Are you an international employer hiring your first employee(s) in Canada? If so, chances are you're likely new to Canadian payroll, or have questions about hiring and paying Canadian employees in compliance with government regulations. The good news is, you're in the right place. Over the past 20 years, we've helped hundreds of international employers set up and run Canadian payroll. In this blog we will go over everything from setting up your entity or EOR in Canada, to health & benefit plans, to paying your employees in compliance with Canadian payroll legislation. Feel free to read through the information below or simply click on the links to navigate directly to the specific section you're interested in:
- Setting up an entity or employer of record (EOR) in Canada
- Setting up a Canada Revenue Agency (CRA) payroll account
- Employee health and benefit programs
- Canadian payroll deductions & remittances
- Worker's Compensation and Employer Health Tax
- Canadian payroll resources
Setting Up and Entity or EOR in Canada
When it comes to setting up and paying your employees in Canada, you have two main options to consider. The first option is to register for a Canadian Business Number as a non-resident business, allowing you to establish an entity within Canada. This route gives you the ability to directly manage your payroll operations in compliance with Canadian regulations.
Alternatively, you can opt to partner with a global organization like Velocity Global, who can serve as your employer of record in Canada. By choosing this option, you can streamline the payroll process and ensure that all payments are made in accordance with Canadian laws and requirements.
Setting Up a CRA Payroll Account
If you choose to go the EOR route, you won't need to worry about this step. However, if you have decided to register as a Canadian entity, you will need to set up a payroll account with the Canada Revenue Agency (CRA). Setting up a CRA payroll account is necessary to ensure that you properly collect and remit payroll deductions including income tax (both federal and provincial), Employment Insurance contributions(E.I) and Canadian Pension Plan contributions (CPP). Once you have registered for a CRA Payroll Account, you will be assigned a program account number which will include your 9 digit business number and payroll account program code (typically ending in RP0001). The CRA will also notify you of your remittance frequency, or you can log into your my CRA business account to find out your assigned remittance frequency.
Employee Health and Benefit Programs
While the Canadian government covers basic healthcare for residents, it is customary for Canadian employers to offer additional health and dental benefits to their employees. Although not mandatory, providing these benefits can enhance workforce support and attract top talent to your organization. If you are working with a provider already and want to integrate health benefit contributions with payroll, you will need to gather the following information:
- A breakdown of what benefits are included in your plan
- The policy number & provider name
- The plan design (booklet)
- Employer/employee split (what % of the benefit plan is paid by each)
- The most current statement/invoice from the provider
- Benefit rates sheet & renewal rates
If you haven't chosen a benefit provider and are interested in plan options, PayTrak Protect is available in conjunction with PayTrak's payroll services. For more information about benefit programming, contact us directly or ask your payroll representative for more information.
Canadian Payroll Deductions & Remittances
When it comes to Canadian payroll deductions and remittances, it's essential to understand the obligations and processes involved in ensuring compliance with government regulations. As an employer in Canada, you are responsible for deducting income tax, Employment Insurance contributions (E.I), and Canadian Pension Plan contributions (CPP) from your employees' paychecks. These deductions must be accurately calculated and remitted to the CRA on a regular basis.
Income Tax
Employers bear the responsibility of deducting federal and provincial income taxes from their employees' pay. The specific deduction amount is contingent upon the employee's taxable income and the province of their employment. Federal tax rates can be accessed in the provided chart for reference. Visit the CRA website for provincial income tax rates or download The Ultimate 2024 Canadian Payroll Guide here.
Canada Pension Plan (CPP) Contributions
Both employees and employers are mandated to contribute to the CPP, offering retirement pension and additional benefits. Self-employed individuals are also required to contribute. The CPP contribution rate is determined by the government and is based on the employee's income, with a maximum yearly limit in place. Contributions to CPP are compulsory for workers aged 18 and above. Starting January 1, 2024, the deduction of the second additional CPP contributions (CPP2) will apply to earnings exceeding the annual maximum pensionable earnings. Read more about the 2024 changes to CPP contributions here.
Employment Insurance (EI) Premiums
Both employees and employers are required to contribute to the EI program, which offers temporary financial support to individuals facing unemployment or inability to work due to various reasons. The EI premium rate is determined by the government and is calculated based on the employee's insurable earnings.
Additional deductions may encompass union dues, pension plan contributions, and other voluntary deductions as outlined in employment agreements.
Worker's Compensation & Employer Health Tax
In addition to the above, you'll need to register your business for a Worker's Compensation account, depending on your industry and province of registration. Worker's Compensation is meant to insure employees who have suffered a work-related injury or illness. Typically, payroll service providers can calculate and (sometimes) deduct and remit on your behalf. PayTrak can handle this aspect of your payroll calculations and deductions, if you provide us with your account number and rate (provided to you upon registration). See links below for province-specific worker's compensation programs:
Alberta
British Columbia
Manitoba
New Brunswick
Newfoundland and Labrador
Northwest Territories
Nova Scotia
Nunavut
Ontario
Prince Edward Island
Quebec
Saskatchewan
Yukon
Regarding Employer Health Tax (EHT): EHT is a payroll tax imposed on Canadian businesses based on the total remuneration paid to employees. The tax rates may vary by province, with a percentage of the remuneration calculated, deducted, and remitted to the provincial body responsible for overseeing payroll taxes. This tax serves the purpose of generating revenue to support essential services such as healthcare and post-secondary education.
*IMPORTANT: Businesses with employees in the Northwest Territories or Nunavut are also subject to a unique payroll tax. This tax is not classified as employer health tax but rather as a deduction from the gross remuneration of employees. More information below:
Northwest Territories & Nunavut Payroll Tax
British Columbia Employer Health Tax
Manitoba Health and Post Secondary Education Tax
- Health and Post Secondary Education Tax Overview
- Health and Post Secondary Education Tax Bulletin - Important Information
Ontario Employer Health Tax
Quebec Health Services Fund
Newfoundland & Labrador Health and Post Secondary Education Tax
- Health and Post Secondary Education Tax overview
- Exemption threshold adjustments (2011)
- Tax administration contact page
Canadian Payroll Resources
In conclusion, navigating Canadian payroll can be complex, but with the right resources and knowledge, you can ensure compliance and smooth operations. Whether you choose to set up your own entity or partner with an employer of record, understanding payroll deductions, benefits, and remittances is crucial. By utilizing a Canadian payroll service provider like PayTrak and staying informed on the latest regulations, you can successfully manage your payroll in Canada. Remember, seeking guidance from experts and utilizing available tools will help you streamline the process and focus on growing your business. Stay informed, stay compliant, and empower your workforce with the best payroll practices in Canada.
Check out our resource page for more information
Download PayTrak's 2024 Ultimate Payroll Guide
Download PayTrak's 2024 Payroll Calendar
