Once you decide to expand into Canada, you must shift your focus to hiring local talent that will help expand your company’s reach. Entitlement and termination terms, taxation rules, and your different payroll options are all critical factors to consider before officially hiring an employee.
Taxation rules in Canada
Canada operates under a progressive tax system that varies by province. Each province has its own social security system and contribution rates, and all employees’ contributions are deducted from their paycheck every month. The top federal tax rate is 33%, and provincial rates vary from 4% to 21%.
Canada’s federal taxes include employee contributions to Employment Insurance and the Canada Pension Plan. Payroll taxations rules govern the maximum employer and employee contributions. The social security system also offers numerous child-related benefits such as the Universal Child Care Benefit, Fitness Tax Credit, and the Child Tax Benefit.
Canada payroll options for companies
Companies have a few different options when it comes to choosing a Canada payroll processing company:
- Work with a local payroll administrator that acts as a payroll provider for your employees. As the employer, you are still held liable for any compensation errors, but you won’t have to worry about payments, filings, and other calculations.
- Larger companies may decide to handle payroll internally themselves after they establish a subsidiary. This route requires a substantial amount of time and money to understand and adhere to Canada’s taxation and payroll laws.
- Consider using a global EOR to directly employ your talent and manage payroll compliance. This allows you to skip local entity or subsidiary setup, so you can start paying your teams quickly and accurately with ease.
How to establish payroll in Canada
If you decide to run payroll yourself in Canada, you will have to set up a subsidiary first. Companies can choose to incorporate at the federal or provincial level.
Federal incorporation lets companies trade internationally and throughout any province in Canada. Provincial incorporation allows companies to trade internationally and only in the province in which it is incorporated. You’ll then need to get a Business Number (BN) from the federal government — or a Quebec Enterprise Number (NEQ) if you are incorporating in Quebec. Your number allows you to open a payroll program account with the Canada Revenue Agency.
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