Complete Guide to Payroll in Canada

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Canada is the largest country in North America stretching from the Atlantic Ocean to the Pacific Ocean. It shares the border with the United States and allows tariff-free trade between the two countries. It is one of the best places for businesses who want to expand and grow their operations as the Canadian Government welcomes any inward investment in Canada with attractive incentives available for the foreign investors. Therefore, understanding all the requirements and laws related to payroll in Canada is a must before any company wants to come and grow here. This article provides all the details related to Payroll requirements in Canada.

Setting up business in Canada

With various business opportunities in Canada, company can choose to incorporate a holding company in Canada and expand the operations in the region. Business setup in Canada can be done in the following three ways: 

1. Corporation –Incorporating the business as a legal entity, and no shareholders have any personal obligations for debts, etc. The entity can be incorporated at the federal level or provincially.

2. Extra-Provincial Corporation –Incorporation happens only at the provincial level and should meet the province’s requirements.

3. Partnership – This can be a general partnership firm or a limited partnership. This can be converted to a Limited Liability Partnership later.

Payroll in Canada

Compliance laws for Payroll in Canada

The Payroll requirements in Canada are as below:

Working Hours in Canada

Working hours: The working hours in Canada are 40 hours per week or 8 hours per day. 

Minimum wages: The minimum wage in Canada is industry dependent and also varies from province to province. However, CA$54,630 is the average salary in Canada.

Overtime:

Any work performed above the normal working hours counts as overtime work. Overtime salary is paid at a minimum rate of 1.5 times the regular hourly pay rate.

Social security contributions

The Canadian social security system consists of two components of tax: Canada Pension Plan (CPP) and employment insurance (EI).

Employer Payroll Contributions

Canada Pension Plan: 5.45% (*Deducted from gross pay + taxable allowances/benefits

Employment Insurance: 2.212%

Employer Health Tax: 1.95%

Employee Payroll Contributions

Canada Pension Plan: 5.45%

Personal Income tax

Personal income tax rates in Canada are as follows:

Taxable Income Percentage of Income Tax

Upto $49020 15%

$49021-$98040 20.5%

$98041-$151978 26%

$151979-$216511 29%

$216512 and above 33%

Public Holidays in Canada

Holidays in Canada are as follows, however each province might have additional holidays.

• Good Friday

• Victoria Day

• Saint-Jean-Baptiste Day (Quebec only)

• Canada Day

• Civic Holiday (Except in Quebec and Yukon)

• Labor Day

• Thanksgiving

• Remembrance Day

• Christmas Day

• Boxing Day

• New Years’ Day

Leaves in Canada

• Sick leave: The sick holidays might vary from each province but in general employees are entitled to 17 weeks of unpaid medical leave as per Canadian Labour regulations. 

• Annual Leave: Employees are entitled to about 2 weeks of paid holidays once a year on completion of service of one year.

• Maternity leave: Maternity leaves are not paid in Canada, however, the benefit coverage does exist. Employees choose to take up to 17 weeks of maternity leave. Employees can also choose to receive up to 63 weeks of unpaid parental leave, or 71 weeks if the leave is shared between parents. The leave must be taken within 78 weeks from the date of child birth or from the date of child adoption.

Termination Process in Canada

For terminating an employee, a notice period ranging from 1 to 8 weeks or pay in lieu of notice must be given by the employee. The notice should be served only when the employee has continuously completed a minimum period on the job

Severance Pay

As per the Canada labour law, whenever an employee is dismissed or laid off, they have the right to severance pay provided they complete a minimum duration of 12 months of service. The severance pay is the wage for 2 days for each completed year of service before termination.

Probation Period

In general, Canada has 3 months of probationary period for all the employees, however, this can vary depending on the province the employees is working in.

Payroll Challenges in Canada

1. Changing regulation of payroll: Regulations develop and change in various regions at a rapid pace which always has a risk of non-compliance if the organisations are not up to date of these changes that take place suddenly in the system. The compliance to the payroll system is a difficult challenge for organisations as government grants and relief programs keep changing from time to time in Canada.

Therefore, paying the workforce on a timely basis and accurately as per Canadian labour law and in compliance with jurisdictional requirements is a challenge that every company might face, more specifically for those who are growing or restructuring as they are new to the system. These challenges, if not handled correctly can lead to payroll errors which could result in heavy penalties and fines. Moreover, employees can also lose confidence in their employers’ ability to pay them accurately if their payroll isn’t handled correctly or on time.

2. Payroll talent constraints: Organizations need to be more productive with less resources as any kind of economic downturn can put more strain on the workforce. In such a scenario payroll teams will have greater workload and pressure of delivering the payroll accurately and on time.

We cannot ignore the crisis such as COVID-19 which could increase the risk of employees being on leave in such emergency situations. Organizations must address the requirement of having sufficient staff for not only addressing the company requirements in multiple regions, but also to compute and pay the salary accurately and on time to all the employees.

3. Global workforce: The pandemic has forced companies to think of the roles that must be done in a physical location and the work that can be performed by the employees remotely. Employees are also willing to work from home considering the ease of the same. As both companies and employees are looking forward to remote working and therefore, organizations are able to more easily operate across the borders. However, this new move of including global operations can present new payroll challenges to companies as they need to adhere to various local payroll requirements.

4. Employee financial burden: Financial independence and wellness are important in times of changing global needs of the organizations and uncertainty of the future incidents as employees need greater financial flexibility. The costs of increased absenteeism, turnover, and benefits claims, along with the decreased job satisfaction and morale of the employees need to be taken into account. 

Conclusion

Every county has its own set of payroll regulations and taxation laws which can make matters complicated if the company is new to the market and also can be a burden to compute the payroll accurately for the employees. When you decide to setup in Canada, NNRoad can be your trustworthy partner and help you manage your employee’s payroll efficiently so that you can focus on the revenue generating activities for your business.

Our payroll outsourcing solution in Canada will give you the peace of mind as we will help you provide the payroll processing in full compliance with the changing regulations and labour laws in Canada.

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