Despite Canada and the U.S. being very similar with respect to culture and economics in some regards, operating as a foreign business across the border comes with many unforeseen challenges. Perhaps one of the biggest challenges, other than registering as a Canadian business and establishing an administrative presence, is following the country’s complex payroll rules.
Canada requires foreign businesses, whether U.S. or international, to follow all Canadian payroll rules. While this requirement might not sound daunting at the outset, consider the following: Canada’s employment standards are constantly evolving and vary on both the provincial and federal levels. What might be the status quo in Québec, for instance, is not so in Ontario.
With little room for error if you fail to make proper government remittances or pay the right minimum wages, your business’ success rests on making Canadian compliance a priority. One way you can do that is by learning what Canadian payroll rules are the most important to know.
You are required to pay your Canadian employees at least the minimum wage according to their province or territory. Many occupations in Canada have an hourly wage, but there are some exceptions, such as independent contractors who are paid on a project-to-project basis. The minimum wage is also affected by whether you’re hiring students as well as by the type of work being performed.
For instance, in November 2017, updates were made to Ontario’s pay rules with the passing of the Fair Workplaces, Better Jobs act. Ontario employers are now required to pay a minimum wage of $14.00 to most employees, with the rate scheduled to go up to $15 next year. Students and other special minimum wage workers, such as those who serve alcohol, have different minimum rates, which will increase by the same percentage as the general minimum wage over time.
When you hire employees, making the proper deductions from their payroll is crucial. You’ll need to make certain they’ve given you their Social Insurance Numbers (SIN) and their TD1 forms. A TD1 is the form that will help you determine how much tax needs to be deducted from your employees’ employment income. Other deductions include, but are not limited to:
- Canada Pension Plan (CPP)
- Employment Insurance (EI)
As with many Canadian payroll rules, how a TD1 is filed varies in different provinces. Québec is the most notable example, in which employees must use both a federal TD1 and a provincial form called a TP-1015.3-V. Source Deductions Return.
You must make regular government remittances on time for these deductions. Failure to remit or late remittances will result in steep monetary penalties, with additional penalties and interest if you are knowingly avoiding remittances.
Proper Classification of Workers
The definition of an employee versus an independent contractor is also part of Canadian payroll rules. An employee in Canada is entitled to vacation pay, public holiday pay, overtime pay, termination pay, severance pay, and benefits, as well as income deductions for taxes, EI, and CPP. An independent contractor is considered self-employed and therefore not entitled to the same benefits as an employee. You also don’t have to worry about deductions.
Willfully misclassifying your workers in order to avoid having to deal with employee costs is illegal and can result in monetary penalties, prosecution, and public disclosure of your prosecution—none of which, I’m sure you know, is great for your brand’s expansion into Canada. So, make sure you know what defines a worker as an employee or an independent contractor.
While it’s great to have working knowledge of how payroll rules work in Canada, all the variances between provinces can become overwhelming. There’s a lot of contradictory information, which can prevent you from maintaining ongoing compliance.
You shouldn’t leave things to chance handling payroll on your own. An employer of record can make sense of even the most convoluted tax legislation and pay employees for you.