Not only have many US companies come to view Canada as a promising place to expand their operations (and vice versa), but businesses have more opportunities to engage in the cross-border hiring of remote employees.
A US business owner looking to hire Canadian employees should understand some basic regulations that govern Canada’s payroll system—and how your obligations regarding employment laws and payroll taxes may differ from those in America.
Here are five key differences between Canadian and US payrolls you should know about.
1. Payroll agencies
In the United States, employee payroll regulations are enforced by the Internal Revenue Service (IRS). If you hire employees in Canada, however, you’ll be accountable to the Canada Revenue Agency (CRA).
2. Standards of employment
Unlike the US, where employment is primarily governed by federal standards that individual states can choose to expand on, Canada's federal and provincial governments oversee distinct types of employment regulations.
Canadian federal payroll standards, for example, apply to employees of federally regulated industries and workplaces, such as banks, post offices, and the public service sector.
Most other payroll regulations, meanwhile (like minimum wage, vacation pay, termination pay, and statutory holidays, for example), fall under employment standards set out by the provinces.
3. Statutory holidays
Paying employees for mandated statutory holidays (which vary by province) is a legal requirement for Canadian employers. Suppose you’ve only ever dealt with US employees. In that case, paid statutory holidays may be a new payroll expense for your business since American employers aren’t required to provide pay for statutory (aka federal) holidays unless dictated by state law or company policy.
Depending on which province you’ll be operating in, you may also be responsible for paying extra compensation to employees working on statutory holidays.
4. Vacation pay
The concept of vacation pay may also be unfamiliar to American businesses since it’s not a legal requirement in the US. Under the provincial payroll laws in Canada, however, your business must provide paid vacation to employees each year.
While regulations vary by province, vacation pay typically starts at 10 days annually and increases based on the number of years an individual works for the same employer.
5. Payroll taxes
Canadian and American employers must withhold, remit, and contribute certain payroll-related amounts. While many payroll taxes are similar in both countries, their governmental agencies differ.
Here’s a brief breakdown of the main differences between Canadian and US payroll taxes.
US payroll taxes. In the US, employers must register with—and make individual payments to—federal and state unemployment agencies and federal, state, and (sometimes) local tax agencies.
Payroll tax obligations typically include:
- Withholding Federal and state employee income tax
- Federal and state unemployment taxes (SUTA & FUTA)
- Social Security withholdings and contributions
- Medicare (FICA) withholdings and contributions
- Location-based local taxes (in some cases)
While we won’t cover them in this article, you should also know that taxable benefits in Canada differ from those in the US.
Canadian payroll taxes. In Canada, employers must register with the CRA. Depending on which jurisdiction governs their business, they may also have to register with (and make payments to) one or more provincial authorities. Quebec businesses register with Revenue Québec.
Payroll tax obligations typically include:
- Federal and provincial employee income tax withholdings
- Employment Insurance (EI) withholdings and contributions
- Canada Pension Plan (CPP) withholdings and contributions
- Employer Health Tax (remitted via EHT tax returns in certain provinces)
- Workers’ Compensation Board (WCB) contributions (also remitted provincially)
The CRA determines the schedule for remitting the income tax, EI, and CPP amounts you withhold from your employees’ pay and your own EI and CPP employer contribution amounts. The CRA also directs the appropriate tax amounts to the respective provincial agencies.
Note: There’s a crucial exception to this rule, which applies to employees in Québec. Because Québec maintains a separate QPP fund (that replaces the CPP) and an additional parental leave fund (the QPIP), most payroll remittances are made directly to the provincial government through Revenu Québec.
Need help navigating the finer points of Canada payroll vs US payroll? Contact Enkel’s team of experienced payroll professionals today and discover how we can work with your business.
