Not only have many US companies come to view Canada as a promising place to expand their operations (and vice versa), with more people working from home, businesses have more opportunities to engage in the cross-border hiring of remote employees.
If you’re a US business owner looking to hire Canadian employees, it’s important to 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 5 key differences between Canada payroll vs US payroll 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 largely governed by federal standards that individual states can choose to expand on, both the federal and provincial governments in Canada oversee distinct types of employment regulations.
Federal government payroll standards, for example, apply to employees of federally regulated industries and workplaces (like banks, post offices, and the public service sector).
3. Statutory holidays
Paying employees for mandated stat holidays (which vary by province) is a legal requirement for Canadian employers.
If you’ve only ever dealt with US employees, this 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 out extra compensation to employees who work on statutory holidays.
4. Vacation pay
The concept of vacation pay may also be unfamiliar 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
Both Canadian and American employers are required to withhold, remit, and contribute certain payroll-related amounts. While many payroll taxes are similar in both countries, the governmental agencies involved are quite different.
Here’s a brief breakdown of the main differences between Canada payroll vs US payroll taxes.
US payroll taxes. In the US, employers must register with—and make individual payments to—federal and state unemployment agencies, as well as federal, state, and (sometimes) local tax agencies.
Payroll tax obligations typically include:
- Federal and state employee income tax withholdings
- Federal and state unemployment taxes (SUTA & FUTA)
- Social Security withholdings and contributions
- Medicare (FICA) withholdings and contributions
- Location-based local taxes (in some cases)
You should also know that, while we won’t be covering them in this article, taxable benefits in Canada differ from those in the US.
Canadian payroll taxes. In Canada, employers must register with the CRA and may also—depending on which jurisdiction governs their business—have to register with (and make payments to) one or more provincial authorities.
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 schedule for remitting the income tax, EI, and CPP amounts you withhold from your employees’ pay—along with your own EI and CPP employer contribution amounts—is determined by the CRA. The CRA is also responsible for directing the appropriate tax amounts to the respective provincial agencies.
Note: There’s one important 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? Get in touch with Enkel’s team of experienced payroll professionals today and discover all the ways we can work with your business.