How to hire employees in Canada through an Employer of Record (EOR) [2023 Guide]

Hiring in Canada? Foreign employers keen on tapping into the country’s skilled workforce can start off by hiring Canadian contractors and sending international payments. But if you want to expand and hire full-time employees, you’ll need to establish a legal entity or hire through an EOR.

Alternatively, you can use an “Employer of Record” (EOR), which handles Canadian payroll, tax, and compliance considerations. Through Rippling EOR’s entities, you can start hiring and working with employees in Canada quickly and compliantly.

Here’s a step-by-step guide for hiring through an EOR in Canada.

Step by step: How to hire through an Employer of Record in Canada

Step #1: Decide between a Canadian EOR and a legal entity

Should you hire Canadian employees through an EOR, or set up your own entity? This depends on your company’s resources, size, and plans to scale.

• Legal entity in Canada. Setting up a legal entity from scratch usually requires registration with local authorities, opening a local bank account, and consulting with local experts to ensure compliance with tax and labor laws.
• Canadian EOR. An EOR is a third-party service that operates as an employer on a company’s behalf—meaning you don’t need to set up your own entity. As well as allowing you to hire full-time Canadian employees, EORs handle all the legal requirements for complying with Canadian laws for payroll, contracts, and benefits. EOR services also include calculating and withholding taxes, onboarding and managing employees, and running payroll.

Registering a legal entity can take months. Once established, it requires knowledge of complex Canadian employment laws that vary by province and territory. Any misstep can incur fines and legal action from the Canadian Revenue Agency (CRA).

Hire employees in Canada in 90 seconds with Rippling

Normally, setting up a corporate entity abroad is a long, expensive process. But through Rippling EOR’s entities, you can start hiring and working with people abroad quickly and compliantly. See Rippling.

Step #3: How to hire and onboard your Canadian employees

Once you’ve picked an EOR that works in Canada, you can begin the onboarding process by collecting the following information from your new employees:

• Name (matching the account where you’ll deposit their pay).
• Date of birth and date of hire.
• Contact information, including their mailing address in Canada.
• Social Insurance number.
• Work permit (if applicable).
• Bank account information.
• Amount to be paid in Canadian dollars (CAD).
• Completed TD1 forms. Every full-time employee needs to fill out a Personal Tax Credits Return (TD1 form), and they’ll need to submit a new one any time they make changes to their personal tax credits.

Next, you need to send out an employment agreement that outlines key working conditions. An EOR can automatically localize and distribute employment agreements. Every Canadian hire will have a legally compliant contract offering statutory requirements for probationary periods, working hours, minimum wage, benefits, and termination policies like severance pay and notice periods.

Example: Let’s say you hire two hourly employees in Canada who live in different provinces that have separate overtime pay requirements.

When you use an EOR in Canada, it will generate separate employment agreements to account for the Ontario resident being eligible for 1.5x base pay after 44 hours in a workweek, and the British Columbia resident getting the overtime rate after eight hours in a workday.

Rippling EOR automatically flags non-compliant sick leave policies and tells you how to fix it. If you'd like to give your employees more leave to match policies in other countries, you can do that too. See Rippling.

Step #4: Run payroll

For the A-to-Z on global payroll, read our comprehensive guide to running international payroll for employees in Canada.

Once you’ve collected a new hire’s information and both parties have signed employment agreements, an EOR will pay your Canadian employees in CAD, while withholding legally required taxes from salaries. This includes contributions to:

• Federal and provincial income taxes
• Canada Pension Plan (or the Québec Pension Plan for Québec Residents)
• Employment Insurance
• Employment Health Tax
• Workers’ Compensation Insurance

Keep in mind many EOR companies are payroll aggregators, meaning they pay employees via third-party vendors. This makes for slower processing times and headaches when it comes to managing international employees under the same system.

Rippling EOR, by contrast, simplifies global employment by using native payroll software to send funds and handle taxes, allowing you to pay Canadian employees alongside your local workforce—all within a single pay run.

Below is a preview of how Rippling’s one-click global payroll system works:

Frequently asked questions about hiring through an EOR in Canada

How much does an EOR cost?

EORs typically use one of two pricing structures:

• Fixed monthly fee per employee
• Percentage of payroll plus applicable taxes

Both methods can also come with various administrative fees, onboarding charges, and other costs for supplemental features.

Keep in mind that you don’t need to use an EOR for your entire workforce. If you want to segment its use, you’ll only be charged for the employees you employ through the EOR.

What is the difference between an EOR and PEO?

A Professional Employer Organization (PEO) co-employs a company’s workforce and provides administrative services like paying employees, handling compliance, and filing payroll taxes. The company and PEO are jointly responsible for the workforce. A PEO does not, however, allow you to hire in other countries where you haven’t set up a local entity.

An EOR, on the other hand, is the sole employer of the portion of your workforce you use it for, assuming all the associated liabilities. An EOR allows companies to work with employees in other countries without setting up a legal entity.

Does an EOR protect your sensitive and confidential information?

While outsourcing your payroll management to an EOR can spare you time and compliance risk, sharing your data with companies who use third-party vendors leaves you exposed to data breaches from manual uploads.

You should seek out EORs that prioritize data protection, including:

• Compliance with industry-standard privacy regulations in different countries.
• Secure infrastructure with around-the-clock maintenance.
• Carefully vetted personnel.

You can also establish a Data Processing Agreement (DPA) with a payroll service that mandates sound privacy practices and provides legal protection.

Does an EOR help with Canadian tax filings?

An EOR can automatically calculate and file your taxes in Canada. Rippling, for instance, is an authorized payroll provider by the CRA. On your company’s behalf, it can distribute and submit T4 forms that outline:

• Total income.
• Employment income.
• Taxable benefits.
• Income tax deducted.
• Canada Pension Plan (CPP) contributions—or regional pension plans like the Québec Pension Plan (QPP).
• Employment Insurance (EI) premiums.

What are the mandatory benefits for Canadian employees?

Canada’s employment standards and regulations provides the following mandatory employee benefits:

• Pension
• Sick leave
• Parental leave (including paternity and maternity leave)
• Other protected leave (such as family responsibility and compassionate care leave)
• Vacation entitlements (which vary depending on year of service)
• Public holidays
• Workers’ compensation

A Group health plan is not mandatory, but recommended, and exact benefits vary by province. Additionally not every province shares the same holidays.  For instance, Remembrance Day is a statutory holiday in Alberta and British Columbia, but not Ontario.

For more information on mandatory benefits in Canada, read our complete guide.

Rippling and its affiliates do not provide tax, legal or accounting advice. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. You should consult your own tax, legal and accounting advisors before engaging in any related activities or transactions.