How To Hire And Pay Employees In Canada

Canada is an attractive country with a rich history, diverse population and thriving economy. The country’s entrepreneurial spirit is one of the reasons companies are choosing to expand here.

Businesses that expand to Canada have the potential to grow quickly as the country’s economy is one of the strongest in the world, with low unemployment rates and a highly skilled and educated workforce. According to Statistics Canada, the workforce has a high rate of education attainment compared to other countries around the globe, meaning that Canadian employees are well equipped with the skills necessary for success.

Canada has a very low corporate tax, allowing you to retain a higher percentage of your business profits and gain a competitive advantage. Start-ups, in particular, have access to a wide range of financial programs and services to help them get started in the country.

However, expanding to Canada can be difficult for companies with no experience, as the government regulations and laws can prove challenging to navigate.

Most employees are entitled to paid annual leave in Canada. In most jurisdictions, employees are entitled to 2 weeks of annual leave after completing 12 months of service. Typically, employees in professional level positions can expect between three and four weeks of annual leave.

Some jurisdictions offer vacation pay, where from the first day of employment an employee will begin to accrue an additional allowance for vacation, usually at 4% of the standard salary. Most jurisdictions do not allow a ‘use it or lose it’ policy.

A probation period in Canada is permitted for up to 3 months in most jurisdictions.

Unlike the U.S, Canada does not recognise ‘at will’ dismissal. An employer must provide an employee with at least two weeks written notice of their intention to terminate employment. In lieu of written notice, the employer must pay two weeks’ salary at the regular rate to the employee. An employee who has completed at least 12 consecutive months of continuous employment qualifies for severance pay at the rate of two days for each full year of service. Notice periods, severance payments, and certain termination laws can vary between provinces and territories. Any collective agreements often provide protection against termination without cause in Canada. Upon termination, employers must process the final payment and pay it by the next pay date, issue the Record of Employment (ROE) to the employee, and report the termination to the authorities. If there are any outstanding payments from unpaid time off or bonuses, they must be paid by the next pay date.

If an employee feels they have been unjustly dismissed, they can request, in writing, a written statement from their employer giving the reasons for dismissal. This request must be responded to within 15 days by the employer, or the employee can file a complaint alleging unjust dismissal at any Labour Program office no later than 90 days from the date of the dismissal.

If an employee wishes to resign, then notice period will vary from province or territory. This will also depend on factors such as length of service and job specific factors. Many employers will choose to include in a contract of employment any notice period requirements.

In Canada, the concept of redundancy is not recognised as it is within other countries. Instead, layoffs are recognised. These are periods during which employers do not provide work to employees, but where the employee will retain certain reinstatement rights should the company situation improve. During layoffs, employees may keep their entitlement to benefits. For a layoff to turn into dismissal, a certain period must pass, which varies between provinces as below:

• Alberta : A layoff for one or more periods exceeding 90 days within a 120-day period 
• Ontario: 35 weeks of layoff in a 53-week period when benefits are continued. Or 13 weeks of layoff in a 20-week period when no benefits are provided.
• Labrador, Newfoundland, British Columbia and Yukon: 13 weeks of layoff in a 20-week period. 
• Manitoba: 8 weeks of layoff in a 16-week period.
• New Brunswick and Nova Scotia: A layoff lasting 12 months, or longer. 
• Quebec: A layoff that is continuous for 6 months.
• Prince Edward Island: Currently no time limit specified. 
• Nunavut and Northwest Territories: 45 days of layoff within 60 consecutive days 
• Saskatchewan: A layoff of 6 consecutive working days.

Any restrictions should go no further than to protect an employer’s legitimate business interests. Non-compete clauses are generally not enforceable for employees unless they hold a senior status or position of trust, or where a non-solicitation provision could have been sufficient. Non-compete clauses must be reasonable in scope geographically. In some authorities they must also specify the type of restricted employment and restricted job functions. Non-solicitation agreements are generally more enforceable but must still be reasonable in terms of geographical scope and length of time. Employee non-solicits can be enforceable if clear and reasonable. Any kind of enforcement and agreements will vary between province and territory.  

A written contract of employment is not required by law but is recommended. Canada has two official languages, French and English. If a contract is provided in writing this will be in either English or French depending on the territory or province.

Most jurisdictions in Canada offer 17 weeks of unpaid maternity leave; however, this can vary slightly. In most jurisdictions, new parents also have the option to take parental leave of between 52 and 65 weeks. There is the option to apply for government paid employment insurance (EI) benefits if the employee meets the eligibility requirements. Women on maternity leave may be able to receive up to 55% of their standard salary up to a maximum of 638 CAD per week. Parental leave payment may be lower. One of the eligibility requirements is based on the number of hours worked in the 12 months before the claim was requested.

Sick leave is generally without pay in most jurisdictions. Exceptions include British Columbia, which offers five days’ paid sick leave, and Quebec, which offers two days. Employees can apply for paid sick leave from the government employment insurance (EI). A medical certificate must be provided and there are limits on the number of hours that must have been worked in the last 12 months. Employees may be entitled to up to 55% of their standard salary. Some companies do offer company sick pay as a benefit to employees.

Every employee and employer in Canada must pay social security contributions. It is the employer’s responsibility to make the relevant deductions from an employee’s salary. Social security will assist in covering items such as retirement, unemployment, maternity leave, and sick leave.

Canada has a universal health care system funded through taxes known as Medicare. Each province and territory are responsible for its own healthcare services, so the standard of care may vary depending on location. Medicare will not cover all health services, generally it will only cover essential services such as emergency hospital treatment, primary care to diagnose and treat injuries or illness, and maternity services. However, this can vary according to the province or territory.

Additional services are available for people on low incomes, over the age of 65, and children. Anyone moving to Canada on a work visa can apply for a Medicare health insurance card in the province they will be moving to. This will take approximately three months to be issued, once this is issued the person is able to access Medicare coverage in their province or territory. Many Canadians choose to also enrol for private health insurance. It is estimated that approximately over 60% of Canadians have some form of private medical cover, commonly through an employer.    

An employer specific permit allows the applicant to work for a specific employer according to any conditions within the permit. It is important to consider that the applicant will only be authorised to work for one employer, generally at a specific location, for a certain duration. This type of permit will need a Labour Market Impact Assessment (LMIA) showing that there are no Canadian citizens or permanent residents available to fill the job. The employer is responsible for applying for a LMIA and paying the application fee.

Open work permits generally do not require a LIMA. A foreign national with a valid open work permit may work for multiple employers, in multiple locations. Some open work permits may have additional requirements or restrictions which must be respected by foreign nationals. Even with an open work permit, foreign nationals are not able to accept employment from employers listed as ineligible for having been non-compliant with IRCC regulations. The eligibility requirements and application procedure vary depending on the situation or skills of the foreign national.

The federal minimum wage is $15.55 Canadian Dollars per hour (CAD). Provinces and territories do also set their own minimum wage, this varies from between $11.81 per to hour to $16 per hour.

The Canadian tax year runs from January to December. It is the employer’s responsibility to ensure taxes are paid from salaries before payments are made to employees. Income tax is composed of federal, provincial, and territorial income taxes based on the province and territories where employees are paid. Below are federal income tax rates. Provincial and territorial taxes vary.  

Employees in Canada can be paid on either a weekly, bi-weekly, or monthly basis.

Social security in Canada is the responsibility of the employer to deduct from an employee’s salary before payment. Both the employer and employee are subject to social security contributions. Typical employer contributions are 7.46%, and for employees, 6.83%. This covers contributions for Employment Insurance and the Canada Pension Plan. However, contributions can vary, and there may be additional contributions depending on the province or territory the employee is based in.