Our guide to Payroll in Canada

Doing Business in Canada

Investing in Canada

The Canadian Government welcomes inward investment in Canada with attractive incentives being available for foreign investors. Canada’s political stability and highly skilled workforce provide many investment opportunities for companies considering expanding their operations in the country. Both Forbes and Bloomberg rated Canada as the best place to do business in the G20 while, from 2006-2015, Canada led the G7 in terms of economic growth. Canada also has the lowest tax rates, and the lowest cost of doing business (for R&D based organisations) of the G7 countries. With the Comprehensive Economic Trade Agreement coming into effect in 2016, Canada now enjoys access to the diverse markets of both Europe and North America (through NAFTA).

General Information:

Full Name: Canada

Population: 38.01 million (World Bank, 2020)

Capital: Ottawa

Largest City: Toronto

Major Languages: English, French (Both Official)

Major Religion: Christianity

Monetary Unit: 1 Canadian Dollar = 100 Cents

Main Exports: Machinery and Equipment, Automotive Products, Metals and Plastics, Forestry Products, Agricultural and Fishing Products, Energy Products

GNI Per Capita: $ 47,500 (World Bank, 2020)

Internet Domain: .ca

International Dialing Code: +1

How to say in French:

Hello: Bonjour

Good Morning: Bonjour

Good Evening: Bonsoir

Do You Speak English? Parlez-Vous Anglais

Good Bye: Au Revoir

Thank You: Merci

See You Later: à plus tard

Registrations and Establishing an Entity

Any company wishing to operate in Canada must decide whether operations will occur within a single province or throughout Canada. If business will be conducted all over the country, the corporation must register both federally and within the individual provinces that the business will be conducted in.

Please note, it is recommended that a lawyer or an accountant evaluate all considerations.

All businesses operating in Canada are required to register with the Canadian Revenue Agency to receive a business number. This number will allow the business to pay or claim Sales Tax, Income Taxes and Payroll Taxes.

In addition to registering a business number, some entities may be required to register with provincial Workers Compensation boards, provincial heath tax boards or other applicable provincial agencies.

Please refer the provincial government requirements for specific details.

Banking

It is not mandatory to make payments to both employees and the authorities from a Canadian bank account. Core banking hours for the public are from 9.00 am to 5.00 pm.

Working Week

The standard business week in Canada is Monday to Friday, generally working 40 hours per week (8 hours per day).

Employment Law

Vacation/Holiday Accrual

Vacation/Holiday entitlement varies by province, but paid vacation is typically accrued based on a percentage of earnings.

Provincial Standards:

Maternity/Paternal Leave

Every jurisdiction has legislation regarding maternity/pregnancy leaves.

Some jurisdictions also legislate parental, paternal, adoption and child care leaves. Maternity leave, also called pregnancy leave in some jurisdictions, can only be taken by the birth mother. Parental, adoption and child care leaves can be taken by natural or adoptive mothers and fathers.

Maternity (Pregnancy) leave ranges from 16-17 weeks based on jurisdiction.

Paternal leave ranges from 35 - 77 weeks based on jurisdiction, and in some cases based on whether pregnancy leave was taken.

Payments for this leave are issued by the Service Canada (Employment Insurance) office. The employer has the option to top up the employee’s maternity leave but this is not an obligation.

Some jurisdictions also allow paid or unpaid pregnancy leave in the case of a stillbirth or miscarriage.

Sickness

In Federal jurisdiction, Manitoba, New Brunswick, Northwest Territories, Nova Scotia, Prince Edward Island, Québec, Saskatchewan and the Yukon, employees are allowed unpaid sick leave from three days to 26 weeks based on the jurisdiction.

British Columbia:

Effective January 1, 2022, you can take up to 5 days of paid leave per year for any personal illness or injury. Your employer may request reasonably sufficient proof of illness.

This entitlement is in addition to the 3 days of unpaid sick leave currently provided by the Employment Standards Act. You must have worked with your employer for at least 90 days to be eligible for the paid sick days.

Quebec:

Employees receive up to two paid sick days per year and up to 26 weeks unpaid job-protected leave in a 12-month period.

The remaining jurisdictions rely on employer sick leave policies or general/emergency leave provisions in their legislation to cover individuals who are absent due to illness. This is specific to the employer.

National Service

There is no mandatory National Military Service in Canada.

Tax & Social Security

The tax year runs from 1 January to 31 December.

Filing taxes by a third party (such as an accountant, bookkeeper, or tax preparer) on behalf of a business involves formally authorizing them with the tax authority to access account information, file returns, and manage payments. In Canada, this is done through the Canada Revenue Agency (CRA) My Business Account or using specific authorization forms.

An authorized representative is an individual or a business who the taxpayer has given permission to represent them in communications with the Canada Revenue Agency (CRA). An authorized representative can be a family member, a friend, a tax professional, or a business.

The CRA may charge you a penalty if you file your T4 information return late. The penalty is based on the number of T4 information returns you filed late. The minimum penalty is $100.

Canada has multiple remittance frequencies for a variety of Federal and Provincial statutory tax deductions that will be outlined in this document. Remittance frequencies and rates are generally provided by the Ministries based on company’s gross payroll earnings.

The key payroll submission dates are as follows:

Taxation

Canadian employers are responsible for calculating, withholding, reporting, and remitting all employee and employer tax deductions based on their employees’ gross payroll to all applicable government parties.

When you pay employment income such as salaries, wages or commissions, the employee's province or territory of employment (POE) must be determined so that the proper deductions are withheld. This depends on whether your employee “reports for work” at any of your establishments.

The POE is determined by:

• the type of income
• the residency status of the employee
• the establishment of the employer where the employee reports for work

For income tax, CPP and EI withholding purposes, an establishment of the employer is any place or premises in Canada that is owned, leased or rented by this employer where employees report to work or from which employees are paid. For purposes of the POE, this does not need to be a permanent physical location.

Determine the province of employment (POE) - Canada.ca

Federal Remittance Types

Federal Tax

based on employees’ taxable gross calculated on the employees’ earnings tax bracket

Provincial tax (excluding Quebec)

based on employees’ taxable gross calculated on the employees’ earnings tax bracket

Quebec Remittance Types

Provincial tax

based on employees’ taxable gross calculated on the employees’ earnings tax bracket

Canadian Pension Plan & Quebec Pension Plan

Remittances to the Canadian Pension Plan (CPP) are remitted based on the remittance frequency.

Employers must also contribute the same amount of CPP or QPP (if in Quebec) that you deduct from your employee’s remuneration. This is contributed until the salary or wages paid to the employee for the year reach the maximum pensionable salary or wages for the year. CPP (excluding Quebec) is based on employees’ pensionable earnings.

Employee and employer premiums required.

QPP is based on employees’ pensionable earnings. Employee and employer premiums required.

Employment Insurance

EI (excluding Quebec) is based on employees’ insurable earnings. Employee and employer premiums required

Reporting & Remittance Frequency

The Workers’ Compensation Board is funded solely by employers. The board’s responsibility is preventing disability. They do that by providing compensation, service and support to workers injured on the job. They also promote workplace safety through training, inspection and compliance and investigations. **Rates below are for 2025

Ontario Employer Health Tax

Employer paid, calculated based on employee gross earnings. An exemption may be applicable if the company qualifies based on EHT ruling. Associated companies must share the exemption between them - There is no exemption amount available if you or your associated group of employers has more than $5 million of annual payroll. An employer is not eligible to claim an exemption if associated companies have already claimed the full exemption.

Quebec Health Service Fund

Employer paid, calculated based on employee gross earnings. An exemption may be applicable if the company qualifies based on QHSF ruling.

The 2024 Total Quebec Remuneration is as follows:

Manitoba Health and Post-Secondary Education Tax Levy (HET)

Employer paid, calculated based on employee gross earnings.

Newfoundland Health and Post-Secondary Education Tax (HAPSET)

Employer paid, calculated based on employee gross earnings. An exemption may be applicable if the company qualifies based on HAPSET predetermination

British Columbia Employer Health Tax

Employer paid, calculated based on employee gross earnings. An exemption may be applicable if the company qualifies based on EHT ruling.

If you are associated with other employers and the combined B.C. remuneration of the associated employers is between $1,000,000.01 and $1,500,000, you must share the $1,000,000 exemption. If the combined B.C. remuneration of the associated employers is greater than $1,500,000, there is no exemption available to any of the employers.

Payroll

It is legally acceptable in Canada to provide employees with online pay slips providing acceptance received from the employee. You are required to provide the pay slips in the employee’s language of choice (English or French).

Reports

In Canada, you must keep payroll records for at least six years after the end of the tax year to which they relate, as required by the Canada Revenue Agency (CRA) for tax purposes, and sometimes longer for federal labour standards (like 36 months after employment ends). This covers pay stubs, payroll registers, CPP/EI records, and Record of Employment (ROE) info, ensuring compliance for audits and remittances.

Payslip Example

New Employees

Employees must be eligible to work in Canada and are required to have a valid Social Insurance Number. Employees must be registered on the payroll upon receipt of their Social Insurance Number (SIN).

The information required for setting up a new employee is as follows:

• Name

• Date of Birth

• Citizenship/Legal Status

• Residential Address

• Telephone Number

• SIN Number

• Bank Account Details (Void Cheque/Direct Deposit slip)

• Employee’s employment contract information

• Collective Agreement information (If applicable)

• Employee Tax Details (TD1/TP-1015.3-V forms)

• Benefit/Pension Enrolment or Waiver forms (If applicable)

• Electronic Pay Statement, T4/RL1 Authorization form

• Work Location/Province of Employment

Employers are required to ensure new employees are aware that they have to complete a TD1, both Federal and Provinial TD1 forms as applicable

Leavers

Employees whose employment is terminated must be paid within a certain number of days from their last day worked, particularly if their employment was terminated by the employer. Final payment date will be driven by provincial legislation. Most companies simply pay at the next pay date.

For terminated employees the requirements are to detail the reason for termination, the effective date and provide clarification and payment if there are any outstanding items such as bonuses or days due for vacation.

The employer must issue a Record of Employment (ROE) within provincially driven calendar days after the end of the pay period that the interruption of earnings occurred. Failure to do so could result in a fine of up to $2,000.00 and / or imprisonment of up to six months.

Employee Benefits

Typical benefits provided in Canada include the following:

• Health Care Plans – Taxable Benefit in Quebec

• Dental Care Plans – Taxable Benefit in Quebec

• Disability Coverage – Can be taxable (depends on the coverage)

• Life Insurance – Taxable Benefit in Canada

• Accidental Death & Dismemberment – Taxable Benefit in Canada

• Registered Retirement Savings Plan – Pension Adjustment

• Tax free Savings Account

• Pension (Define Contribution or Define Benefit) – Pension Adjustment

Employers generally contribute a portion of the premiums (usually at least 50%). Certain employer paid benefits are considered a taxable benefit to the employee and statutory and source deductions must be calculated on the benefit cost. The taxable benefits must be reported on the Canadian tax slips (T4, T4A, RL1, RL2…) in the applicable boxes.

Visas & Work Permits

Depending upon the foreign worker’s country of citizenship, a Temporary Resident Visa may also be required in order to enter Canada.

Before a Canadian Work Permit request will be considered or processed a written job offer from an employer to the potential future employee is required to be submitted.

Once a potential future employee receives a written job offer in most cases it is then subject to confirmation by Human Resources and Skills Development Canada (HRSDC) who will assess the likely impact of employing a foreign national in the position in question, to ensure that the employment is genuine and that it will not impact negatively on the domestic labour market.

With the exception of persons who have been granted protected person status and of those who are applying for refugee status, all applicants must meet the following requirements:

Have a valid passport or other travel document issued by their country of residence

• Be in good health (a medical exam may be required)

• Provide proof that they have sufficient funds to support their stay in Canada

• Demonstrate that their stay in Canada is temporary

• Not have a criminal record, nor be considered a security risk

In addition, other employer specific criteria may apply.

In most cases, foreign workers must have obtained a labor market opinion from their potential employer before applying for a Work Permit.

• Employers must register with both federal and provincial authorities, depending on the scope of operations.
• Core banking hours for the public are from 9:00 AM to 5:00 PM.
• Canadian payroll systems must accommodate both English and French languages for pay slips.
• Most tax documentation (e.g. TD1, T4, RL1, etc.) is bilingual.
• Recordkeeping for payroll must be maintained for 36 months.
• Vacation policies, minimum notice periods, and employment standards vary by province (e.g. Ontario vs. Quebec).
• Remittance schedules for taxes and social contributions vary by province and company size.
• Some jurisdictions (like Quebec) have unique deductions and requirements separate from federal standards.
• Penalties for late ROE submission include possible fines or imprisonment.
  
  

Further Information

For more information, or assistance with Canada Tax enquiries please contact: gi@activpayroll.com

About This Payroll and Tax Overview

Please note that this document gives general guidance only and should not be regarded as an authoritative or complete statement of the law, regulations or tax position in any country. You should always seek specific advice for each specific situation. This document should not be relied upon as professional advice and activpayroll accepts no liability for reliance on its contents.