Canadian Payroll vs. U.S. Payroll: What’s the Difference? (Updated 2020) | The Payroll Edge | The Payroll Edge

July 11, 2025
BY The Payroll Edge

Uncategorized

March 15, 2020
BY The Payroll Edge
Blog, Canadian Expansion, Payroll Services

Many American business owners see Canada as one of the best places to expand their business, and the same is true of Canadian business owners expanding to the US. Whether you’re operating a branch office in Texas or have an employee or two on the other side of the 49th, you’re probably involved in administering both Canadian and American payroll.

Download our free guide on what US companies need to know about paying employees in Canada.

Many employers remain somewhat unsure of the differences between Canadian and U.S. payroll. The two even seem similar at first! There are many differences, though, and knowing them can help you streamline your payroll operations.

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In Canada, the updated paragraph.

Mandatory Vacation Pay

Canadian employment standards mandate vacation pay. Employees are generally entitled to two weeks of vacation after one year of employment, with the entitlement increasing with tenure. For instance, after five years, the entitlement typically increases to three weeks. In contrast, the U.S. has no federal requirement for paid vacation, leaving it to employers to offer vacation benefits at their discretion.

Termination

In Canada, termination regulations require employers to provide notice or pay in lieu of notice when ending an employment relationship without cause. Severance pay may also be required, depending on factors like length of service and jurisdiction. In the U.S., most employment is “at-will,” meaning employers can terminate employees without notice, provided it’s not for illegal reasons. However, specific state laws and contractual agreements may impose additional obligations.

Standards of employment

Canadian employment standards cover various aspects such as hours of work, overtime pay, minimum wage, leaves of absence, and public holidays. These standards vary by province or territory, requiring employers to be aware of the specific regulations in each jurisdiction where they operate. In the U.S., the FLSA establishes federal standards for minimum wage and overtime, but states can implement their own, often more stringent, employment laws.

Local Expertise

Engaging professionals with local expertise is crucial for navigating the nuanced payroll landscapes of Canada and the U.S. Local experts are familiar with regional regulations and can provide guidance tailored to specific jurisdictions, ensuring accurate and compliant payroll management.

Understanding these distinctions is vital for businesses operating in both countries to ensure compliance and efficient payroll management..

Compliance with Provincial Regulations

In Canada, each province and territory has its own employment standards legislation, affecting various payroll aspects, including minimum wage, overtime, vacation pay, and termination requirements. Employers must ensure compliance with the specific regulations of each province or territory in which they operate.

Risk Mitigation

Non-compliance with payroll regulations can lead to significant financial penalties, legal action, and reputational damage. By adhering to the specific payroll requirements of each country and region, businesses can mitigate risks associated with payroll processing errors and legal non-compliance.

Two Different Countries

Canada is governed by its own laws, rules, and regulations when it comes to payroll. The U.S. also has its own system and regulatory framework. While there are similarities between the two, there are also major differences.

The most fundamental difference is currency. U.S. payroll uses the American dollar as its currency, while Canada uses the Canadian dollar. You’ll also deal with separate tax authorities in the two countries.

In the U.S., the Internal Revenue Service (IRS) is responsible for enforcing payroll regulations. In Canada, you’ll deal with the Canada Revenue Agency (CRA).

Multiple Levels of Law

Another similarity between Canada and the U.S. is that they’re federal states. That means they have multiple levels of government.

Canadian payroll is governed by two separate levels of government: federal and provincial. The federal government dictates law across the country.

Most payroll regulations fall under provincial law. Vacation calculations, for example, are governed by the provinces. Quebec calculates vacation pay one way. Saskatchewan has a different set of rules, as does Ontario.

Most employees also fall under provincial rules, rather than federal employment law. You, as the employer, must be aware of both sets of rules and which ones pertain to you. You’ll also need to be aware of differences between provinces.

In the U.S., the situation is similar, although you’ll need to pay attention to laws at the state level. Federal law provides overarching guidelines, but state law almost always supersedes it.

Different Holidays, Different Wages

American employers should also be aware of different holidays in Canada. While you may give your employees the day off for July 4, your Canadian employees are actually entitled to July 1, Canada Day. It’s a statutory holiday, as are Christmas, Easter, New Year’s, and Thanksgiving, which happens earlier in Canada.

Provinces can schedule holidays too, leading to differences between jurisdictions. For example, only some provinces offer a holiday on the first Monday of August. It’s called different things in different provinces: British Columbia Day in BC, Natal Day in Nova Scotia, and Heritage Day in Alberta. Quebec and Yukon don’t offer this holiday. It’s optional in Ontario.

Since minimum wage is provincially legislated, it varies by province as well. Ontario’s minimum wage and Alberta’s minimum wage are different from each other, and they’re both different from Quebec.

Different Social Programs

American employers also need to take note of various Canadian social programs. The most important for payroll are the Canada Pension Plan and Employment Insurance.

Benefits may also be handled differently than they are in the U.S.

For example, the federal government determines what is and isn’t a “taxable benefit.” Taxable benefits in Canada may not be the same as those offered in the U.S., so it’s important to check.

Get the Assistance You Need

Hire Professionals To Help

Navigating the Canadian payroll system can be complex, even for native Canadian businesses. There are many different factors at play when it comes to calculating Canadian payroll.

American companies may struggle even more with properly calculating Canadian payroll. The different rules can sometimes be confusing. If you don’t know the ins and outs of the system, you might overlook important details.

Get a helping hand by reaching out to the experts at a PEO or other service provider. They know the system and can help guide you through it.

Canadian Payroll vs. U.S. Payroll: What’s the Difference? (Updated 2020) | The Payroll Edge | The Payroll Edge

Updated header 2

Mandatory Vacation Pay

Termination

Standards of employment

Local Expertise

Compliance with Provincial Regulations

Risk Mitigation

Two Different Countries

Multiple Levels of Law

Different Holidays, Different Wages

Different Social Programs

Get the Assistance You Need

Hire Professionals To Help

12 THINGS AN AMERICAN COMPANY

Looking to Pay a Worker in Canada Needs to Know

12 THINGS AN AMERICAN COMPANY

Looking to Pay a Worker in Canada Needs to Know

12 THINGS AN AMERICAN COMPANY

Looking to Pay a Worker in Canada Needs to Know