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Employment in Canada

Canadian employment law appears complex and confusing when looking from outside view although in some ways there are many similarities to other countries. Other factors that complicate matters include the differences between laws at the federal and provincial level, and the requirements will vary depending on the industry.  For these and many other reasons the following are only guidelines in the broadest sense, and professional legal services are recommended when employing in Canada.

Key points on employment in Canada

There are several key areas to be aware of within Canada’s employment regulatory framework, especially for companies that plan to initiate a full local office and human resources department. These challenges can be mitigated by use of a locally sourced payroll provider who is familiar with all of the Canadian laws and rules for both Canadian employees as well as foreign nationals.

Employment standards in Canada provide a set of minimum standards by law for work conditions. Both the federal and provincial governments have authority over labour and employment law in Canada. The constitution gives the federal government exclusive jurisdiction over specific industries, including banking, radio and TV broadcasting, inland and maritime navigation and shipping, inland fishing, as well as any form of transportation that crosses provincial boundaries. Other industries are governed by the laws of the province.

Foreign companies entering Canada should take note that Canadian salaries may be quite high. The average salary in Canadian dollars has risen by around 18 percent since 2007. This rise, in combination with the strengthening Canadian dollar, has pushed the average salary in Canada higher than in the UK, the USA and most of Europe.

Visit the Canadian government website for labour laws

Official sites for local employment laws are also hosted per province. For example, visit Ontario’s labour website here.

Canada has both federal and provincial levels of law, thus there may be differences per the city you are doing business in. The following information should be considered as a broad and general guideline, and legal advice is recommended should you require further help. Following is a general summary of some of the more relatively distinctive aspects of Canadian employment law.

  1. Probation

    Canadian law does not appear to impose a limit on probationary periods. However, many employers choose a three month probationary period, as this period often coincides with the eligibility for group benefits, particularly because Canadian law requires no minimum pay in lieu of notice required for employees with less than three months of service.

  2. Termination

    Employment/labour standards outline the basic rights and responsibilities of the employer when terminating the employment of an employee. Human rights legislation must also be considered. An employer can terminate the employment of an employee at any time for any reason, as long as it is not in violation of human rights or other employment legislation or the employment/labour standards.

    Notice

    An employer must give written notice of termination for employees who have been employed for more than three months. The amount of notice to which an employee is entitled depends on his or her “period of employment”.

    The table specifies the amount of notice required:

    Period of Employment Notice Required
    Less than 1 year 1 week
    1 year but less than 3 years 2 weeks
    3 years but less than 4 years 3 weeks
    4 years but less than 5 years 4 weeks
    5 years but less than 6 years 5 weeks
    6 years but less than 7 years 6 weeks
    7 years but less than 8 years 7 weeks
    8 years or more 8 weeks

    Note is not required for employees who are guilty of willful misconduct, disobedience, or willful neglect of duty that is not trivial or construction employees, employees on temporary layoff, employees who refuse an offer of reasonable alternative employment.

    Procedure

    The law does not require an employer to give an employee a reason for being terminated apart from giving due notice as defined above. The exceptions to this are termination on unlawful grounds such as discrimination or ‘constructive dismissal’ whereby the employer indirectly forced the employee to resign such as making working conditions difficult for the employee.

    Severance Pay

    An employee can collect severance pay if they have completed at least 12 consecutive months of continuous employment before their termination. They are entitled to two days’ of regular wages for each full year that they worked before their termination. The minimum is five days’ wages.

  3. Leave

    Annual Leave

    Employees are entitled to two weeks of vacation time after each 12-month vacation entitlement year. Vacation pay must be at least four per cent of the “gross” wages (excluding any vacation pay) earned in the 12-month vacation entitlement year. The vacation time earned with respect to a completed vacation entitlement year or a stub period must be taken within 10 months following the completion of the vacation entitlement year or stub period otherwise it expires.

    Sick Leave

    The employee is entitled to sick leave protection of up to 17 weeks if they have worked for the employer for at least three months. The employee must provide a medical certificate if their employer requests one in writing, within 15 days of return to work.

    Pregnancy and Parental Leave

    Pregnant employees have the right to take pregnancy leave of up to 17 weeks of unpaid time off work. In some cases the leave may be longer.

    New parents have the right to take parental leave–unpaid time off work when a baby or child is born or first comes into their care of up to 37 weeks’ leave depending on the situation.

    Parental leave is separate to pregnancy leave so the mother may take both pregnancy and parental leave or the father could take parental leave at the same time the mother is on either her pregnancy leave or parental leave.

    Special Leave

    In addition to these ‘standard’ types of leave, there are a range of special leaves. There are too many to cover here but the below links lead to more information:

  4. Pension

    As of 2013, under the Canada Pension Plan (CPP) the employee contribution rate to the national pension scheme was 4.95% of the worker’s gross income for incomes between CAD$3,500 and CAD$51,100; up to a maximum contribution of CAD$2,356.20.

    The employer must match the employee’s contribution, effectively doubling the contributions of the employee.

    Self-employed workers must pay both halves of the contribution by themselves, 9.9% of their pensionable income, done when filing their income tax return.

Outsourcing Employment Through a GEO Employer of Record Service

Companies entering Canada can make a decision whether to use their own resources or to use a Global Employment Organization to handle employment and payroll responsibilities. A GEO solution is particularly beneficial when a company is looking to setup an office quickly with a manageable cost. The complexity of employment regulations in Canada makes the use of a GEO advisable to ensure full compliance with employment laws, including the drafting of local employment contracts for workers.

The company that is expanding into Canada contracts with the GEO to employ and payroll their staff on their behalf. The GEO then assumes the legal responsibility for these employees, sponsoring them on work permits if necessary, complying with local employment law and running their monthly payroll. This is especially useful to fulfill all of the specific withholding requirements for pensions and benefits, as well as documenting termination, probation periods and leave requests.

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