Are you a foreign company thinking of hiring remote Canadian contractors? Or do you have a Canadian entity and want to hire employees?
Canada is known for its educated and skilled workforce and offers excellent opportunities to expand your team.
So whether you are hiring your first remote worker in Canada or looking to upgrade your remote recruitment process, this is guide you need. It will address how to legally hire a Canadian citizen, compliance concerns, average salaries, and give you an overview of the recruitment process.
How to legally hire remote workers in Canada?
Once you decide who to hire, it's time to determine how to hire them. There are three ways to hire remote workers:
- Hire as independent contractors.
- Establish a business entity in Canada and hire as employees.
- Hire through an EOR.
Hire as independent contractors
In Canada, hiring a remote worker is advantageous as independent contractors tend to be up to 40% less expensive than employees performing similar work.
However, it involves certain risks, such as the contractor being reclassified as an employee after a certain period of being hired.
Immigration officers may scrutinize your remote workers to ensure they work as independent contractors. If they are found to work as employees, your business may face consequences for failing to function according to Canadian laws and regulations.
Establish a business entity in Canada
Setting up a business entity is another way to employ in Canada. The process of establishment is supposed to take approximately 1.5 days and cost about CAD 200, which is quick and relatively inexpensive by global standards. However, it may be more expensive and take longer in practice.
You are required to prepare and submit documents, including Articles of Incorporation and others, depending on the province in which you are setting up the business. You must also source local experts, including an accountant to manage payroll and legal professionals to offer you advice on local regulations and legislation.
While setting up your business, you are required to obtain a business number, a unique nine-digit identification number. You can get it via the Online Filing Centre, or submit Form number RC1 at your nearest Tax Centre or Tax Service Office, or directly contact the local Canada Revenue Agency.
It is mandatory for you to open a Payroll Deductions account to hire employees. This can be done in various ways, such as filling a form online using your business number, submitting Form number RC1B to the nearest Tax Centre or Tax Service Office, or directly contacting the Canada Revenue Agency.
In setting up your business entity, you are liable for any legal issues that arise and are responsible for compliance.
Hire through an EOR
An Employer of Record or EOR acts as the legal employer for your employees in Canada. It allows you to hire employees without establishing a business entity in the country. Also, hiring through a EOR eliminates most legal compliance risks and administrative tasks that come along with the other options, like paying taxes, setting up work permits, and running payroll.
Are employment contracts required in Canada?
In Canada, an employment contract is necessary for your employee to start working for you. It does not require to be formal, and even verbal agreements can stand as employment contracts. It's common for employers and employees to have an oral agreement or an informal letter of hire.
You may wonder if the employees' working rights or entitlements are adequately protected without a written employment contract. However, there is no need for concern due to 'implied terms.'
An implied term is defined as a term that is not explicitly stated in the contract but is legally binding and enforceable as the law assumes it is included in the contract.
So every employment contract in Canada has the following implied terms:
- The employer must provide work, pay for the work, and provide a safe working environment.
- The employee must perform the work and be loyal to their employer during their term of employment and for a reasonable period after that.
Of course, it is advisable to have a formal written contract in place. All Canadian jurisdictions or provinces have employment legislation that sets out the terms and conditions of employment. Contracts can provide employers and employees additional benefits and protections, but they cannot waive or reduce the fundamental terms and conditions.
What is the onboarding process in Canada?
While onboarding a new employee, the process you are required to follow depends on whether you have a business entity in Canada or have hired the employee through an EOR.
Step one - Provide information on the role
Before the onboarding process, you must ensure that your new employee has information about their role, i.e., their work responsibilities, minimum working hours, monthly salary, other benefits, key performance indicators, and probation period.
Step two - Formal onboarding
Once you have communicated the details given in Step 1, you can start the formal procedure of onboarding your new employee. The onboarding process varies depending on whether you are employing them through your business entity or an EOR.
Hiring through your business entity
When you have a business entity, the onboarding requires you to get your employee's Social Security Number (SIN) and ask them to complete Form number TD1, i.e., Personal Tax Credits Return.
The SIN is a nine-digit code that is used to access government benefits.
Keep in mind not to overlook SINs that begin with '9.' This indicates that the person is not a Canadian citizen or does not have a permanent residence in Canada. Such a person is authorized to work only for a specific set of employers.
Form TD1 determines the amount of tax deducted from an individual's employment income or any other kind of income. There are also federal and provincial TD1 number forms.
Employing through a EOR
A EOR acts as the legal employer for your employee in a country where you do not have your business entity and takes care of the onboarding process. It is your responsibility to provide the EOR with documents and information such as:
- Copy of the employee's passport.
- Copy of the employee's driver's license or other ID.
- Employee ID number.
- SIN.
- Bank details.
- Proof of address.
- Job description.
- CV.
- Police check details.
- Technical qualifications.
- Photographs.
- Medical exam results.
Step three - Initiate employee
Every company has its unique process for employee initiation. You should organize all the paperwork and provide your employee full access to any company networks, such as the employee portal, before their first day at work. This will help them feel more welcome.
What is the probation period for an employee in Canada?
If you are employing workers from Ontario or British Columbia, a mandatory three-month probation period applies. In other Canadian provinces, it may vary. After the probation period ends, you may provide your employee with a minimum of two weeks' notice before terminating the employment contract.
What are the yearly leave entitlements for an employee in Canada?
Annual leave entitlements, also known as 'vacation entitlements' in Canada, vary between provinces. Under federal employment legislation, all employees get a minimum of two weeks of vacation leave after working for a year under the same employer. After working for six consecutive years with the same employer, the vacation entitlement increases to three weeks a year.
Vacation pay is given 14 days before the employee goes on vacation. Depending on the company's work practices, it can also be paid immediately upon the employee's return.
Vacation pay is calculated as four percent of earnings in the current year of employment if the vacation entitlement is two weeks. If the vacation entitlement is three weeks, vacation pay is equal to six percent of earnings in the year of employment. The year of employment starts from an employee's hire date (or in some cases on any anniversary of that date) and ends twelve consecutive months later.
As an employer, you have the right to advise the employee when they can go on vacation.
What are the mandatory employer and employee contributions?
In Canada, you and your employee must contribute to the Canada Pension Plan (also known as Quebec Pension Plan if employed in Quebec) and Employment Insurance.
However, such tasks get eliminated when hiring through an EOR as it takes care of all the legal requirements.
Is it necessary for an employer to provide health insurance for an employee in Canada?
Canada has a well-established national taxpayer-funded Medicare system, covering all essential medical services such as doctor and hospital visits.
It is common for employers to provide their Canadian employees with additional coverage for other medical costs, such as prescription medication, optometry, dentistry, home health care, and rehabilitative services.
What is the process of termination in Canada?
The process of termination of an employment contract in Canada is similar to that in other countries. It includes giving notice, finalizing documents, and making the final payment.
To terminate any employment contract, you are required to give written notice to employees who have been employed for more than three months. However, the required notice period depends on how long the person has worked for you and the province in which your business is established.
Parting thoughts
Do you also want to hire in other countries? Here are our guides on hiring in Ukraine and Poland.
We at Starkflow, offer a cost-effective service to quickly and legally employ your remote Canadian workers. You don't have to take the risk of hiring contractors or go through the expense of setting up a Canadian entity. We are here to help you in the hiring process, complying with every Canadian employment law.
As the employer of record, we ensure every detail is attended to during the hiring process and while setting up payroll. We keep employees happy with their work agreement and have a rapid, transparent onboarding. We offer them great benefits and a reliable employment contract compliant with all local regulations. We ensure that the agreed monthly salary is paid on time and that the employees are always taken care of locally.
If you would like more information, feel free to contact us.