American companies looking to operate in Canada have to keep in mind that despite the cultural and economic similarities, there are significant differences between Canadian and American payroll. Business executives hiring Canadian employees must pay them according to Canadian laws and regulations. To do so compliantly, you’ll need to understand Canadian payroll tax deductions, payroll tax brackets, employment law, and more. 

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When you’re American, complying with Canadian payroll regulations when engaging Canadian talent can be overwhelming. Working with an employer of record (EOR) in Canada to handle these details will ensure you have the right expertise to stay compliant. Having a greater understanding of the differences between US and Canadian payroll can also help.

Canadian Payroll Varies by Province 

Federally, you should understand labour codes, register with the Canada Revenue Agency (the Canadian version of the Internal Revenue Service), and get to know proper payroll procedures and systems of tax deductions. It gets more complicated from there, though. American employers looking to enlist the Canadian market need to be aware of the way many regulations also vary by province. 

There are 10 Canadian provinces and three territories, each with its own distinct set of regulatory rules. Understanding Canadian payroll means that your business has to know the specifics of the province or territory where you operate and where your employees live.

The Basics: Holidays, Minimum Wage, and Tax Deductions

It takes a dedicated expert with experience to accurately navigate the difference in payroll systems between the USA and Canada. That being said, there are a few basic differences that it would pay to know: the currency is the Canadian dollar (CAD), the chief source of tax information is the Canada Revenue Agency (CRA), the tax year ends on December 31st, and national statutory holidays include Canada Day (July 1), Labour Day, and Christmas Day (December 25). 

Holidays vary from province to province, though, and so do the dates that citizens observe the holidays. 

Canadian minimum wage also differs from the American equivalent: depending on the province, minimum wage can range from $11.65 to $14.60, with factors such as industry type potentially affecting those numbers.

When it comes to payroll tax deductions, you’ll need to calculate the employee’s wages then deduct the appropriate amount of federal and provincial income tax based on their tax bracket. You’ll also need to deduct Employment Insurance (EI) premiums and Canada Pension Plan (CPP) dues. The taxes you deduct will then need to be remitted to the Canada Revenue Agency (CRA) by specific deadlines. 

At-Will Employment

One big difference between the US and Canada is that at-will employment does not exist north of the border. If you plan to fire an employee in Canada, you must either give them sufficient notice or pay in lieu of notice. While what is considered sufficient notice varies by province, the employee’s age, length of service, character of employment, and availability of comparable employment must also be considered. 

This makes the process of termination a lot more complicated (and costly) in Canada. 

Non-Compete Agreements 

When signing contracts with employees, it’s important to protect your business in order to ensure that workers who leave your company don’t take your clients with them. When it comes to understanding Canadian payroll, it’s important to know that the rules regarding non-compete agreements differ between Canada and the US. 

In many instances where US companies try to get Canadian workers to sign non-compete agreements, the contracts end up being too problematic. For example, agreements that specify that an employee cannot compete for a long enough period of time in a certain geographic area can be easily discounted in court. Understanding Canadian payroll means knowing that Canadian law tends to side with the employee regarding non-compete clauses.

Make It Easy

There are so many differences in payroll between Canadian and American business systems that it can be time consuming and risky to try to manage payroll on your own when entering the Canadian market. 

Partnering with an employer of record (EOR), a service that will take over your HR responsibilities just like a back office service provider, can ensure you stay compliant. EORs can help you craft the best possible agreements while always keeping you on top of payroll details and legal compliance with regulatory agencies. You can stay on top of issues like maternity leave, vacation, payroll tax calculations, and retirement plans without having to be an expert yourself—let the pros handle the work so you can focus on growing your business with the help of Canadian talent.