Lately we’ve seen an increased interest in U.S. companies expanding their businesses to Canada. If you’re thinking about hiring employees up north, you should be aware that Canadian employee benefits laws differ significantly from those in the U.S., and they tend to offer more protection to employees.
One of the most common ways that US companies add Canadian employees is to ask their US payroll provider to add them to their existing payroll. US payroll providers can often do this, but it is still the company’s responsibility to maintain compliance in Canada. One key consequence is that by paying its Canadian employees directly, the U.S. entity becomes responsible for Worker’s Compensation in Canada, and the US payroll provider will ask the company for a Canadian workers’ compensation number in order to proceed. As a direct employer, the company will therefore be liable for employee health and safety, and Workers’ Compensation Board officials have the right (which they exercise quite often) to audit a company’s premises without prior notice. There are also many regulations of how records have to be kept and what information has to be displayed and disseminated to employees. So what appears to be a simple payroll registration can create significant risk.
An added complication is that many Canadian workers expect access to a Group Benefit Plan, supplemental to their free governmental coverage. This can create difficulties because only companies that are headquartered in Canada or that are signators in-country are eligible to provide Group Benefits. Limited benefits provision can restrict the talent pool, which can have more long-lasting consequences for growth.
Another tricky aspect to employment in Canada is that labor laws vary from province to province and employers with employees in more than one province must keep track of which laws apply to which employee. Let’s take annual vacation leave and pay as an example. All the provinces mandate 2 weeks annual leave after 12 months of employment, except Saskatchewan which stipulates three weeks, and Quebec, which provides for one day per month. Then, most provinces also have a schedule that increases the minimum annual leave based on length of employment. But again, these terms vary greatly:
- Ontario law has no mandated annual leave increase
- British Columbia and Alberta increase leave to three weeks after five years of employment
- Nova Scotia and PEI increase leave to three weeks after eight years of employment
- Newfoundland and Labrador increase leave after 15 years of employment
Tangling the annual leave laws further is the provincial mandate that vacation pay be increased after a certain number of years worked. This varies by province and is especially complicated in British Columbia where the accrual percentage is dependent on whether the employee completed a full year of employment. If annual leave policy can be so complicated and varied, imagine the work involved in tracking all the large and small differences in employment law across the different provinces.
Pension contributions are different as well. In the U.S., the federal wage cap for social security and Medicare contributions is more than twice that of the average citizen’s salary so that most residents have contributions deducted from the paychecks for the entire year. However, in Canada, contributions by both employees and employers to the Canadian Pension Plan (CPP) are capped at 2,555.30 CAD. This is low enough that many employees meet it within the first few months of the year. Canadians also have a Canadian Old Age Security program that is funded through general tax revenues and requires no withholdings.
Termination law is another big difference between the U.S. and Canada. In Canada, employees are entitled to termination notice, the duration of which varies by length of employment and the laws of each province. Employees who are given notice of termination are eligible for any bonuses that were scheduled during the termination period, and they can sue companies that try to work around this law. A blog post by the law firm Dentons describes a case in Ontario where a terminated employee had worked for a company for 14 years and was supposed to receive termination notice of 17 months, during which time he had expected to be given a bonus. The company argued that the bonus plan stipulated that the employee had to be “actively employed” to be eligible to receive the bonus and that therefore they did not have to pay it. The employee sued for damages in lieu of bonus. The judge ruled that since the bonus payment fell during the proper notice period, the company owed the bonus to the employee, and the words “active employment” could not be used to get out of paying it. As this case demonstrates, employee rights are strong in Canada, and companies are wise to hire someone steeped in Canadian employment law to review benefits plans and employee contracts and ensure they will stand up in court.
Canada continues to be the largest trading partner for the United States, and a great target for expansion due to its proximity and its shared language. However, before you decide to hire an employee in Canada, you may want to consider alternatives to direct hire. The variation in laws between provinces, the protections in place for employees, and the restrictions on foreign-owned entities can create extra risk. A Global PEO firm with an already established presence in Canada can take on those risks for you, while you focus on your operations.