Considering a PEO in Canada? Here’s everything you need to know

Expanding your business into Canada opens doors to a wealth of opportunities—from tapping into a highly skilled workforce to accessing a robust and diverse market. But navigating the intricacies of Canadian employment laws, tax regulations, and cultural nuances can be daunting.

That's where a Professional Employer Organization (PEO) comes into play. By partnering with a PEO, you can simplify some of the complexity of hiring and managing employees in Canada, and if you partner with a Global PEO (also called an EOR) you can even bypass one of the most complex, expensive, and time-consuming parts of the process: establishing a local entity.

Here’s everything you need to know about using a PEO in Canada.

What is a PEO?

A Professional Employer Organization (PEO) is a company that provides comprehensive human resources solutions for businesses. By entering into a co-employment agreement with its client companies, a PEO can streamline and automate many administrative, employment-related HR functions—like payroll, benefits administration, and regulatory compliance.

When a business partners with a PEO, it retains complete control over daily operations and management decisions, while the PEO handles the administrative tasks associated with employing staff. This setup allows businesses to focus on growth and strategy, knowing that their human resources responsibilities are in expert hands.

However, the terms PEO, international PEO, and employer of record (EOR) are often used interchangeably when discussing global employment solutions—even though there are key differences among them.

PEO vs. international PEO or EOR

While PEO, international PEO, global PEO, and EOR are terms that are frequently used interchangeably, it’s crucial for businesses looking to hire or expand internationally to understand the differences between traditional PEO services, and international PEO or EOR services.

Canadian Professional Employer Organization (PEO)

A traditional PEO operates under a co-employment model within the US and is regarded as a “paymaster” (a term from the case law, not legislation) in Canada. In this setup, both the PEO and the client company share employer responsibilities. The PEO supports a variety of HR functions like payroll, benefits, and compliance, while the client oversees day-to-day management and operations.

To take advantage of these services, however, the client company will need to establish a local entity in the country where the services are being provided.

Employer of record (EOR) or global PEO

“Global PEO” and “international PEO” are two other names for an employer of record (EOR). A global PEO doesn't engage in co-employment; instead, it acts as the sole legal employer of the client company’s workforce in the target country, handling HR services, payroll, and compliance. 

The client company doesn't need to establish a local entity; the global PEO (EOR) acts as a partner to ensure all employment practices meet local laws. In countries like Canada, this allows the client company to direct the employees' work without worrying about the legal complexities of international employment.

Why use a global PEO (EOR) to hire in Canada?

Expanding your business into Canada presents exciting opportunities, but hiring and paying employees in a new country can be complex. As a foreign company, there are only a few ways you can legally hire and pay Canadian employees:

Setting up your own legal entity: Complex and time-consuming

Establishing your own local entity in Canada means registering your business with the Canadian government and complying with all federal and provincial regulations. This involves a number of time-consuming regulatory steps:

• Registering your business: You'll need to register your company name, choose a business structure, and obtain the necessary licenses and permits
• Understanding legal obligations: Your obligations under Canadian tax laws, labor standards, and employment regulations may differ, depending on the province you establish your business in and the business structure and industry you choose
• Setting up local operations: This includes opening a Canadian bank account, securing office space, and potentially hiring local administrative staff

While taking this approach gives you full control as a Canadian employer, it's not always ideal. Setting up a legal entity can be expensive—and it’s likely to take weeks, if not months. The process is complex, often requiring legal assistance to navigate differing federal and provincial laws. And trying to manage compliance with Canadian labor and employment laws can open your business up to significant compliance risk, especially if you're unfamiliar with local regulations.

Using a global PEO (EOR): Faster, simpler, and less risky

Partnering with a global PEO (EOR) allows you to bypass the need to establish a legal entity in Canada. A PEO becomes the legal employer of record for your Canadian staff, handling all HR and administrative functions on your behalf. This option offers several advantages:

• Speed: You can start hiring immediately without waiting for entity setup
• Simplicity: The PEO manages the complexities of Canadian employment regulations on your behalf
• Risk mitigation: The PEO helps to manage compliance risk, protecting your business from potential legal issues

By using a PEO, you can focus on your core business activities while the PEO handles the ins and outs of Canadian employment laws, plus shoulders the burden of the administrative tasks that come with hiring employees and running a business.

What does an international PEO (EOR) offer?

You can access a wide range of global PEO services that streamline and automate various aspects of international hiring and employment when you partner with an international PEO (EOR) to support your expansion into Canada:

Employee onboarding

The global PEO (EOR) manages the onboarding process for your new employees, making sure all your procedures comply with Canadian regulations. This can include preparing offer letters, collecting necessary documentation, and setting employees up on their payroll system. By handling these tasks, the PEO makes sure your Canadian team members have a smooth start.

Payroll services

Handling payroll in a foreign country involves navigating a whole new set of tax systems and regulations. A global PEO (EOR) takes care of all payroll processing tasks, like calculating wages, withholding taxes, and making on-time payments to the right tax agencies. They also manage deductions for benefits and employment insurance, keeping you compliant with Canadian tax laws.

Access to locally relevant employee benefits

Offering competitive benefits is a crucial part of attracting and retaining talent. A global PEO (EOR), like a traditional PEO, provides access to locally compliant benefits packages, which may include:

• Supplemental healthcare, dental, and vision insurance
• Retirement savings plans
• Life coverage
• Time off beyond statutory minimums

Canada also requires employers to provide a number of statutory benefits, including:

• Contributions to the Canada Pension Plan (CPP), a contributory savings plan for most employed Canadians outside of Quebec, and contributions to the Quebec Pension Plan (QPP) for those in Quebec
• Employment insurance (EI) to provide income for Canadian employees who lose their jobs
• Minimum vacation entitlements (these vary by province)

Additional mandatory benefits may be required, depending on the province where your employees work. For example, some provinces require workers’ compensation insurance. Some also require employers or employees to contribute to special health insurance or post-secondary education tax funds.

Compliance support

Navigating Canadian labor laws can be challenging, especially since they vary federally and by province. A global PEO (EOR) can offer compliance support by:

• Drafting and managing employment contracts in both English and French to accommodate language requirements (particularly in Quebec)
• Helping employers adhere to provincial regulations regarding work hours, overtime, and termination
• Managing workers’ compensation insurance and other liabilities to protect both the employee and employer

HR outsourcing

In addition to all of the services listed above, a global PEO (EOR) can handle a wide range of other HR services. 

By outsourcing HR tasks to a global PEO (EOR), you alleviate the burden on your in-house team. The PEO handles administrative services such as record-keeping, policy implementation, and compliance reporting. They can also assist with employee management, providing ongoing HR support that aligns with your business needs. This allows your internal HR team to focus on strategic initiatives rather than day-to-day administrative tasks.

What are the benefits of using a global PEO (EOR) to expand into Canada?

Utilizing a global PEO (EOR) when expanding into Canada offers a number of significant advantages that can positively impact your business:

Reduced compliance risk

A global PEO can help you reduce your compliance risk by making sure your employment practices adhere to Canadian laws.

Missteps in compliance can result in severe penalties, including fines and legal action, which can derail your global expansion efforts. The global PEO (EOR) stays up to date with changing regulations so you don’t have to. This can help you avoid costly mistakes associated with misclassification, tax errors, or other breaches of labor laws.

Time savings

Entering any new market swiftly can help your business gain a competitive edge—and that includes the Canadian market. Partnering with a global PEO (EOR) can accelerate the process by handling all administrative and compliance-related tasks, allowing you to get established and onboard employees much faster than if you were setting up a local entity. Then, you can start operating and growing your business that much sooner.

Cost savings

Setting up a local entity involves substantial financial investment, including registration fees, legal costs, and ongoing administrative expenses. Partnering with a global PEO (EOR) can be more affordable, particularly for smaller businesses with limited staffing needs in Canada. Your business is likely to save on overhead costs and can allocate its resources more efficiently as it expands, investing in areas that directly contribute to your business growth.

Local expertise and guidance

Canadian laws and regulations are unique in that they can vary significantly from one province to another. For instance, employment standards in Ontario differ from those in Quebec, where both English and French language requirements come into play.

A global PEO (EOR) can offer valuable local expertise, guiding you through regional differences—a particularly valuable benefit in a country like Canada, where understanding provincial nuances is key to successful operations.

How to choose an international PEO (EOR) 

When looking for the right international PEO (EOR) for your business, these are some of the key factors you may want to consider:

• Industry expertise: Look for a global PEO with a proven track record in your industry
• Service offerings: Make sure it offers the services you need, whether that’s payroll and compliance in a specific country, multi-country payroll, or the ability to pay both employees and contractors
• Technology: Look for a global PEO with a modern technology platform that’s easy-to-use. Look for self-service tools your employees can access, and make sure it’ll fit into your existing tech stack and integrate seamlessly with other essential tools your business relies on.
• Reputation: Look at reviews, testimonials, etc. for a global PEO that’s well-regarded by its past and current customers
• Pricing: Make sure it fits your budget. It’s a good idea to consider your future plans, since many international PEOs charge per employee, which makes them grow more costly if your business plans to scale up its global operations.

Best global PEOs (EORs) for hiring in Canada

There are many different global PEOs (EORs) that offer services in Canada. Here are just a few of the top options and the key features they offer.

Rippling

Rippling EOR was ranked the #1 Employer of Record service in 2023 for providing access to global benefits, compliance management, payroll processing, and more for your employees around the world. But Rippling is more than just a global PEO—it offers global HR, finance, and IT all in one place. Every part of Rippling is built on a single source truth for employee data, so when you're ready to scale up and establish your own local entity, transitioning your employees to your own entity takes just minutes.

Key features:

• Onboard international employees and independent contractors in 90 seconds
• Pay workers in their local currency in days instead of weeks and without waiting on transfers or conversions
• Automatically file and pay taxes globally
• Streamline and sync all your HR data with payroll, including hours, time off, deductions, and more
• Design worldwide and country-specific policies for employee benefits, leave, and more
• Automate your global compliance work
• Report on all your employee data across the world in one place
• Manage human resources, IT, and finance in one unified system for global employment

Papaya Global

Papaya Global offers an EOR service built for large enterprises, with tools for hiring, onboarding, workforce management, multi-currency payments, and benefits administration. It can also run HR services and payroll for your entire workforce—including both employees and independent contractors.

Key features:

• Automated payroll
• Safe, simple, and fast global payments (in local currency or crypto)
• Integrations with HRIS, expense management, time and attendance, ERP, and financial software
• Dedicated customer success representative

Deel

Deel is a well-known EOR provider you can use to expand your global footprint quickly without having to set up your own business entities.

Key features:

• Onboarding and offboarding
• App management
• Compliance management
• Streamlined payroll
• Integrations with other HR platforms

Remote

Remote is an EOR service provider that's especially geared toward remote teams and employers of remote workers. It offers a modern platform with HR, payroll, and benefits features for remote employees.

Key features:

• Payroll with no interchange fees
• Benefits management
• IP protection
• Self-service onboarding

Oyster HR

Oyster HR offers EOR services that include hiring, compliance, payroll, and benefits support, promising to handle all the details so you can focus on top talent.

Key features:

• Document management
• Global payments in local currencies
• Localized benefits packages
• Dedicated customer service for enterprise users

Hire in Canada quickly and compliantly with Rippling

Rippling automatically handles the hard parts of hiring in Canada and around the world—from compliance to payroll to onboarding and more.

With Rippling EOR, you can:

• Onboard in minutes. Hire and onboard Canadian employees to maximize productivity on day one. Rippling handles everything from benefits enrollment to assigning required trainings.
• Pay locally in days—not weeks. Pay all of your employees in Canada—and around the world without delay. Rippling does the calculations and money movement for you. You’ll be free to focus on what matters.
• Automate global compliance. Double-checking compliance risks takes time. Rippling runs securely in the background, continuously flagging potential risks.
• Unify HR, IT, and finance. Data entry and duplicate systems waste time. Every team has one source of employee data, so speedy automation can take on manual work.

Frequently asked questions about Canadian PEOs

What’s the difference between a PEO and an EOR?

While Professional Employer Organizations (PEOs) and Employers of Record (EORs) both offer solutions to streamline HR functions and facilitate international hiring, they operate under different models.

A PEO typically engages in a co-employment relationship with the client (in the US) or operates as a so-called “paymaster” for the client (in Canada) where both the PEO and the client company share employer responsibilities. This model, however, requires that both the PEO and the client have local entities in the country. 

An EOR, on the other hand, becomes the full legal employer of your staff in Canada. The EOR takes on all employer responsibilities, including compliance with Canadian labor laws, payroll processing, benefits administration, and tax obligations. This model does not require that your company have a local entity in the country. As such, by using an EOR, your company can direct its employees' work without the need to establish a local entity or navigate complex legal requirements. An EOR may be called a global PEO or an international PEO.

How does an international PEO (EOR) work?

An international PEO (EOR) facilitates global employment by managing HR functions, payroll, and compliance in the target country. In Canada, the international PEO acts as a partner that enables your company to hire employees without setting up a local entity.

Are there any limitations on the types of employees a global PEO (EOR) can manage in Canada?

While a global PEO can manage a wide range of employment types in Canada, there may be some limitations to consider, such as industries with regulatory requirements and licensing standards, or employees who require high-level security clearances. Before partnering with a global PEO (EOR), discuss your specific hiring needs to make sure they can manage the types of employees you intend to hire in Canada.

This blog is based on information available to Rippling as of October 22, 2024.

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.