Businesses looking to hire Canadian workers generally have three main options: partnering with an Employer of Record (EOR), registering for a Non-Resident Business Number, or incorporating and obtaining a Canadian Business Number. An EOR allows companies to outsource employment responsibilities, making it a solution for those not ready to establish a formal presence in Canada. Alternatively, a Non-Resident Business Number enables foreign entities to directly hire and pay Canadian employees without incorporating, though this requires compliance with Canadian payroll and tax laws. For companies planning long-term operations, registering as a Canadian business and obtaining a Business Number provides full control but comes with greater regulatory obligations.
In this blog we'll cover:
- How to pay employees in Canada: overview for foreign employers
- Using an Employer of Record in Canada
- Registering for a Non-Resident Business Number
- Obtaining a Canadian Business Number
- Payroll & tax requirements in Canada
How to Pay Employees in Canada: Overview for Foreign Employers
First, it is useful to distinguish between paying employees vs. paying contractors with work agreements in Canada. Below, we've create a checklist which outlines, in accordance with Canadian legislation, what factors dictate an employee or contractor designation.
Employee Classification Checklist
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The employer controls what tasks the worker performs and how they are completed.
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The employer sets the work schedule, hours, and location.
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The employer provides tools, equipment, and materials needed for the job.
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The employer supervises or directs the worker's activities.
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The worker is integrated into the employer’s business (e.g., part of staff operations or teams).
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The employer provides training or guidance related to the role.
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The employer covers business-related expenses.
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The employer is responsible for deducting and remitting Canada Pension Plan (CPP), Employment Insurance (EI), and income tax from wages.
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The worker is entitled to employment benefits, such as paid vacation, sick leave, and possibly health or dental coverage.
Contractor Classification Checklist
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The contractor determines how and when the work is completed, with minimal supervision from the employer.
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The contractor supplies their own tools, equipment, and workspace.
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The contractor may hire assistants or subcontract the work without the employer’s involvement.
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The contractor assumes the risk of loss or opportunity for profit from the work performed.
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The contractor invoices the employer for services rendered, typically by project, milestone, or on a retainer basis.
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The contractor is not integrated into the employer’s regular business operations or internal teams.
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The contractor typically works with multiple clients, not just one.
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The employer does not deduct Canada Pension Plan (CPP), Employment Insurance (EI), or income tax from payments.
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A formal agreement is in place that clearly defines the business-to-business relationship.
Pay Requirements for Employees
In Canada, payroll requirements differ significantly between employees and independent contractors. For employees, the employer is legally required to manage payroll deductions, including income tax, Canada Pension Plan (CPP) contributions, and Employment Insurance (EI) premiums. These amounts must be deducted from the employee’s gross pay and remitted to the Canada Revenue Agency (CRA) on a regular schedule, along with the employer’s share of CPP and EI. Employers must also issue T4 slips (or RL1 in Quebec) annually to report employment income and deductions.
Pay Requirements for Contractors
In contrast, for independent contractors, the employer does not withhold or remit any taxes or contributions. Instead, the contractor is responsible for charging applicable GST/HST (if registered), managing their own income tax, and making their own CPP contributions through annual tax filings. The employer typically issues a T4A tax slip if total payments exceed $500 for services provided. Proper classification and payroll handling are essential to avoid penalties.
Year-End Tax Implications
Employees – Tax Filing Requirements
Employees in Canada must file an annual personal income tax return (T1 General) with the Canada Revenue Agency (CRA), typically due by April 30 of the following year. Employers are responsible for deducting income tax, Canada Pension Plan (CPP) contributions, and Employment Insurance (EI) premiums directly from employees’ pay and remitting them to the CRA. At the end of the tax year, the employer must issue a T4 slip, which outlines the employee’s total earnings and the amounts deducted. Employees use this slip to complete their tax return. Since taxes are deducted at source, most employees have little or no additional tax owing when they file—though they may receive a refund or owe a small balance depending on other income or credits.
Independent Contractors – Tax Filing Requirements
Independent contractors, considered self-employed individuals, have broader tax responsibilities. They must file a T1 General return and complete the T2125 – Statement of Business or Professional Activities to report business income and expenses. Contractors are responsible for calculating and remitting their own income tax and both the employee and employer portions of CPP contributions. Unlike employees, no taxes are deducted at source, so many self-employed individuals make quarterly installment payments to the CRA to avoid a large tax bill at year-end. Additionally, if the contractor earns more than $30,000 in gross revenue over four consecutive calendar quarters, they must register for GST/HST, charge it to clients, and file periodic GST/HST returns.
Proper record-keeping is essential for both groups, but particularly for contractors, who must track income, expenses, and HST/GST collected or paid. For more information, refer to the CRA’s Self-employed income guide (T4002) and Installment payments for individuals.
Using an Employer of Record in Canada
An Employer of Record is a third-party company that hires and pays employees on your behalf in Canada. With an EOR, you don’t need to register a local business or set up a Canadian payroll system—they handle everything from tax withholdings to compliance with Canadian employment laws. This option is great if you want to get started quickly, avoid the paperwork of registering a business number, and ensure you're 100% compliant.
When a company partners with an Employer of Record (EOR), they divide responsibilities to make international hiring simple and compliant. The EOR handles all the legal, tax, and administrative aspects of employment—like payroll, benefits, and ensuring compliance with local labour laws—while the hiring company directs the day-to-day work and performance of the employee.
For example, imagine a company based in London, UK wants to hire a remote marketing specialist based in British Columbia, Canada, but doesn’t want to go through the process of setting up a Canadian business number or local entity. Instead, they partner with a Canadian EOR that already has a legal presence in B.C. The EOR officially employs the worker and takes care of everything from payroll taxes to statutory benefits, while the UK company manages the employee’s projects, performance, and workload. It’s a fast and compliant way to get up and running in Canada—especially useful for short-term needs or testing the market.
The downside? EOR services typically come with higher ongoing costs and you’ll have less control over the employment relationship. It's ideal for short-term hires or if you're testing the Canadian market before committing long-term. Learn more about how EORs work in Canada from this Government of Canada resource on employment responsibilities.
Registering for a Non-Resident Business Number (NRBN) in Canada
A Non-Resident Business Number is issued by the Canada Revenue Agency (CRA) to foreign companies that want to do business in Canada—such as hiring employees—without incorporating a Canadian entity. It allows you to set up a Canadian payroll account and meet all necessary tax remittance and withholding obligations as a non-resident employer. To apply, you'll need to complete Form RC1: Request for a Business Number, which can be submitted by mail or fax to the CRA's non-resident tax services office. You can find the form and full instructions on the CRA website here. Once you're registered, you’ll be responsible for correctly calculating and remitting Canada Pension Plan (CPP), Employment Insurance (EI), and income tax deductions for your Canadian employees. This option is best for companies that plan to hire in Canada longer-term but don’t need a full legal presence or incorporation.
Often, businesses with a NRBN will outsource their payroll processing to ensure compliance with Canadian payroll legislation. PayTrak offers payroll services to businesses who have attained their NRBN to simplify payroll processing for Canadian employees and guarantee compliance with local legislation - no matter where your employees are located in Canada. Outsourcing to a Canadian payroll provider is highly recommended for businesses who are new to Canadian payroll or have limited knowledge of local legislation.
Incorporate and Obtain a Canadian Business Number (BN)
If you're planning to hire in Canada for the long term or want to establish a local presence, the most formal route is to incorporate a Canadian company and register for a Business Number (BN) with the Canada Revenue Agency (CRA). A BN is a unique identifier that allows you to open a payroll account, charge GST/HST, file taxes, and more.
🧾 How to Incorporate and Get a Canadian Business Number:
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Choose federal or provincial incorporation:
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Federal incorporation lets you operate across Canada and register extra-provincially.
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Provincial incorporation (e.g., in British Columbia or Ontario) is simpler if you’ll operate in one province.
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Start here: Federal Incorporation via Corporations Canada or check provincial portals.
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Register for a Business Number (BN) through the CRA
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You’ll be assigned a 9-digit BN as part of the incorporation process.
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Once registered, you'll also open program accounts for payroll (RP), corporate income tax (RC), GST/HST (RT), etc.
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Apply online or by phone through the CRA Business Registration page.
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Stay compliant with payroll deductions, tax filings, corporate recordkeeping, and remittances (CPP, EI, income tax).
This option gives you full control over operations in Canada—but also comes with more administrative responsibility. That’s why many companies choose to outsource payroll to trusted providers like PayTrak Payroll Services, who can manage tax remittances, direct deposits, ROEs, and compliance on your behalf—similar to the convenience of hiring through a Non-Resident Business Number, but with the control and flexibility of your own Canadian entity.
Payroll and Tax Compliance Requirements in Canada
Below, we've include a high-level overview of important payroll compliance consideration in Canada. It is important to note that there are special considerations when hiring employees in Quebec that are not detailed below. For more information, visit our Resource page or check out PayTrak's Payroll Blog.
1. Mandatory Payroll Deductions
When paying employees in Canada, you must deduct and remit the following from each paycheck:
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Canada Pension Plan (CPP)
Contributions required from both employer and employee (unless employee is in Québec, which uses QPP).
CRA CPP info -
Employment Insurance (EI)
Also required from both employer and employee (with different rates for Québec).
CRA EI info -
Federal & Provincial Income Tax
Withheld based on employee’s total income and province of employment.
CRA tax tables
2. Remittance Schedules
Employers must send deductions to the CRA on a regular schedule, based on the size of your payroll. Generally, the schedule is as follows, however if you are unsure we recommend contacting the CRA directly for confirmation. Late remittances are costly and penalties add up quickly.
Remitter Type | Payroll Size | Due Date |
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New/Small | < $25,000/month | 15th of the following month |
Regular | $25,000–$99,999/month | 15th of the following month |
Accelerated | $100,000+/month | 2 or 4 times per month |
3. T4 Slips & Year-End Reporting
At year-end, you must issue the following:
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T4 slips to each employee by end of February
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T4 Summary to the CRA (lists all employee earnings and deductions)
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If operating in Québec, you’ll also file RL-1 slips with Revenu Québec.
✅ Simplify with a Payroll Provider
Managing this manually increases risk of errors and penalties. Many companies choose to outsource Canadian payroll to trusted providers like PayTrak Payroll Services, who handle:
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All tax calculations and remittances
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Direct deposit and ROEs
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T4 generation and year-end reporting
Conclusion: Choosing the Right Payroll Solution for Your Canadian Team
Hiring in Canada comes with clear compliance responsibilities—whether you're employing one remote worker in British Columbia or building a long-term local presence. Depending on your business goals, timeline, and risk tolerance, you have three proven options:
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Partnering with an Employer of Record (EOR) for speed and simplicity
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Registering for a Non-Resident Business Number (NRBN) to directly employ Canadians without incorporating
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Or fully incorporating and obtaining a Canadian Business Number (BN) for long-term, strategic expansion
No matter which path you choose, you’ll be responsible for staying compliant with Canadian payroll legislation, including proper deductions (CPP, EI, income tax), remittance schedules, and year-end reporting (T4s).
To reduce complexity, outsourcing payroll to a trusted Canadian provider like PayTrak Payroll Services can help ensure accuracy, avoid penalties, and give you peace of mind—whether you're managing payroll through an NRBN or a newly incorporated Canadian entity.
💡 Need help choosing the best setup or want a second opinion?
Reach out to the PayTrak team for a no-pressure consultation. We’ll walk you through your options and help you land on the most efficient and compliant path forward.