Hire employees in Canada using an Employer of Record

You need someone in Canada by next quarter. Your lawyer just said entity setup takes 6 months minimum. The math doesn't work.

Setting up a Canadian subsidiary means incorporating federally or provincially, getting a business number from the Canada Revenue Agency, registering for GST/HST and payroll accounts, setting up workers' compensation, and dealing with provincial employment standards. That's easily $15,000-$40,000 upfront plus 4-6 months you don't have.

You've got three options to hire in Canada legally. The right choice depends on your timeline, budget, and how many people you're planning to hire.

Option 1: Set up your own entity

• Cost: $15,000-$40,000 upfront, $8,000-$15,000 annual maintenance
• Timeline: 4-6 months minimum
• Complexity: Federal/provincial incorporation, CRA registration, payroll system, workers' comp, provincial compliance
• Makes sense when: Hiring 20+ people long-term, permanent market presence

Option 2: Hire contractors

• Cost: None upfront, but limited control
• Timeline: Immediate
• Risks: Misclassification penalties up to $25,000, back taxes, CPP/EI contributions
• Makes sense when: Short projects (< 6 months), specialized skills
• Note: Hire with Columbus also handles contractor agreements and payments

Option 3: Use an employer of record (Recommended for most)

• Cost: $179/month per employee
• Timeline: 2-3 days to hire
• Complexity: None, we handle everything
• Makes sense when: 1-50 employees, testing markets, multi-country teams

The math is straightforward. If you're hiring 1-5 people, entity setup costs more than 4-5 years of EOR fees ($179/month = $2,148/year per employee).

An EOR like Hire with Columbus handles employment contracts, payroll, CPP/EI contributions, provincial health taxes, T4 slips, and keeps you compliant with federal and provincial employment standards automatically.

Ready to hire in Canada without the legal complexity? Get started with Hire with Columbus.

What employment types can you use?

You've got three ways to bring someone onboard in Canada. Here's how the costs and risks compare.

How can you hire in Canada?

Before you worry about contract types, you need to decide how you'll legally employ someone. Each approach has different costs, timelines, and risks.

Setting up your own entity

You'll need to incorporate federally or provincially, register for GST/HST, set up payroll with CRA, and establish workers' compensation coverage. The incorporation itself costs $1,500-3,000 CAD, but legal fees, accounting setup, and ongoing compliance push total first-year costs to $15,000-25,000 CAD.

Then there's the timeline. Between incorporation, tax registrations, and setting up payroll systems, you're looking at 4-6 months before you can legally pay your first employee.

Hiring contractors or freelancers

This seems faster, and it is. You can start immediately with a contractor agreement.

But Canada's pretty strict about contractor classification. If CRA determines your "contractor" is actually an employee, you'll face back taxes, CPP contributions, EI premiums, and penalties that can hit 20% of all payments made. One audit can cost more than years of EOR fees.

Real contractor relationships require genuine independence. They use their own tools, set their own hours, and work for multiple clients. If you're providing equipment, setting schedules, or expecting exclusive work, you're probably looking at an employee relationship.

Note: Hire with Columbus also handles compliant contractor agreements and payments if you do have legitimate contractor relationships.

Using an employer of record

With an EOR like Hire with Columbus, we become the legal employer in Canada while you manage the day-to-day work. Your employee gets a proper Canadian employment contract, we handle all tax compliance, and you avoid entity setup entirely.

Cost breakdown for 5 employees: $895 USD per month versus $25,000+ CAD upfront for entity setup. You'd need to run payroll for over two years before the entity approach becomes cheaper.

Employment contract types in Canada

Once you've decided on your hiring approach, you need to pick the right contract type. Canada recognizes several employment arrangements, each with different rules and protections.

Permanent full-time contracts

This is your standard employment relationship. No end date, typically 35-40 hours per week, full benefits eligibility. Most companies use this for core roles where they want long-term commitment.

Employees get full protection under provincial employment standards, including notice periods that increase with tenure. In Ontario, that's one week per year of service up to 26 weeks maximum.

Fixed-term contracts

These have a specific end date and can't exceed certain limits in most provinces. Ontario caps them at two years, while BC allows longer terms but with restrictions on renewals.

The tricky part: if you renew a fixed-term contract or the employee keeps working past the end date, it often converts to permanent employment automatically. Courts have also ruled that repeatedly renewing fixed-term contracts creates a permanent relationship.

Use these for genuine temporary needs like maternity leave coverage or specific projects with clear end dates.

Part-time contracts

Part-time employees (typically under 30 hours per week) get the same legal protections as full-timers, just prorated. That includes vacation pay, statutory holiday pay, and notice periods.

Many companies mistakenly think part-time means fewer obligations. It doesn't. A part-time employee working 25 hours per week for two years gets the same two weeks' notice as a full-timer.

Probationary periods

You can include probationary periods in any contract type, but provincial rules limit their length and impact. Most provinces allow 3-6 months for regular employees, up to 12 months for senior positions.

During probation, you can terminate with minimal notice (often just one week), but you still need just cause for immediate dismissal. Probation isn't a "fire for any reason" period.

Casual and on-call arrangements

These work for truly irregular work patterns, but they're often misused. If your "casual" employee works regular hours or has set schedules, they're probably entitled to regular employee protections.

On-call employees must be paid for minimum shifts even if sent home early, and some provinces require on-call pay for being available.

How Hire with Columbus handles contracts

We draft all employment contracts to comply with provincial employment standards and federal requirements. That includes proper probationary clauses, termination provisions that don't violate minimums, and benefits eligibility that matches your company policies.

For fixed-term contracts, we build in proper renewal procedures to avoid accidental conversion to permanent status. For part-time arrangements, we ensure you're meeting prorated benefit and notice requirements.

The contract drafting alone typically costs $2,000-5,000 CAD with Canadian employment lawyers. We include it in our $179 monthly fee along with all ongoing compliance.

How does payroll and taxation work?

Your CAD $80,000 employee actually costs CAD $90,400 per year in Canada. Here's the breakdown of what you're really paying once employer contributions kick in.

Canada runs a multi-layered tax system that hits both you and your employees. Federal income tax, provincial tax, Canada Pension Plan (CPP), Employment Insurance (EI), and Workers' Compensation all come out of every paycheck. The good news? It's predictable once you know the rules.

Tax brackets and income tax rates

Canadian employees pay both federal and provincial income tax. Here are the 2025 federal tax brackets that apply nationwide:

Provincial tax rates add another 4% to 21% depending on the province. Ontario's rates range from 5.05% to 13.16%, while Alberta keeps it flat at 10%. British Columbia goes from 5.06% to 20.5% for high earners.

Your payroll system needs to calculate both federal and provincial taxes for each employee based on where they work, not where your company is located.

Social security and employer contributions

Here's where your costs really add up. Canadian employers pay mandatory contributions on top of employee salaries:

Workers' Compensation rates depend on your industry risk level. Office work sits around 0.5%, while construction can hit 4.5%. Manufacturing typically runs 1.5% to 2.5%.

Don't forget provincial health taxes in some provinces. Ontario charges 1.95% on payroll over CAD $490,000 annually.

Payment schedule and timing

Canadian employees expect bi-weekly pay (every two weeks), which means 26 pay periods per year. Some companies do semi-monthly (twice per month), but bi-weekly is the standard.

There's no 13th or 14th month bonus requirement in Canada. However, you'll need to budget for statutory holiday pay, vacation pay accruals, and potential overtime premiums.

Pay periods typically run Sunday to Saturday, with payment on the Friday of the following week. So employees working March 1-14 get paid on March 21st.

Total employment cost breakdown

Let's break down the real cost of hiring a CAD $80,000 software developer in Toronto:

Base salary: CAD $80,000 Employer CPP: CAD $3,867 (5.95% up to maximum) Employer EI: CAD $1,865 (3.14% of insurable earnings) Workers' Compensation: CAD $400 (0.5% for office work) Ontario Health Tax: CAD $0 (under threshold) Vacation pay accrual: CAD $3,200 (4% minimum)

Total annual cost: CAD $89,332

That's 11.7% more than the base salary, and we haven't included benefits like extended health coverage or retirement plan matching yet.

Payroll cycle and deadlines

Canada Revenue Agency (CRA) doesn't mess around with payroll deadlines. Here's what you need to track:

Monthly remittances: Due by the 15th of the following month for most employers. If your average monthly withholding is under CAD $3,000, you can remit quarterly.

T4 slips: Must be issued to employees by February 28th and filed with CRA by the same date.

Record of Employment (ROE): Required within 5 calendar days when an employee's earnings stop for 7+ consecutive days.

Miss these deadlines and penalties start at 3% of the amount owing, plus 3% for each additional month. Late T4s cost CAD $25 per slip after 50 slips.

Common payroll mistakes

The biggest mistake? Miscalculating overtime rates. Canada requires 1.5x regular pay after 8 hours per day or 44 hours per week (varies by province). Alberta uses 44 hours per week only, while British Columbia uses 8 hours per day and 40 hours per week.

Vacation pay calculation trips up many employers. You can't just give time off - you need to pay 4% of gross earnings (6% after 5 years in some provinces) either with each paycheck or as a lump sum before vacation.

Provincial differences create headaches. Quebec has its own pension plan (QPP) and parental insurance plan (QPIP) with different rates. The territories have different Workers' Compensation requirements.

Setting up payroll in Canada yourself:

• Local accounting firm: CAD $800-1,500/month
• Payroll software: CAD $50-150/month per employee
• Compliance risk: Fines up to CAD $25,000 for repeat violations
• HR expertise needed: CAD $65,000+ salary for experienced payroll manager

With Hire with Columbus: $179/month per employee (USD), fully compliant, zero risk. We handle all the CPP, EI, Workers' Comp calculations, file your T4s on time, and manage provincial variations automatically.

What benefits and leave are required?

Canada employees get 10 days minimum vacation in their first year, and unused days must either be carried over or paid out when employment ends. That's just the starting point though – you'll also be on the hook for mandatory health insurance contributions, employment insurance, and Canada Pension Plan payments that add roughly 7.4% to your total employment costs.

What you're legally required to provide versus what competitive companies actually offer to attract talent? Two very different things.

Annual vacation leave

Every employee gets at least 10 days (two weeks) of vacation after completing one year of service. Most provinces bump this up to 15 days (three weeks) after five years of employment.

Vacation accrues throughout the year – employees earn about 0.83 days per month in year one. They can't waive their right to vacation time, and you can't pay them extra to skip it during their employment.

Carryover rules: Unused vacation must be taken within 10 months of the year it was earned, or you have to pay it out. Some provinces are stricter – in Saskatchewan, employees must take vacation within 12 months of earning it.

Payout requirements: When someone leaves, you owe them 4% of their total earnings as vacation pay (6% after five years in most provinces). This applies even if they quit without notice.

Sick leave entitlements

Federal employees get 10 days of paid sick leave per year. Provincial rules are all over the map – some provinces offer unpaid sick days, others provide paid days, and a few have no sick leave requirements at all.

Doctor's notes: You can't demand a medical certificate unless the absence exceeds three consecutive days. Even then, you have to pay for the doctor's visit if you require the note.

Employment Insurance (EI) sickness benefits: After sick leave is exhausted, employees can claim EI sickness benefits for up to 26 weeks at 55% of their average weekly earnings. You don't pay this – it comes from the EI program they've been contributing to.

Parental leave breakdown

Canada offers some of the most generous parental leave in the world, but it gets complicated fast.

Maternity leave: 15 weeks exclusively for birth mothers, paid at 55% of average earnings through EI (maximum $668 per week in 2025). This is separate from parental leave.

Parental leave: 35 weeks of standard benefits at 55% pay, or 61 weeks of extended benefits at 33% pay. Parents can split this time however they want.

Additional parental leave: Fathers or partners get an extra 5 weeks (standard) or 8 weeks (extended) that can't be transferred to the birth mother.

Your costs: You don't pay the benefits – EI covers them. But you do pay both employer and employee EI premiums (2.212% total in 2025), and you might need temporary staff to cover the work.

Public holidays in Canada

Canada has fewer national holidays than most countries, but each province adds their own. The federal holidays everyone gets:

*Remembrance Day isn't statutory in all provinces – Ontario, Quebec, and Manitoba treat it as a regular workday.

Provincial additions: Each province adds 1-4 more holidays. Quebec has Saint-Jean-Baptiste Day (June 24), Alberta has Family Day (third Monday in February), and so on.

Holiday pay rules: Employees get their regular day's pay even if they don't work. If they do work, they get time-and-a-half plus their regular holiday pay – that's double time.

Mandatory benefits and contributions

Three benefits are non-negotiable: Canada Pension Plan (CPP), Employment Insurance (EI), and provincial health insurance premiums where applicable.

Canada Pension Plan (CPP):

• Employee contribution: 5.95% of earnings between $3,500 and $71,300 (2025)
• Employer contribution: 5.95% (matching)
• Maximum annual contribution: $4,038.40 each

Employment Insurance (EI):

• Employee rate: 1.66% of earnings up to $68,500
• Employer rate: 2.324% (1.4 times employee rate)
• Maximum employee contribution: $1,137.10

Provincial health premiums: Only Ontario, Quebec, and Northwest Territories charge health premiums. Quebec's is the most significant – employers pay between 2.7% and 4.26% of payroll depending on company size.

Workers' compensation: Every province requires workplace injury insurance. Rates vary by industry risk level, from 0.5% for office work to 15%+ for construction and logging.

Competitive benefits beyond minimums

Most Canadian companies offer way more than the legal minimums to stay competitive.

Extended health and dental: Nearly universal in white-collar jobs. Expect to pay $200-400 per employee monthly for decent coverage that includes prescription drugs, dental care, and vision.

Group retirement savings: Many employers match RRSP contributions up to 3-6% of salary. It's not mandatory but extremely common in professional roles.

Additional vacation: Competitive companies start with 15-20 days instead of the legal minimum 10. Tech companies often offer unlimited vacation (though employees typically take less).

Mental health support: Employee assistance programs and mental health coverage have become standard post-pandemic. Budget $50-100 per employee annually.

Common benefit administration mistakes

Missing provincial variations: Assuming federal rules apply everywhere. Saskatchewan has different overtime thresholds, Quebec has unique parental leave supplements, and BC requires additional statutory holidays.

Vacation payout errors: Forgetting that vacation pay is calculated on total earnings, including overtime and bonuses – not just base salary. This trips up payroll constantly.

Misclassifying workers: Calling someone a contractor when they should be an employee means you owe retroactive CPP, EI, and vacation pay. Canada Revenue Agency penalties start at 10% of the amounts owing.

Holiday pay calculations: Not realizing that statutory holiday pay includes overtime premiums and shift differentials. If someone normally works overtime, their holiday pay should reflect that.

Administering these benefits correctly requires local HR expertise (CAD $65,000+ annual salary), benefits administration software (CAD $300-800/month), and legal review for compliance (CAD $15,000+ annually). Miss something and you're looking at CRA penalties plus retroactive payments.

Hire with Columbus handles all benefit administration, statutory compliance, and payroll calculations for $179/month per employee. We track every provincial variation, calculate vacation pay on total earnings, and ensure your holiday pay includes all premiums and differentials.

What are the compliance requirements?

Written contracts are mandatory in Canada within the first few days of employment. Skip this and you're looking at potential wrongful dismissal claims, plus the employee can argue for better terms than what you intended.

The good news? Canada's employment standards are fairly consistent across provinces, though each has its own Employment Standards Act. The bad news? Get the termination process wrong and you'll pay way more than the minimum severance requirements.

Employment contract requirements

Every employment contract in Canada must be in writing and include specific mandatory elements. You can't just wing it with a basic template from the internet.

Required clauses include:

• Job title and duties
• Salary and pay period
• Hours of work and overtime provisions
• Vacation entitlement
• Termination and severance provisions (this one's critical)
• Probation period details
• Benefits coverage start dates

The contract must be in English and French in Quebec, and in the employee's preferred official language in federally regulated sectors. Most provinces require the contract to be provided within the first week of employment.

Missing any mandatory clause can void the entire contract. When that happens, common law notice periods apply instead of your carefully crafted termination clause - and common law is always more expensive for employers.

Probation periods

Standard probation periods in Canada run 3-6 months, with a maximum of 6 months in most provinces. Ontario allows up to 3 months unless you specify longer in writing before the employee starts.

During probation, you can terminate without cause and minimal notice - usually just the pay in lieu for the notice period (typically 1-2 weeks). After probation ends, full employment protections kick in and termination gets much more expensive.

Here's the catch: if you don't clearly specify the probation period in writing before the employee starts, you lose the right to use it. The employee gets full termination protections from day one.

Working time regulations

Standard work week is 40-44 hours depending on the province. Overtime kicks in after 8 hours per day or 44 hours per week in most jurisdictions.

Overtime rates:

• Time and a half for the first 4 hours of overtime
• Double time after 12 hours in a day (varies by province)
• Premium pay for work on statutory holidays

You must track all hours worked and maintain records for at least 3 years. Failing to pay proper overtime can trigger audits and back-pay orders with interest.

Employees get 30-60 minutes unpaid break after 5-6 consecutive hours of work, plus paid 15-minute breaks every 4 hours in some provinces.

Notice periods by tenure

Here's what you owe employees for termination without cause:

These are minimum statutory requirements. Common law notice can be much higher - often 1 month per year of service for senior employees.

You can pay in lieu of notice, but you still need to maintain benefits during the notice period in most provinces.

Termination process

Termination for just cause requires serious misconduct - theft, violence, willful disobedience, or fundamental breach of duties. The bar is high, and if you get it wrong, you'll pay full notice plus potential bad faith damages.

For termination without cause, you need:

1. Written notice specifying the termination date
2. Payment of notice or pay in lieu
3. Continuation of benefits during notice period
4. Final pay including vacation pay and overtime

Mass layoffs (10+ employees in some provinces, 50+ in others) require advance notice to the government - typically 4-16 weeks depending on the number affected.

No government approval is needed for individual terminations, but wrongful dismissal claims go through provincial courts or federal tribunals for federally regulated employees.

Severance pay requirements

Severance pay is separate from notice pay and applies in specific situations:

Severance is required when:

• Employee has 5+ years of service AND
• Employer's payroll exceeds $2.5 million annually OR
• 50+ employees are laid off within 6 months

Ontario has additional severance requirements. Federally regulated employees follow different rules under the Canada Labour Code.

Data protection compliance

Canada follows PIPEDA (Personal Information Protection and Electronic Documents Act) for employee data. Quebec, BC, and Alberta have their own privacy laws that are substantially similar.

You must:

• Get consent before collecting personal information
• Only collect information necessary for employment purposes
• Protect data with appropriate safeguards
• Allow employees to access and correct their information
• Report data breaches to the Privacy Commissioner

Employee files must include records of hours worked, wages paid, vacation taken, and any disciplinary actions. Keep employment records for 3 years after termination.

Cross-border data transfers need adequate protection measures, especially when sharing employee data with US parent companies.

Common compliance mistakes

Invalid employment contracts happen when companies:

• Use outdated templates that don't comply with current provincial law
• Forget to include mandatory clauses like vacation entitlement
• Fail to provide contracts in the required language
• Don't specify probation periods in writing before start date

Wrong termination processes cost companies thousands:

• Claiming just cause without sufficient evidence
• Not providing proper notice or pay in lieu
• Cutting off benefits during the notice period
• Miscalculating vacation pay or overtime in final pay

Missing mandatory record-keeping requirements can trigger employment standards audits and penalties even when you haven't done anything else wrong.

Penalties for compliance violations

Employment standards violations carry specific financial penalties:

• Unpaid wages or overtime: Back pay plus 10% interest annually
• Improper termination: Full common law notice (often 2-24 months pay) plus legal fees
• Missing employment records: $250-$50,000 per violation
• Vacation pay violations: Double the amount owed plus administrative penalties
• Discrimination or human rights violations: $10,000-$50,000+ in damages

Repeat offenders face escalating penalties and potential prosecution under provincial employment standards acts.

Common compliance failures in Canada:

• Invalid employment contract: Full common law notice applies (2-24 months pay) + legal fees
• Wrong termination process: Additional bad faith damages ($15,000-$100,000) + reinstatement orders
• Missing mandatory clauses: Contract deemed invalid, employee entitled to better terms
• Improper dismissal: Wrongful dismissal damages + punitive damages + legal costs

Hire with Columbus ensures every contract and termination follows Canada law exactly. We handle all the mandatory clauses, proper notice calculations, and compliance documentation so you never face these penalties. At $179/month per employee, it's a lot cheaper than one wrongful dismissal lawsuit.

What has changed recently?

Canada's employment rules got a major overhaul in early 2025 when the federal government rolled out the Enhanced Worker Protection Act on March 1st. The biggest change? Companies now get hit with automatic $25,000 penalties for misclassifying workers, even if it's their first time screwing up.

The new rules also stretched the "right to disconnect" beyond federally regulated employees. Now it covers any remote worker whose company operates in multiple provinces. If you're hiring remote talent across Canada, you can't contact them outside agreed working hours without paying overtime premiums.

Federal minimum wage increases

Provincial minimum wages jumped across the board in January 2025. Ontario hit $18.20/hour (up from $16.55), while British Columbia reached $19.50/hour. Alberta made the biggest leap to $17.75/hour and ditched their lower youth wage entirely.

Quebec threw everyone a curveball with their new "gig worker minimum" of $22/hour. This applies to anyone working less than 20 hours per week. A lot of international companies get blindsided by this when they hire part-time contractors.

New payroll tax thresholds

The Canada Pension Plan contribution ceiling jumped to $71,300 for 2025. Higher-paid employees will see bigger deductions. The Employment Insurance maximum hit $68,500, with rates staying at 1.63% for employees and 2.28% for employers.

Workers' compensation rates shifted too. Ontario's average rate dropped to 1.32% of payroll, but tech companies now face a separate "digital worker" classification with rates up to 2.1%.

Immigration and work permits

The Temporary Foreign Worker Program got tougher in 2025. Processing times for Labour Market Impact Assessments now run 8-12 weeks instead of the previous 4-6 weeks. The government also capped TFW positions at 15% of a company's Canadian workforce, down from 20%.

Global Talent Stream permits still process in two weeks, but the salary thresholds went up. You'll need to pay at least $89,000 in most provinces, or $95,000 in Toronto and Vancouver.

Provincial employment standards updates

British Columbia rolled out "predictable scheduling" rules requiring two weeks' notice for shift changes. Employers who change schedules with less notice must pay affected workers an extra four hours at regular wage.

Ontario expanded its family leave provisions to include chosen family members, not just blood relatives. The definition now covers long-term roommates, close friends, and community family structures.

An EOR like Hire with Columbus automatically adjusts to these changes, so you don't have to track every provincial update or worry about compliance penalties. We handle the new worker classification rules, updated contribution rates, and scheduling requirements across all provinces at $179/month per employee.