How to hire employees in Canada through an employer of record (EOR) [2024]

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.

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).

Learn more about What is an Employer of Record (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.

3 benefits of using employer of record services in Canada

First, let’s explore the top advantages of using EOR services for global expansion:

Streamline hiring abroad

Looking to hire in Canada but you don’t have a business presence yet? An EOR helps you tap into top talent quickly without going through the process of establishing an entity (a time-consuming endeavor that can take months). Not only can you hire employees in days instead of months with an EOR, but you also save thousands in legal and registration fees.

Compliance support from local experts

Employment and labor laws vary widely across Canada’s different provinces and regions. If you hire employees through your own entity, you’ll have to go through the hassle of classifying workers, structuring benefits packages, understanding the intricacies of tax laws, and more.

A reputable EOR absorbs most of these compliance responsibilities as the legal employer of your workforce. They’ll also ensure your business and HR practices are up-to-date by tracking legislative changes.

Efficient HR operations

Managing hiring-related admin work creates a mountain of complexity for HR—and it only gets tougher as you expand your global team. By partnering with a Canadian EOR, you can offload burdensome manual work, from employee onboarding through offboarding, and centralize your workforce ops. This gives your people ops team valuable time back to focus on business-critical work.

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.

Step #2: How to choose the best EOR for your business

Several EORs on the market—including Deel, Papaya Global, and Rippling—can help hire, pay, and manage Canadian employees. Before you choose a platform, you should consider the services you will need, and how much you plan to grow your global hiring presence.

Here’s how Rippling EOR stacks up against Deel in Canada:

All-in-one global HR platforms, like Rippling, allow you to hire, pay, and manage employees and contractors worldwide. They are also “payroll processors,” which means they actually process your payroll, transmit funds, and calculate and file taxes in every country through their own software. This allows you to manage and automate the entire employee journey in one place, all around the world.

Most EOR platforms are not HRIS’s (human resource information systems). They were built with the express purpose to hire and pay people internationally. They aggregate local payroll providers in every country and manually transmit your payroll files to them. This approach comes with many limitations.

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.

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.

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.

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

Frequently asked questions about hiring through an EOR in Canada

What is an employer of record in Canada?

A Canadian employer of record is a solution that helps companies expand into the country without having to set up a local entity. The EOR acts as the official employer of a company’s workforce, meaning it takes on legal employment responsibilities, including onboarding, payroll processing, benefits administration, and termination. Additionally, an EOR in Canada provides local compliance support with tax and labor laws.

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.

Can a foreign company use employer of record services to hire employees in Canada?

Yes. EORs are usually the best choice for first-time international hiring in Canada. Since an EOR already has an entity in the country, it can hire employees quickly and efficiently on your behalf.

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 provide 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
• Employment Insurance
• 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.

What are the employer costs for full-time employees in Canada?

Employers are responsible for deducting the following from their full-time employees’ paychecks. Along with social security contributions like EI premiums and pension deductions, provincial taxes may also apply. Find the details below:

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