Hire Employees in Canada: A Complete Guide

Chances are, you didn’t land here by accident. You’ve found a sharp, experienced data analyst in Toronto who’s ready to start next week. But there’s just one problem: you don’t have a legal entity in Canada.

This situation is common. Canada attracts global employers for a reason:

• 56% of adults hold college degrees 
• Literacy rate is 99%, which is ideal for fast-scaling SaaS, fintech, and analytics companies
• A stable economy, bilingual workforce (English and French), and time zone overlap with much of the U.S. and Europe

But hiring there isn’t simple. You’ll need to navigate provincial labor laws, payroll tax contributions, mandatory benefits, and strict rules around worker classification, or risk non-compliance.

This article walks you through the legal options available to hire employees in Canada, whether you want to build a small team or test the market with a single hire. You’ll compare the hiring methods, and why Employer of Record (EOR) is often the fastest, safest way to hire, without setting up a Canadian entity.

Can a Foreign Company Hire Employees in Canada?

Yes, but only through fully compliant channels. If you’re based outside Canada and want to hire someone who lives there, you must follow local laws. That means your responsibilities: from minimum wage to overtime pay, will differ based on where your employee lives.

Here are  the key compliance areas you must get right:

• Provincial employment standards:
  • Each province in Canada has its own rules on minimum wage, overtime, holidays, vacation pay, and termination notice. Hiring someone in Ontario is not the same as hiring someone in British Columbia.
• Income tax and payroll deductions:
  • You must  deduct and remit federal and provincial income tax from employee salaries to the CRA
  • Employer contributions are mandatory for Canada Pension Plan (CPP) or Quebec Pension Plan (QPP), Employment Insurance (EI), and provincial health taxes (ON, MB, QC) 
• Work authorization:
  • If your hire is a foreign national who lives in Canada, they’ll need a valid open work permit or an employer-specific permit before starting.

Let’s say you’re a US-based startup. You find a great front-end developer in Montreal. She’s excited to join next week. You have no local entity in Canada, and setting one up will take 4 to 6 months and thousands in legal fees.

Instead, you partner with an Employer of Record (EOR). The EOR becomes the legal employer, handles payroll and tax compliance, and your developer starts working in 10 days, legally and fully covered.

Want to learn how international hiring works? Read our guide.

Key Legal Requirements to Hire Employees in Canada

Once you decide to hire in Canada, you can’t ignore the legal groundwork. Like we’ve mentioned above, Canada has a decentralized employment system, which means the rules change depending on the province your employee lives and works in.

Whether you’re hiring directly, through a local entity, or using an Employer of Record(EOR), here’s what you need to get right.

Employment standards vary by province

Hiring someone in Quebec versus British Columbia isn’t just a location change. You’d have to consider higher vacation entitlements, different parental leave rules, and entirely separate payroll tax requirements. Provincial rules shape everything.   

Minimum wage (as of 2024):

• British Columbia (BC): CAD 17.40/hr
• Quebec (QC): CAD 16.10/hr
• Saskatchewan (SK): CAD 15.00/hr

Working hours:

• Standard: 40 hours/week, typically capped at 8 hours/day
• Overtime pay: 1.5x regular wage after 40–44 hours, depending on the province

Leave entitlements:

• Vacation: Minimum of 2 weeks per year; increases to 3+ weeks after 5 years
• Sick/personal leave: 5–10 days per year, with 3–5 often paid
• Parental leave: Up to 52 weeks total; maternity leave minimum 15 weeks (with financial support from  Employment Insurance(EI) or Quebec Parental Insurance Plan( QPIP) in Quebec).

Note for global employers: Canadian leave policies may appear “standard,” but provinces like Quebec offer more generous parental benefits. If you’re coming from the U.S., expect a higher baseline of worker protections.

Payroll Requirements

After you hire in Canada, you’re responsible for paying payroll in Canadian dollars (CAD), deducting the right taxes, and submitting everything to the CRA on time. 

Most provinces require biweekly or semimonthly pay schedules. 

You’ll need to:

• Issue T4 slips annually to report income and taxes withheld
• File a ROE whenever someone leaves, whether they quit, are laid off, or go on leave
• Remit CRA payroll tax, usually due by the 15th of every month
• Maintain payroll records for at least three years (some provinces recommend four)

And also make mandatory contributions such as:

Contribution Type	Rate / Amount (2024)	Notes
Canada Pension Plan (CPP) / Quebec Pension Plan (QPP)	5.95% of gross earnings (up to CAD $66,600)	Required nationwide (CPP), or QPP for employees in Quebec
Employment Insurance (EI)	2.282% (up to approx. CAD $1,219)	Employer matches at 1.4x the employee contribution
Provincial Health Taxes	Varies by province	Applies only in Ontario, Manitoba, and Quebec; based on total payroll
Workers’ Compensation	CAD $1–$3 per $100 of payroll	Required in all provinces; rate depends on industry and job risk level

Payments should go through a CRA-approved method, like a Canadian bank account or via electronic funds transfer (EFT).

Pro Tip: If you’re hiring without a Canadian entity, managing this on your own can be time-consuming and risky. Partnering with an EOR like Tarmack ensures compliant, timely filings: no CRA penalties, no setup delays.

Learn more: How to Pay International Employees

Methods to Hire in Canada 

There are four main ways to hire employees in Canada. Each option comes with trade-offs in speed, compliance risk, and long-term cost. 

The right choice depends on how fast you need to hire, how many people you’re bringing on, and whether you’re building a lasting presence in the country.

Hiring method	Setup time	Setup cost	Compliance risk	Ongoing cost	Best for
Local Entity	3–6 months	$15,000–$20,000+	High. You manage all contracts, filings, and remittances	Payroll + CPP, EI, insurance, filings (adds ~15–25%)	Companies building a large, long-term team in Canada
Independent Contractor	1–2 weeks	Minimal	High. Risk of misclassification, CRA penalties	Invoiced rate only, no benefits or tax contributions	Short-term projects, freelance work, or early testing
EOR (Employer of Record)	5–10 business days	None, only service costs of EOR	Low. EOR handles compliance and acts as legal employer	Depends on the service used	Fast, low-risk hiring without a Canadian entity

1. Set Up a Local Entity

This is the most traditional and most complex option. You’ll need to incorporate a Canadian business, register for a CRA payroll account, and take on full legal responsibility for your workforce.

Setting up an entity typically takes 3 to 6 months and costs $15,000 to $20,000+ in legal, accounting, and administrative fees.   

You’re responsible for everything: 

• Drafting compliant employment contracts
• Withholding income tax
• Contributing to CPP and EI
• Filing T4 slips 
• Managing workplace insurance

You’ll also need to navigate provincial laws on vacation, termination, and parental leave.

For example, a US-based SaaS company wants to build a permanent R&D team in Toronto. Since they plan to hire 15+ engineers over the next year, they set up a Canadian subsidiary. But if you’re hiring fewer than five people or want to move fast, the upfront legal and compliance investment may outweigh the benefit.

2. Hire Independent Contractors

If you only need short-term help, you can work with contractors. They handle their own taxes and benefits, but you must treat them like independent professionals, not employees.

This means no fixed hours, no exclusive contracts, and no company-provided equipment.

Canada’s CRA uses RC4110 guidelines to assess whether a worker is truly a contractor. If reclassified as an employee, you could owe retroactive CPP and EI contributions, income tax withholdings, and penalties with interest.

Say you hire a freelance UX designer in Montreal to work on a 2-month project. She uses her own tools, sets her own hours, and sends you invoices. This is a contractor relationship, but you have to document it carefully to avoid any misclassification risk.

Contractors make sense for short-term, low-risk roles. But for core team members, the compliance exposure often outweighs the short-term cost savings.

3. Partner With Local Staffing or HR Firms

These firms can help you source talent and may handle basic onboarding or payroll. But you remain the legal employer, which means you’re still responsible for statutory deductions, contract compliance, and termination obligations.

You’ll need to ensure employment agreements meet provincial standards, remit payroll taxes, and issue ROEs and T4s. Most staffing firms don’t absorb legal liability; they just support parts of the process.

This is best for companies testing the waters or hiring 2–5 employees temporarily. It offers speed but limited risk transfer. Not as hands-free as EOR, but not as permanent as an entity.

4. Hire Through an Employer of Record (EOR)

If you want to hire in Canada quickly and legally without setting up a company or dealing with local tax filings, an Employer of Record (EOR) is likely your best option.

An EOR is a third-party organization that becomes the legal employer of your Canadian hire on your behalf. They handle employment contracts, register with the CRA, run payroll, deduct taxes, issue ROEs and T4s, and manage benefits. You still oversee the employee’s work, but the EOR takes on the administrative and legal responsibility.

Most hires can start in 5 to 10 business days. You skip the paperwork, the payroll setup, and the legal exposure. 

While you’ll pay a fee for the service, it removes the burden of setting up infrastructure or risking non-compliance. This is ideal for:

• Testing the Canadian market before committing to entity setup
• Hiring a single employee or small team quickly
• Avoiding risk from misclassification, tax errors, or improper contracts

An EOR means no surprise liabilities, predictable monthly costs, and zero setup time.

Explore the full breakdown: 10 Reasons Smart Companies Use an EOR  

Why Global Companies Choose Tarmack

Tarmack isn’t just another EOR. It’s a tech-based platform with transparent pricing, no hidden fees, and a team that understands the details of Canadian employment law. 

Here’s what sets us apart:

• 100% compliance with federal and provincial labor laws
• Transparent pricing, no setup fees, no hidden clauses
• Real-time dashboards for HR and finance teams
• Dedicated local support in Canada, available 24/7
• Up to 30% savings on what you’d spend managing this internally

Whether you’re hiring in Ontario, Quebec, or British Columbia, we help you stay compliant from day one. Get a Quote today!

Frequently Asked Questions (FAQs)      

What documents are required for Canadian payroll compliance?

You’ll need a CRA payroll account, a signed employment agreement, completed federal and provincial TD1 forms, and the employee’s SIN and banking details. If you’re working from Canada for a US company, these documents ensure proper tax withholding and reporting.

What is the Total Cost of Employment (TCE) in Canada?

TCE includes salary plus employer contributions to CPP/QPP, EI, workers’ compensation, and (in some provinces) health taxes. On average, it adds 15–25% above base salary. If you’re wondering how to hire a Canadian for a US company, understanding TCE is key to accurate budgeting.

How do I ensure data privacy and security for remote employees in Canada?

Follow Canada’s PIPEDA guidelines, use encrypted systems, and avoid storing data outside approved jurisdictions. For US companies with remote teams working from Canada, partnering with an EOR ensures employee data is handled in compliance with local privacy laws.

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

A PEO requires a Canadian entity and shares employer duties with you. An EOR becomes the legal employer, no entity needed, handling all compliance for you. For US companies without a local presence, only an EOR is compliant.