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Legal Requirements for Payroll in Canada: A Guide for Overseas Employers

When your company decides to hire employees in a foreign country for any reason, you will usually need to run a local payroll in the country.  This may be a new challenge for some HR departments who may have been planning to simply put the employee on the home payroll.

The problem with running a ‘remote payroll’ like this is that your employees will have to pay taxes and social contributions in the foreign location, and you will need a way to meet those requirements, as well as any employer contributions. 

If you are hiring employees (either local residents or expats) in Canada, this guide will outline the entire process and your options to run a Canadian payroll.

What is required to set up a payroll in Canada?

There are a few basics to setting up a payroll in Canada:

  • Set up a Canadian corporate entity, or engage a third party to run the payroll
  • Draft an employment contract that meets Canadian labor and employment standards
  • Obtain tax id numbers for your employees
  • Register with the social security agency
  • Submit employee information to the entity running payroll

Even these simple steps can be hard to achieve without in-country experts and partners to guide you, which is why a DIY approach to Canadian payroll is not advised.  Using a third party will save you the time and expense of setting up an entity and ensure compliance.

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Work Eligibility Requirements in Canada

If you are sending an expat on assignment to Canada, they will need to meet the work eligibility requirements before applying for a work permit.

These requirements include:

  • Proving the employee will leave Canada when the work permit expires
  • No record of criminal activity
  • Medical exam
  • Salary sufficient for the employee to support themselves

Depending on the home country, some workers who are visa-exempt can apply for permits after entering Canada, but it is best to apply at a consulate prior to leaving home.

Social Security Verification in Canada

Employers in Canada must ask employees for their social insurance number (SIN) within three days of starting work.

Case Example: What if the employee refuses to give you their SIN number or to apply for one?

Sometimes an employee may not want to give you their number, and the only rule is that you make a “reasonable effort” to get it, or you will have to pay a penalty.

We had a client with employees in Canada, and the local employer of record was asking for their SIN number.  The employee was concerned about identity theft since the number was going to be held by the third party running payroll.

Our local partner offered a solution to the employee of setting up a Skype call so that they could visually verify the number, and no documents would have to be sent.

Withholding Tax Forms

There are two different tax forms in Canada, federal and provincial/territorial.  This is because tax and social contribution rates vary between the provinces.  This holds true for expats also, since they will have the same withholding and contributions as a resident.

The Shield GEO Solution

As you can see, there are some very different elements involved with running a Canadian payroll, and you have to ask yourself if you are prepared to do that on your own.

How will you run payroll if you don’t have a Canadian entity?

How will you know which forms to submit for the province of employment?

What about a local contract and social security verifications?

We are able to offer you a complete Canadian employment solution through our local employer of record who is already set up and ready to run payroll for your employees.  We make international employment simple from the moment of initial hiring, on-boarding, setting up payroll, and issuing the payslips to your employees.

 Need more information about employing in a new country? Learn more about:

Looking to hire an employee in Canada? Get in touch.

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