Your guide to Canada payroll

To hire Canadian workers and effectively manage Canada payroll, employers need to understand both federal and provincial labor laws, tax regulations, and Canadian T4 form requirements.

Or, using a payroll company in Canada or an Employer of Record (EOR) like Payoneer Workforce Management can help streamline the process. 

Payoneer Workforce Management offers support to handle payroll in Canada and 160+ countries without setting up a local entity. 

Canada payroll: Wages and other payments

Even when working with an EOR, it’s still best practice for employers to familiarize themselves with the Canada payroll system, including the payment cycle, salary norms, minimum entitlements, and bonus structures.

1) Payroll cycle

In Canada, employees are typically paid in Canadian dollars (CAD). The standard payment cycle is bi-monthly (15th & last day), although this can vary across different industries. 

Employee wages are typically paid via direct deposit into a Canadian bank account (most common) or by a paycheck (becoming less common).

Canada spans 6 time zones, ranging from Pacific Time (UTC-8) to Newfoundland Time (UTC-3:30). 

Employers should take these time differences into account when processing employee payments. The payment documentation should be in either English or French, depending on the employee’s location. 

2) Minimum wage

The federal minimum wage in Canada is CAD 17.30. However, if the minimum wage in their province is higher, employees should receive the higher wage. 

The current minimum wages by province are listed below. However, these can change, so we recommend checking the government website regularly.

3) Sick pay

Canadian employees in federally-regulated industries may be commonly entitled to 3 – 5 days of paid sick leave per year. 

Sick leave is paid at the normal wage for the usual working hours.

The rules are different on a provincial level, however. Most provinces do not mandate paid sick leave, though jobs are protected for up to 26 weeks of unpaid sick leave. 

4) Severance packages

If a terminated employee has completed 12 consecutive months of employment, their employer must provide severance pay. 

Federally governed severance pay is the greater of:

• 2 days’ regular wages for each full year of employment, or
• 5 days’ regular wages

Severance pay is not required when:

• The lay-off doesn’t result in termination of employment
• The employment contract reached a defined end date
• The contract is terminated for just cause
• The employee terminates the employment contract. 

Entitlements to severance pay can vary by province. We recommend checking local government websites.

Canada payroll: Contributions and deductions

Employers must account for several mandatory taxes, deductions, and contributions when managing payroll in Canada. Again, these can vary by province, so check the local government websites for specific details. 

1) Income tax

Employers must withhold income taxes for their Canadian employees. 

The federal tax rates range from 15% to 33%.

For provincial tax rates and income thresholds, see the Government of Canada Income tax rates and income thresholds. 

3) Employment insurance

Canada’s Employment Insurance (EI) program provides temporary income support to unemployed workers while they seek employment or upskill. It also provides benefits to employees taking time off work for illness, pregnancy, providing care to a newborn or newly adopted child, and more. 

Both employers and employees contribute to Employment Insurance. 

Payroll in Canada: Compliance and best practices

To pay employees compliantly, employers need to open a payroll program account with the Canada Revenue Agency (CRA). 

To set up and manage your employee payroll information, you’ll need:

• The employee’s social insurance number
• To determine the province of employment
• To complete TD1 forms 
• To determine how to increase or reduce the income tax deducted at source

At the end of each year, employers need to file payroll information returns that declare all payroll payments made within the year, including salaries, taxes, contributions, deductions, etc. 

This is done by filling out a Canadian T4 form (also known as a summary form) for each payroll program account held by the business, as well as T4 slips for each employee. 

How to pay remote employees in Canada

Here are some ways to pay international employees:

1. Set up a legal entity: This is an expensive and time-consuming process that requires you to navigate the payroll and employment laws of Canada.
2. Using international payment platforms or wire transfers. 
3. Through an Employer of Record (EOR) or other payroll companies in Canada: Using an EOR like Payoneer Workforce Management helps streamline the process to hire and pay employees in Canada compliantly. 

Book a demo to learn how Payoneer Workforce Management can help.

FAQs

1) How does payroll in Canada work?

1. The employer sets up an account with the CRA.
2. The employer pays their employees, deducting tax and benefits from wages.
3. At the end of the year, the employer files Canada T4 forms.

2) How do you pay employees in Canada?

If you’re a non-Canadian business, you may partner with an Employer of Record (EOR) in Canada. An EOR, like Payoneer Workforce Management, helps simplify hiring and payroll while supporting compliance with local regulations.