Are you interested in paying in Canada, or if you already pay in Canada (hopefully you know the below information, but a review is useful!), having an overview of the basic of the Canadian payroll rules and regulations is helpful. From everything to Maternity leave to Tax Rates, learn the general rules and regulations of how the Canadian Payroll system works and differences over the United States’ system.
National Payroll Information
Chief source of tax information is Canada Revenue Agency.
Currency is the Canadian dollar.
Tax year ends December 31.
Holidays include New Year’s Day, Labour Day, Good Friday, Thanksgiving, Victoria Day, Christmas, Canada Day, and Boxing Day.
Employee Workweek Calculations
Employees are only allowed to work up to 8 hours in a day, unless there is a written agreement that allows for a greater maximum number of worked hours in an established regular workday.
The maximum number of hours in a workweek is 48, unless there is a written agreement that is approved by the Director of Employment Standards. (If after 90 days, the Director has not replied to an employer’s application, the employer can require employees to start working more than 48 hours a week, but not more than 60 hours a week.) Even with an agreement, the employer does is required to pay overtime for hours worked over 40 hours in a week.
Maternity leave includes up to 17 weeks of unpaid pregnancy leave for full-time, part-time, permanent, or contract employees. This includes employees who work for an employer covered by the Employment Standards Administration and was hired at least 13 weeks before her baby’s due date. Pregnancy leave ends on the day the baby is born.
Maternity leave also includes parental leave for both new parents. They can take up to 35 or 37 weeks of unpaid time off. Full-time, Part-time, permanent or contract employees are entitled to parental leave as long as the employer is covered by the Employment Standards Administration and the employee was employed for at 13 weeks before the parental leave began.
Usually an employee who returns from pregnancy or parental leave is entitled to the same job the employee had before going out on leave, or a comparable job if their old job does not exist. The employee also has the right to continue to participate in benefit plans and earn credit for length of service and seniority. The employee must be paid at least as much as he or she was paid before going out on leave, and if the wage for the job increased when the employee was on leave, the employer must pay the higher wage when the employee returns from leave.
Parental leave is separate from pregnancy leave, so a birth mother may take both pregnancy and parental leave.
Two weeks of Vacation pay is granted to employees after each 12 month entitlement year (based on anniversary date), although collective bargaining agreements may provide for more than two weeks. Typically, vacation must be taken within 10 months following the completion of the vacation entitlement year.
RRSP, or Registered Retirement Savings Plan, is a retirement savings plan established by an employee, registered by CRA, into which the employee and spouse contribute. Deductible RRSP contributions can be used to reduce taxes. Income earned in an RRSP is exempt from taxes until funds are withdrawn from the plan. Employer contributions to an RRSP are taxable benefits to the employee.
RRSP benefits are pensionable and insurable and subject to Canada Pension Plan (CPP) contributions and Employment Insurance (EI) and Quebec Pension Plan (QPP) premiums. Employer contributions to an RRSP are not insurable as long as the employee cannot withdraw the amounts until they retire, or they can withdraw the RRSP funds under a Home Buyers Plan or a Lifelong Learning Plan only. Although the benefit is taxable and must be reported on the T4/RL1, employers do not have to withhold income tax on contributions they make to RRSPs.
The province of Ontario has an Employer Health Tax that employers must pay if employees work at a permanent establishment in Ontario, or if employees work elsewhere but are paid through a permanent establishment in Ontario. The tax rate is between .98% and 1.95% based on total wages.
Canada Pension Plan (CPP) is a national social insurance plan in which all employees over 18 must participate. Quebec has its own plan, the Quebec Pension Plan (QPP). The rate and annual wage base can change each year and can be found at the CRA website.
Employment Insurance (EI) provides temporary financial assistance to unemployed Canadians who have lost their jobs through no fault of their own. EI is funded by a payroll tax paid by both employers and employees. Rates and wage limits can change each year and can be found at the CRA website.
Provincial and Territorial Tax Rates are calculated the same way as federal taxes and change each year. You can find the most current federal and provincial rates at the Canada Revenue Agency.
Wage statements in Canada must be provided in writing or emailed as long as the employee has some method to produce a paper copy, and must include:
- the pay period dates
- the wage rate, if there is a wage rate
- gross wages and how they were calculated
- amount/purpose of each deduction
- amounts paid for room & board
- net wages
The employee must be able to keep this information separate from the paycheck.
Record of Employment
The Record of Employment (ROE) is created when an employee has a break in service due to termination, lay off, or leave of absence. The ROE is filed with Services Canada and is a record of past pay periods’ payroll data used to substantiate payments of employee contributions of EI. More information about ROE can be found at http://www.servicescanada.gc.ca