a project basis. For employers, understanding the legal, contractual, and tax implications of engaging independent contractors is crucial. Misclassification of workers can lead to penalties, including back taxes and legal disputes. The Canada Revenue Agency (CRA) uses a multi-factor test to determine the nature of the relationship, focusing on control, ownership of tools, financial risk, integration, exclusivity, and the intention of the parties involved.

A well-drafted contract is essential for defining the independent contractor relationship, covering elements such as scope of work, payment terms, intellectual property rights, and confidentiality. In Canada, contractors typically retain IP rights unless the contract specifies otherwise. Contractors are responsible for their own tax obligations, including income tax, CPP contributions, and GST/HST if their revenues exceed $30,000 annually. They must also maintain appropriate insurance coverage, such as Commercial General Liability and Professional Liability insurance.

Independent contractors are prevalent across various industries, providing businesses with flexibility and access to specialized skills. Common sectors include IT, creative and marketing, consulting, construction, media, and professional services. These roles often address project-based needs, niche skills, and temporary high-level support, offering strategic value without long-term employment commitments.

Canada offers diverse work permit options tailored to different employment scenarios, with the government prioritizing skilled workers across sectors such as tech, healthcare, and trades. Key permit types include LMIA-based permits, LMIA-exempt permits (e.g., under international agreements), open work permits (for spouses, graduates), and the Global Talent Stream (for highly skilled workers). Employers must often secure an LMIA, costing CAD $1,000, to demonstrate the need for foreign workers, while applicants pay a CAD $155 processing fee and CAD $85 biometrics fee if applicable.

The application process involves obtaining a valid job offer, securing an LMIA if required, submitting documents (passport, proof of education, work experience, funds), and possibly undergoing medical and police checks. Processing times vary, with LMIA-based permits generally taking longer. For those seeking permanent residency, pathways include Express Entry, Provincial Nominee Programs, Atlantic Immigration, and caregiver programs. Foreign workers can bring dependents, with spouses eligible for open work permits and children for study permits, provided they meet relationship and financial proof requirements.

Employers must ensure compliance with immigration laws, including verifying work permit validity, paying prevailing wages, and maintaining safe workplaces. Employees must adhere to permit conditions, work only for authorized employers, and maintain valid status to avoid penalties or deportation.