What global businesses need to know about payroll in Canada.
Canada’s economy is the tenth-largest in the world by GDP, generating more than US$2 trillion per year. Given its population is only around 40 million (less than an eighth of its neighbor to the south, the United States), it points to a country that punches well above its weight in terms of economic strength.
With its stable economy and well-educated workers, Canada attracts businesses from around the globe. It’s regarded as one of the most stable and progressive countries on the planet, and is among the least corrupt countries, according to Transparency International. More than three-quarters of its exports go to the United States, although at the time of writing (February 2025), the threat of tariffs being imposed by the Trump administration may cause some businesses in Canada to explore exports elsewhere.
According to the World Bank’s most recent Ease of Doing Business rankings, Canada is the third-best country in the world in which to start a business. However, running payroll can be complicated, as many rules and regulations vary across its 13 provinces and territories. Read on for a guide to the basics of running payroll in Canada.
Getting started
Incorporation of a business in Canada can take place either at federal or provincial level. You’ll need to incorporate federally if you want to operate in more than one province. If you choose to open a branch office in Canada, it’s important to bear in mind that the foreign parent assumes full responsibility for liability, and can make dealings with tax authorities complicated.
Federal incorporation can be done online for C$200 (approximately £110; $140; €135) within one business day, or for C$300 (approx. £170; $210; €200) through an express service that takes just four business hours. Provincial incorporation fees are similar, but vary from province to province.
Companies will need to obtain a Business Number (BN) from the federal government (or a Quebec Enterprise Number [NEQ] for those incorporating in Quebec) for dealing with the Canada Revenue Agency. When a payroll program account is registered with the CRA (which must be done before the first remittance due date), a BN is generated if one hasn’t already been allocated to the business.
The BN can then be used to register to pay their Goods and Services Tax (GST), corporate income tax, and import/export taxes. It may also be necessary to register to collect and remit provincial sales taxes, for Workers’ Compensation Insurance, for provincial Employer Health Tax, and for other provincial and municipal licenses.
Employment considerations
Canada has some stringent regulations around employment law, especially regarding reporting.
Among the requirements, employers are required to provide information to shareholders on the diversity of directors and senior management, and all businesses with more than ten employees are required to have a pay equity plan in place. Employers must review every new employee’s Social Insurance Number (SIN) card within three days of the employee starting work, and have the employee fill out Form TD1 for the personal tax credits return.
Approximately 90 percent of workers in Canada are protected by the unique employment laws of their province or territory. The other ten percent – which includes many in industries such as broadcasting and banking – are protected by the federal labor standards that define required employment conditions.
The standard for an employee is a 40-hour working week, with an overtime rate of 150% of salary for all work beyond that limit. However, the time threshold for overtime does vary in some provinces: for example, in Ontario and Alberta it only applies after 44 hours, and after 48 hours in Nova Scotia and Prince Edward Island.
Fines for not complying with Canada’s tricky overtime laws can be expensive. A global accounting company once paid an estimated $10 million to settle a class-action suit with its employees, some of whom were regularly forced to work 90 hours per week.
Probation periods vary between 90 days and six months, depending on the province. Notice periods increase with length of service, starting at one week during the first two years of employment, and gradually ramping up to a maximum of eight weeks for employees with at least ten years’ service.
Compensation, Bonuses and Severance
Canadian payroll regulations call for employers to pay employees on a regular basis, whether weekly, bi-weekly, semi-monthly, monthly or annually. As in most countries, every paycheck should clearly account for any wages, overtime, holiday, severance, or bereavement pay.
There is a federal minimum wage rate, and individual provincial minimum wage rates: whichever is higher takes precedence. The current federal rate as of 2025 is C$17.30 per hour (approx. £9.70; $12.10; €11.60), which is higher than the vast majority of provincial rates at present. However, you should keep a close eye on changes to rates, which can happen on a regular basis; in particular, the provincial minimum rates change at different times of the year in different places (e.g. October in Ontario, April in Nova Scotia and May in Quebec).
Bonuses can be paid on a discretionary or contractually defined basis in Canada, and there are no restrictions around their payment. Paying bonuses to reward good performance, or to motivate talented employees, is common. Severance pay is five days’ salary, or two days’ salary per completed year of service, whichever is greater.
Tax and Social Security
Employers operating in Canada are required to withhold income taxes, at both the federal and provincial level, from their employees and submit them to the appropriate tax collection agencies.
The federal tax rate is progressive based on income, ranging from 15% for the lowest bracket, which is the first C$55,867 of taxable income (approx. £31,200; $39,300; €37,700), to 33% for income over C$246,752 (approx. £138,000; $174,000; €166,500). On top of this, provincial tax rates are applied, also on a progressive basis but with significant variations between provinces: these currently range between 11.5% and 25.75%. A nominal provincial rate of 15.84% applies to non-residents.
Social security contributions in Canada are relatively low, and run as follows:
- Canada Pension Plan: 5.95% employer, 5.95% employee
- Employment Insurance: 2.32% employer, 1.66% employee
Employees in Quebec contribute to the Quebec Pension Plan (QPP), and the rates involved can differ slightly from the main CPP.
Holidays and Leave
Canada has a total of 12 days of public holiday each year, and each province also observes its own selection of local holidays on top of these. Paid leave entitlement starts at two weeks after one year’s service, rising to three weeks after five years. Employees should receive vacation pay of 4% of annual earnings if they have two weeks’ paid leave, and 6% if they have three weeks.
Paid maternity leave entitlement is 15 weeks, paid by employment insurance at 55% of normal salary, up to a maximum of C$650 per week (approx. £370; $460; €445). On top of this, Canada also offers generous parental leave at the same rate, for up to 40 weeks shared between the parents (maximum of 35 weeks per parent). Alternatively, parents can take extended parental leave of up to 69 weeks between them, paid at 33% of salary, up to a maximum of C$390 per week (approx. £220; $275; €265).
Paid sick leave is accrued by full time employees at a rate of 9.375 hours per qualifying month (where an employee has worked at least 75 hours). Any earned sick leave pay that is not used is not paid out to employees when they leave.
Canada Payroll: A Summary
Canada is a great place to do global business – but it isn’t necessarily the simplest. The differences in regulations and requirements across all its provinces can make payroll administration complicated, especially when added to all the initial set-up tasks of moving into a new market.
Working with a global payroll provider can help strip away the complexity, account for all the provincial variations, and give you a solid, dependable payroll solution so that you can expand into Canada with confidence.
This guide is for informational purposes only and not intended to convey or constitute legal or any other advice. It is not a substitute for advice from a qualified professional. Click here to see more country payroll guides from CloudPay