How to hire and pay Canadian contractors

Hiring independent contractors in Canada can be a game-changer for your business. Canada offers a pool of highly educated, English-speaking talent across industries like tech, SaaS, and digital services. 

Whether you’re looking to hire someone from the thriving Canadian startup scene or with experience in established corporations, there is an entire cohort of remote working Canadian contractors eager and ready to work for businesses abroad. This is especially convenient for companies based in North America, where Canadian workers operate in similar time zones.

But if you are looking to hire contractors in Canada, you’ll need to ensure you’re doing it legally and efficiently. This involves understanding the local labor laws, tax systems, and compliance regulations, which is a lot. 

Thankfully, you can do all of this and more without the hassle, thanks to Payoneer Workforce Management.

This guide explains how to hire and pay contractors in Canada, including a brief overview of Canadian labor laws and how Payoneer WFM streamlines the process from start to finish.

How to hire contractors in Canada

Hiring independent contractors in Canada involves several legal and operational steps, including proper worker classification, understanding applicable labor laws, and creating compliant contracts. 

1. Understand contractor vs employee classification

The Canada Revenue Agency (CRA) determines the worker status in most jurisdictions other than Quebec, where it’s determined by the Quebec Civil Code. This is applicable to Canadian employees, but not necessarily Canadian contractors. 

To distinguish between a contractor and an employee in Canada, you need to determine the nature of their work and the benefits they’re entitled to.

The key differences between a contractor and an employee in Canada are:

• Ways of working: Contractors typically have more autonomy and flexibility over the work performed, and provide and use their own tools. 

• Payment: Contractors invoice for their services, while employees receive a salary or hourly wage. 

• Social security contributions: Employers contribute to social security programs for employees, but not for contractors. 

• Taxes: Employers withhold payroll taxes from an employee’s paycheck, not from a contractor’s. 

• Benefits: Employees in Canada receive statutory benefits, such as paid vacation time, paid state holidays, and additional leave. They usually also receive health benefits. Contractors are not entitled to any of these benefits. 

• Notice and severance: Canadian employees are usually entitled to a notice period before termination and severance pay. Contractors are entitled to neither. 

This is why hiring a Canadian contractor can be more cost-effective than hiring an employee. Your organization doesn’t need to cover tax contributions or employee benefits for contractors. 

Misclassifying workers (for example, as contractors while they’re functioning as employees) can result in penalties from Canadian tax authorities and financial reparations from the company to the employee. To avoid this, you need to evaluate the working relationship carefully and refer to guidance from the CRA or check with a specialist on Payoneer WFM.

2. Understand local labor laws

While Canadian contractors aren’t entitled to the same protections as employees, understanding the local labor laws can help you stay on the right side of compliance.

• Minimum wage: As of April 2025, the federal minimum wage is CAD 17.75 per hour. However, minimum wage is set by each province in Canada.
  
• Public holidays and annual leave: Canadian employees are entitled to at least 10 days of annual leave. Canada has five public holidays, but the actual number can vary between provinces. 

• Rights and legal protection: Canadian employees are entitled to several protections, including protection from discrimination and inequity, protection from harassment and violence, protection against dismissal, whistleblower protection, data protection, and some protections in the case of a business transfer.

• Termination: Employers must provide at least two weeks’ notice when dismissing an employee of more than three months, or alternatively make a payment. Thanks to termination protections, there must be a valid reason for the termination, such as employee misconduct. If they have worked at the company for at least one year, the employee is entitled to severance pay of two days’ pay for each year of employment.
  
• Contract terms: Written employment contracts aren’t mandatory in Canada, though it’s common practice to use them to define the terms of employment. 

Despite not being employees, contractors in Canada might still expect you to match some of the above, like working hours and public holidays.

3. Find contractors

There are various ways to find independent contractors in Canada. LinkedIn is a great way to source contracted talent, as are online job boards and directories. Many Canadian professionals list their contract services on freelance networks and other platforms.

Once you’ve shortlisted candidates, be sure to review their portfolios and ask for references to validate their given experience. You may also want to conduct remote phone and video interviews to ensure fit and professionalism.

4. Hire contractors in Canada

Once you’ve selected a contractor, both parties should sign a contractor agreement that defines the scope of work, timeline for completion, payment terms, intellectual property rights, confidentiality, and termination clause. You can also specify the contractor’s classification here to mitigate any future issues. 

How to pay contractors in Canada

Paying Canadian contractors involves choosing the right method, handling tax documentation, and understanding cross-border payment considerations.

1. Determine how to pay 

There are several methods to pay contractors in Canada:

• Bank transfers: While common, bank transfers may involve high fees or long processing times.
• International checks or money orders: This payment method is less common due to delays and complexity.
• Online payment platforms: Hiring and paying contractors can quickly become time-consuming. Payoneer WFM enables quick, secure, and cost-effective payments in multiple currencies.

2. Ensure your Canadian contractors have the right tax information

While Canadian contractors are responsible for managing their own taxes, the hiring company needs to have the correct documentation. 

If the hiring company is based in the US, the Canadian contractor must submit a W-8BEN form or W-8BEN-E form to the Internal Revenue Service (IRS). However, if they are based in Canada but are a US employee or resident, they’ll need to fill out the 1099-NEC form.

The hiring company must send the Canadian contractor a 1042-S form to summarize the income paid to them and declare if any taxes have been withheld. The company should also consider a 1096 form, which acts as a printed copy of payments made to the contractor during the tax year.

3. Pay your Canadian contractor

As mentioned above, workforce management platforms like Payoneer WFM simplify contractor payments by automating transfers, offering local currency options, and minimizing delays. 

When calculating contractor pay, it’s important to consider hidden costs, such as currency conversion costs, transfer fees, and payment frequency. However, you don’t need to factor benefits or tax withholding into your contractor payments, since contractors in Canada are responsible for their own tax filings. 

Why Payoneer WFM is the easiest way to hire and pay contractors in Canada

Payoneer’s workforce management system helps companies hire and pay independent contractors (and full-time employees) in over 160 countries, including Canada, without needing to set up a local entity. 

With Payoneer WFM, you can:

• Onboard new hires quickly and in compliance with local laws
• Manage payroll in multiple currencies with a single click
• Stay updated on and comply with local labor laws
• Automate payment workflows
• Handle everything from taxes and benefits to timesheets and background checks

Canada contractors FAQs

What is an independent contractor in Canada?

An independent contractor in Canada is a self-employed worker who offers services to businesses under a contract. They have more control over their work, but are not entitled to employee benefits and handle their own taxes. 

Contractors in Canada can be hired either as independent contractors through an Agent of Record (AOR). 

Can a US company hire a foreign independent contractor?

Yes, US companies can hire foreign independent contractors. To do so legally, you must:

• Correctly classify the worker
• Create a compliant contract
• Collect the correct tax forms
• Use a global workforce management platform like Payoneer WFM

How to hire a Canadian for a US company?

There are three main ways to hire a remote worker in Canada:

1. Through an independent contractor agreement: This method is quick and cost-effective, but requires a lot of red tape.
2. Through an Employer of Record (EOR): A third-party service like Payoneer WFM can act as the legal employer in Canada, handling taxes, payroll, and benefits.
3. Set up a Canadian legal entity: This approach is costly and time-consuming, but is sometimes used by global enterprises expanding permanently into Canada.