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As a global EOR expert, we manage payroll, employment contract best practices, statutory and market norm benefits, employee expenses, as well as severance and termination. You’ll have peace of mind knowing you have a team of dedicated employment experts assisting with every hire. G-P allows you to harness the talent of the brightest people in 180+ countries around the world, quickly and easily.
Hiring in Canada
Despite the fact that Canada is economically primed for FDI and major growth, making a direct hire can be costly and time-consuming from an administrative perspective. Assuming that the process for hiring and setting up a payroll will be fairly straightforward, many organizations quickly discover that the labor legislation creates a series of complications that require local expertise and experience to overcome.
Employment legislation is onerous in Canada. There is no such thing as “at will” employment in Canada. Many companies believe they can circumvent the red tape and hire employees as independent contractors. In Canada, the criteria for being recognized as an independent contractor is very strict and reclassification of the individual as an employee is a real possibility.
In Canada, the laws of each province vary from one another as it relates to any number of employment aspects – withholding, benefits, and notice periods. Each province and territory in Canada has its own legislation relating to local employment standards. Most employees in Canada (about 80%) are protected by the employment laws of their province or territory and the remainder are covered by federal law.
Employers in Canada can offer a Group Benefit Plan that is over and above the free public healthcare coverage employees receive as citizens of Canada. Generally, a company can only source those benefits if it has a head office in Canada or a signatory in-country. If a company pays employees in Canada directly, that company will be responsible for Worker’s Compensation and liable for the day-to-day management of employees’ health and safety.
When negotiating terms of an employment contract with an employee in Canada, it may be useful to consider the following information.
Employment contracts in Canada
It is important to consider the time it will take to become familiar with provincial nuances for each hire. All employment contracts must comply with the minimum standards of each applicable province or territory.
Canada is a bilingual country with French- and English-speaking populations. With the exception of the province of Québec, there are no rules governing the language of employment contracts. In all provinces except Québec, employment contracts are most often drafted in English. For employees in Quebec, employment contracts must be drafted in French but can also be provided in both French and English.
Employers should put together a strong employment contract, detailing the employee’s terms and conditions of employment, such as their compensation, benefits, and applicable termination entitlements. The salary and any other additional compensation should be indicated in Canadian dollars.
Working hours in Canada
Employment standards legislation in each jurisdiction sets restrictions on working hours. Most jurisdictions generally limit the number of hours that can be worked in a week.
Although hours of work and overtime rules vary significantly across Canada, most jurisdictions have established an overtime rate equivalent to 1 times an employee’s regular rate of pay. For example, in Ontario, the entitlement begins at 44 hours, and in Québec, at 40 hours. Employers cannot refuse to pay overtime rates and cannot force workers to work excessive hours, nor can they reprimand workers if they refuse to perform or complain about overtime work. In most provinces, certain types of roles e.g., managers and supervisors, are exempt from overtime provisions and entitlement.
Statutory holidays in Canada
Employees in Canada benefit from the applicable statutory holidays according to their province or territory:
- New Year’s Day (national)
- Islander Day (PEI)
- Louis Riel Day (MB)
- Heritage Day (NS)
- Family Day (BC, AB, SK, ON, NB)
- Yukon Heritage day (YK)
- St-Patrick’s day (NL)
- Good Friday and/or Easter Monday (both for national except QC, where the employer picks one of the two)
- St. George’s day (NL)
- Victoria Day/National Patriots’ Day (national except NS, NL)
- National Indigenous Peoples Day (NT, Yukon)
- St. Jean Baptiste Day (QC)
- June Holiday (NL)
- Canada Day (national)
- Nuvanut Day (Nunavut)
- Orangemen’s day (Nunavut, NL)
- The Royal St John’s Rehatta (NL)
- Civic Holiday (NT, Nunavut, NS, AB, BC, SK, ON, NB, NU)
- Gold Cup Parade (PEI)
- Discovery Day (Yukon)
- Labour Day (national)
- National Day for Truth and Reconciliation (federally regulated employers, NT, NU, PEI, YK)
- Thanksgiving (national)
- Remembrance Day (national except MB, ON, QC, NS)
- Christmas Day (national)
- Boxing Day (ON, NL, NT, NU)
Vacation days in Canada
In Canada, most employees have the right to an annual paid vacation but there are some differences across the country with respect to entitlements and eligibility. For example, in British Columbia, Alberta, Manitoba, Ontario, and Québec, employees must receive 2 weeks of paid vacation after completing 1 year of service with an employer. Most employers offer 2-4 weeks’ paid vacation, depending on the industry and the employees’ length of service. Most individuals in professional-level positions typically expect to receive from 3-4 weeks of vacation time (plus statutory public holiday days).
Canada sick leave
Most provinces in Canada do not offer paid sick days. In British Columbia however, professionals are entitled to 5 paid sick days. In Quebec, professionals are entitled to 2 paid sick days. Canada’s national social insurance, also known as Employment Insurance, does provide paid, short-term and long-term sick leave if required and if the employee meets the eligibility requirements.
Maternity/paternity leave in Canada
Canada has generous maternity and parental leave benefits for all employees. Each province has their own eligibility rules and benefits for qualifying for maternity and parental leave. The relevant provincial Employment Standards website explains these rules, as well as the maximum number of weeks for each leave.
Parents can apply for government-paid employment insurance benefit (EI) while on leave if they fulfill the eligibility criteria and they may be entitled to more generous or extended benefits through their applicable provincial plans. Depending on the duration of the leave, the weekly maximum amount may differ. Employers may also choose to top-up an employee’s salary during their leave. Even though this is not mandatory, typically employers do provide a few weeks of additional compensation.
Health insurance in Canada
Provincial health insurance provides residents with most healthcare benefits. All residents have a health card which entitles them to free healthcare in their province. Some provinces charge residents separately but others finance it through taxes and contributions.
The healthcare system in Canada was built around the principle that all citizens will receive all “medically necessary and hospital physician services.” Each of Canada’s 10 provinces and 3 territories finance and run a statewide health insurance program. There is no cost-sharing for the provided healthcare services. While people in Canada are guaranteed access to hospital and physician services, it is up to each province to decide whether to cover “supplementary” benefits, like dental care and drug coverage.
About 2/3 of people in Canada take out private, supplemental insurance policies (or have an employer-sponsored plan) to cover these additional services. Doctors in Canada are usually reimbursed by the government at a negotiated fee-for-service rate. Many candidates today expect their employer to offer supplemental benefits for private health insurance, dental and vision plans, income protection (disability), and life insurance.
Termination/severance in Canada
It is common for probationary periods to be included in Canada employment contracts. The typical probationary period is 3 months. The maximum probationary period allowed depends on the province and generally ranges from 3 to 6 months. It should be noted that if an employer terminates an employee within the probationary period, the employee may still be entitled to notice pay.
Fixed-term employment contracts are permitted in Canada. However, courts and other adjudicators may conclude that a fixed-term employment contract is, or became, an indefinite term contract. For example, the contract may be deemed indefinite if the parties renewed the same fixed-term contract multiple times or if the employee continued working after the termination date specified in the contract. Additionally, an employer may be ordered to pay the employee for the balance of the contract if they terminate the contract before the term.
Employers in Canada are required to provide employees with a reasonable notice of termination or payment in lieu of notice. Employment standards legislation in each province or territory mandates the minimum notice periods that employers are required to provide employees based on their length of service. However, under common law and Québec civil law, employees are also often entitled to a period of “reasonable” notice which usually exceeds the statutory minimum.
- In addition to length of service, “reasonable” notice is based on other factors – for example, the employee’s age, position in the company, context of hiring (i.e. were they recruited), and other factors relevant to the employee’s ability to secure new employment. Although employment contracts (or collective agreements) can specify notice requirements (or pay in lieu of notice) in cases of termination, the parties cannot contract for anything less than the prescribed statutory minimum. In Quebec, it is not possible to limit “reasonable” notice entitlement in an employment contract. What constitutes “reasonable” notice must be determined at the time of termination.
Pursuant to both federal and provincial laws, employees terminated without cause may be entitled to severance payments in addition to notice of termination (or pay in lieu of notice).
For example, the Ontario Employment Standards provides that:
- An employee with 5 or more years of service will be entitled to severance pay if the employer’s payroll in the province is CAD 2.5 million or more, or if the employer permanently discontinues the employment of 50 or more employees within a 6-month period due to a permanent discontinuance of all or part of its business.
- Severance pay in Ontario is calculated by multiplying the employee’s regular wages for a regular work week by the sum of:
- The number of complete years of employment
- The number of complete months of employment divided by 12 for a year that is not completed (partial year).
- The maximum amount of severance pay required to be paid under Ontario Employment Standards is 26 weeks.
In Canada, the employment relationship may often be terminated without cause if notice, or pay in lieu of notice, is provided in accordance with the applicable provincial employment standards legislation, common law, and/or the terms of the contract. However, certain provinces and federal employment laws impose restrictions on without-cause terminations, in which case, cause will be required.
Paying taxes in Canada
The social security system in Canada incorporates federal law on welfare issues such as unemployment insurance and Old Age Security (OAS) with provincial policies, programs, and social services. Each province is responsible for its own social security system and has its own contribution rates. All employees in Canada are expected to make contributions to the social security system, which are typically deducted from their pay each month.
Canada has a progressive taxation rate system — the higher the income, the more the tax owed.
- The top federal tax rate for individuals in 2023 is 33%.
- Provincial tax rates apply in addition to the federal rate and vary by province.
- As of 2023,
- Ontario’s top marginal rate is 13.16% + surtax
- Québec’s is 25.75%.
- Alberta’s is 15%.
On a federal basis in Canada, payroll taxes include contributions to the Canada Pension Plan and Employment Insurance.
- The maximum “pensionable earnings” for the Canada Pension Plan for 2023 is CAD 66,600.
- The maximum employee and employer contributions in 2023 is CAD 3,754 each.
- The maximum “insurable earnings” for Employment Insurance purposes in 2023 is CAD 61,500 (CAD 1.63 will be contributed by the employee for every CAD 100 of salary until that maximum is reached).
- For Quebec, it is CAD 1.27 for every CAD 100 of salary.
There are several child benefits available through the social security system, such as the Universal Child Care Benefit, Child Tax Benefit, and the Fitness Tax Credit.
A person with a disability may be eligible for a number of additional benefits. There are some benefits which are designed to help those with long-term disabilities and others for those who have a short-term injury that is causing problems with everyday living.
Employment insurance is one of the main benefits of the social security system. This is a temporary benefit that is paid out and covers any number of reasons why a person may not be able to work and may be in need of financial assistance. It includes unemployment, parental leave, sickness benefits, and benefits for compassionate leave.
The OAS pension is paid out to those who are aged 65 and over. In order to claim this benefit, a person must satisfy certain requirements, some of those include: A person must have been a citizen or legal resident at the time the OAS pension application is approved, have resided in Canada for at least 10 years since the age of 18, and must be making the necessary contributions to the system. It is not essential for a person to give up work before they are able to claim this pension. In addition to this pension, there is the Canada Pension Plan, which is another contributory scheme. From this, a person may also claim benefits for disability and survivor benefits.
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THIS CONTENT IS FOR INFORMATIONAL PURPOSES ONLY AND DOES NOT CONSTITUTE LEGAL OR TAX ADVICE. You should always consult with and rely on your own legal and/or tax advisor(s). G-P does not provide legal or tax advice. The information is general and not tailored to a specific company or workforce and does not reflect G-P’s product delivery in any given jurisdiction. G-P makes no representations or warranties concerning the accuracy, completeness, or timeliness of this information and shall have no liability arising out of or in connection with it, including any loss caused by use of, or reliance on, the information.