This guide will explore how an Employer of Record in Canada enables foreign employers to tap into the Canadian labour market.
It covers the benefits of using an Employer of Record in Canada, the step-by-step process for hiring through an Employer of Record, compliance with employment regulations, and costs.
With predictions that using an Employer of Record in Canada will continue rising, companies that leverage these services gain a valuable edge for their 2025 growth strategies and beyond.
What is an Employer of Record in Canada?
An employer of record is an organization that acts as the legal employer of record for companies hiring workers in Canada. The Employer of Record in Canada assumes responsibility for compliance with federal, provincial, and territorial employment laws on the client’s behalf.
As the employer, the Employer of Record handles:
- Payroll and taxes
- Benefits administration
- Employment contracts
- Compliance with labour regulations
- Onboarding and offboarding
- Other HR functions
This enables the company to hire employees in Canada without establishing its local entity there. The Employer of Record in Canada essentially acts as a shield, taking on the risk while the client company enjoys all the upside of expanding into the Canadian market.
Benefits of Using an Employer of Record in Canada
Companies can gain significant advantages by using an employer of record in Canada rather than trying to establish their entity.
Quickly Expand Your Talent Pool
Rather than spending months establishing a Canadian subsidiary, an Employer of Record in Canada allows foreign employers to start hiring staff within weeks. This accelerated timeline provides access to in-demand talent across Canada’s provinces before competitors acquire them.
Employer of Record maintains ready-to-hire workforces in most regions and major cities. With their established infrastructure, they can swiftly contract employees on the client’s behalf.
The right Employer of Record will also handle onboarding using familiar tools and platforms tailored to the Canadian market. This allows the foreign employer to focus on training and job specifics while the Employer of Record equips new hires with what they need for success.
Avoid Compliance Pitfalls
With Canada’s complex federal and provincial regulations, compliance is one of the top risks foreign employers face. Rules differ across provinces for minimum wage, overtime, vacation and leave entitlements, termination notices, payroll remittances, record-keeping requirements, and more.
Noncompliance penalties can be severe, including massive fines, lawsuits, and bans on future local hiring. Since Canada has strict joint liability, companies and company leadership can face criminal liability for violations by contractors and intermediaries.
Local Expertise in Payroll and Taxes
Payroll and tax compliance are two of the most challenging aspects of hiring remotely in a new country. The Employer of Record handles payroll processing, tax withholding, and filings in compliance with Canada Revenue Agency (CRA) regulations.
For example, the Employer of Record will ensure the proper CPP, EI, and income tax contributions are withheld and remitted on time. They will also handle year-end T4 filing.
Management of HR Responsibilities
In addition to payroll and taxes, an Employer of Record in Canada provides an approach to other HR functions for the Canadian team:
- Drafting compliant employment contracts
- Administering health insurance and other benefits
- Managing time-off policies and leave management
- Handling terminations/offboarding
- Managing legal issues and disputes
- Staying current with changing regulations
These responsibilities would otherwise have to be managed internally, requiring significant investments in local HR infrastructure and expertise. The Employer of Record solution is faster and more cost-effective.
Access to Competitive Benefits Packages
One advantage of being an Employer of Record in Canada is access to high-quality, customizable benefits plans for your Canadian staff. These include health insurance, retirement plans, telemedicine, wellness programs, and other offerings.
The benefits packages help attract top candidates and prevent turnover. They also ensure employees are protected in case of illness or disability.
Since the Employer of Record in Canada manages benefits for thousands of Canadian workers, they can secure more competitive rates than an individual employer could obtain directly from the providers.
Data Privacy and Security
When using an Employer of Record, employers transfer sensitive information like personally identifiable data, bank details, tax IDs, and compensation info. Therefore, data privacy and security are critical when selecting an Employer of Record in Canada.
Hiring Through an Employer of Record in Canada
The process is straightforward once a company decides to use an Employer of Record for their Canadian hiring. Here are the typical steps:
Determine hiring needs
First, the company decides what types of talent they need and where. Do they need software engineers in Vancouver? Sales reps in Toronto? The Employer of Record can source candidates nationwide.
Select an Employer of Record partner.
Choosing the right Employer of Record is critical. Consider services offered, experience level, compliance track record, data security, costs, and reviews. Conduct due diligence as the Employer of Record will represent your business in Canada.
Gather information
The employer then provides the Employer of Record with the newly hired employee’s details, including name, contact information, banking details, social insurance number, compensation amount, and other data required for payroll and tax filings.
Employment agreement
The Employer of Record generates an employment agreement adhering to the province’s regulations where the candidate resides. Agreements clearly define roles, responsibilities, compensation, benefits, and other terms and conditions.
Onboarding
Once contracts are signed, the Employer of Record onboards the new hire using their robust HR platforms and processes. This gets the candidate equipped for success on day one.
Ongoing management
The Employer of Record handles ongoing payroll, taxes, benefits, employment law changes, terminations, and employee issues. The foreign employer manages the team’s day-to-day work and output.
Throughout the process, the employer avoids the risks and regulatory complexities of establishing its legal entity for hiring Canadian staff.
Complying with Canada’s Employment Laws
One major advantage of using an Employer of Record in Canada is alleviating the compliance burden for foreign employers. Canadian employment regulations for employer of record enforce strict federal and provincial/territorial standards.
Federal Laws and Regulations
On the federal level, key laws include:
- Canada Labour Code – Sets standards for federal sector industries such as banking, telecommunications, and transportation that operate across provincial borders. Regulations cover occupational health and safety, standard hours, statutory holidays, annual vacations, terminations, and more.
- Employment Equity Act – Aims to ensure fair representation of four designated groups in federal sector workplaces: women, Indigenous peoples, persons with disabilities, and members of visible minorities. Employers must implement special measures and track progress.
- Employment Insurance Act – Mandates contributions by employers and employees to fund income benefits paid to eligible workers related to job loss, medical reasons, parental leave, compassionate care, and other circumstances
Provincial and Territorial Employment Laws
Alongside federal statutes, each Canadian province and territory enforces labour regulations that apply to the private sector and provincially-regulated employers. Some of the key areas covered by provincial employment laws include:
Minimum Wage
Every province sets a minimum hourly wage that employers must pay workers.
Most provinces also have a special minimum wage rate for liquor servers and other tipped professions. Since minimum wages generally adjust year-to-year, employers must remain aware of current rates applicable where their staff are located.
Overtime
Rules for overtime pay mandated by law also vary by province. The threshold for overtime eligibility ranges from 40 to 48 hours per week across jurisdictions.
For example, overtime rates take effect after 40 hours in BC and Saskatchewan but only apply beyond 44 hours in Ontario.
Most provinces mandate 1.5 times the regular pay rate for overtime. A few require double pay in certain situations.
Vacation Time and Public Holidays
The legally required paid vacation ranges from a minimum of two weeks to start, up to three weeks after five years of service, depending on the province.
Public paid holidays differ, with some common across Canada, some unique to provinces, and additional days for federally regulated industries.
Termination Notice and Severance Pay
Canadian employment laws impose requirements around termination notice periods and severance pay for longer-tenured positions that are eliminated. Formulas and qualifications vary by province.
An employer of record handles terminations lawfully based on each employee’s specific location and years of service.
Workers’ Compensation Coverage
Every province mandates workers’ compensation coverage through a provincial authority that pays disability and medical benefits for job-related injuries and illnesses. Workers give up the right to sue employers for negligence in exchange for no-fault insurance coverage.
Employers must register and pay premiums into the provincial plan based on employee wages and risk classification. An Employer of Record handles this mandatory program.
Employee Benefits and Social Insurance
Canadian employees receive certain mandatory benefits through national programs like employment insurance and the Canada Pension Plan.
Private employee benefits like health insurance are optional but often essential for attracting candidates. An Employer of Record can set up competitive customized benefits packages on the client’s behalf.
Payroll Remittances
Employment regulations dictate what deductions and contributions must be withheld from wages and remitted regularly to federal and provincial authorities. This includes income tax, CPP, EI premiums, and other programs.
Late, missing, or inaccurate remittances and filings result in penalties and interest charges. The Employer of Record handles payroll compliance to avoid such missteps.
Costs of Using an Employer of Record in Canada
Costs are often a factor when considering whether to use an employer of record in Canada. Employer of Record services in Canada tend to follow one of two pricing models:
Fixed monthly fee per employee
This model charges a flat rate per employee under contract through the Employer of Record. Fees often range between $100 and $ 200 per employee per month.
The fixed model allows for predictable budgeting, though rates can increase year-over-year. There may also be one-time upfront fees.
Percentage of payroll
Under the percentage of payroll approach, clients pay a percentage of their total payroll for Canadian staff. This percentage is usually 1.5-5%, depending on the services utilized.
The percentage model scales up and down with payroll instead of charging per headcount. However, total costs become less predictable month-to-month. Minimums may apply.
Additional costs and services also factor in:
- Platform access fees
- Payroll transaction charges
- Insurance premiums
- Benefits administration
- Contractor management
- Immigration services
- HR software integrations
Since Employer of Records streamlines the processes for local hiring, compliance, payroll, and more, they can provide net cost savings versus establishing your legal entity in Canada. The optimized approach reduces redundancies, failures, and administrative overhead.
When evaluating affordability, weigh costs against the risks, delays, and HR/finance infrastructure you’d need to employ Canadian staff independently. For most foreign employers, an Employer of Record delivers superior value.