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Global HR Compliance in Сanada

Entering the Canadian market or managing an international workforce within Canada means navigating a complex and evolving set of employment, payroll, and compliance rules.

For international employers, HR leaders, and recruitment agencies, the stakes are high: compliance failures can lead to costly fines, reputational risk, or loss of market access. At the same time, understanding Canadian employment law unlocks the ability to hire, pay, and retain talent efficiently, whether you have a local entity or not.

This guide is written for experienced global operators seeking to:

  • Understand the legal frameworks for hiring and managing employees in Canada.
  • Compare direct employment, Employer of Record (EOR), and contractor models.
  • Minimise the risk of misclassification and non-compliance penalties.
  • Build robust, scalable HR and payroll practices as part of a broader global strategy.

The following sections provide a factual, up-to-date reference on contracts, payroll, terminations, statutory benefits, and the practical realities of employing staff in Canada, either directly or via a global EOR.

Content reflects Canadian law and practice as of July 2025.

How to Employ Staff in Canada: Options and Models

Hiring talent in Canada as a foreign or international employer involves choosing the right legal structure for employment. Each option carries its own compliance requirements, risks, and operational considerations.

1. Direct Employment via a Canadian Entity

  • Requirement
    The employer must have a registered Canadian legal entity (e.g., corporation, subsidiary, or branch).
  • Implications
    Full responsibility for payroll, tax withholding, statutory benefits, HR compliance, and regulatory filings at federal and provincial levels.
  • Use Case
    Suitable for businesses with an established or long-term presence in Canada and the resources to manage complex local compliance directly.

2. Employer of Record (EOR) / Global EOR Solution

  • Requirement
    No Canadian entity required. The EOR becomes the official employer of record, while the client retains operational control over the employee’s work.
  • Implications
    The EOR assumes all legal liability for payroll, statutory deductions, tax reporting, and employment law compliance. The client pays the EOR a monthly fee for each worker.
  • Use Case
    Enables rapid, fully compliant hiring in Canada for companies without a local entity, or those needing to test the market, onboard project teams, or run cross-border operations.

3. Engaging Contractors or Freelancers

  • Requirement
    The worker is engaged as an independent contractor, not an employee.
  • Implications
    High misclassification risk if the relationship resembles employment (control, integration, regular hours, etc.). Canadian law heavily scrutinises contractor arrangements, with strict penalties for misclassification.
  • Use Case
    Only suitable for project-based, genuinely independent work with minimal supervision and limited integration into the client’s core business.

4. Staffing or Recruitment Agency Placement

  • Requirement
    A registered Canadian agency acts as the direct employer and supplies the worker on a temporary or contract basis.
  • Implications
    The agency holds employer liability, but the client must ensure co-compliance on occupational health and safety and workplace standards.
  • Use Case:
    Common for temporary or seasonal needs, but not a substitute for permanent employment or strategic roles.

Key Compliance Triggers

  • Regardless of the model, all employers must comply with Canadian minimum wage, statutory benefits, and employment standards.
  • Foreign nationals require an approved work permit and, in most cases, a positive Labour Market Impact Assessment (LMIA) before employment begins, even if hired via an EOR.
  • The Canada Revenue Agency (CRA) and provincial authorities may audit relationships for misclassification or non-compliance at any time.

Employment Contracts in Canada

Employment contracts in Canada are governed by a combination of federal and provincial laws, with specific requirements varying by jurisdiction. However, several core principles apply nationwide.

Types of Employment Contracts

1. Indefinite (Permanent) Employment Contracts

  • The default and most common form of employment in Canada.
  • If a contract does not specify a fixed term, it is presumed to be indefinite.
  • Employees are entitled to notice or pay in lieu upon termination (except for just cause).

2. Fixed-Term Contracts

  • Specify a set duration for employment.
  • At the end of the term, the contract expires automatically without the need for notice or severance, unless the employee continues working, in which case the relationship may become indefinite.
  • Risk: If a fixed-term contract is terminated early and lacks a valid, enforceable termination clause, courts may require the employer to pay out the remainder of the contract (see Howard v. Benson Group Inc., 2016 ONCA 256).

3. Casual and Part-Time Contracts

  • Cover irregular, on-demand, or part-time work.
  • Still subject to employment standards for minimum wage, statutory benefits, and termination rights.

Key Requirements and Best Practices

  • Written Contract: While a written employment agreement is not strictly required, it is strongly recommended to clearly outline terms, duties, compensation, notice periods, probation, and benefits.
  • Termination Clauses: Must be clear and enforceable. Ambiguous or poorly drafted clauses are likely to be struck down, defaulting to statutory or common law notice.
  • Prohibition on Contracting Out: Employment contracts cannot waive or contract out of minimum standards set by federal or provincial employment standards acts.
  • Renewals and Repeat Contracts: Successive fixed-term contracts may be deemed indefinite employment, triggering notice and severance rights.

Recent Developments

  • Recent Canadian case law has reinforced the need for precise drafting of termination and severance clauses.
  • Changes to employment standards (including minimum wage and leave entitlements) occur at the provincial level and should be reviewed before drafting new contracts.

Termination, Notice, and Severance in Canada

Ending an employment relationship in Canada is governed by a dual system: statutory (employment standards) and common law. Employers must comply with both federal or provincial minimums and any applicable contractual obligations.

Termination Without Cause

  • Statutory Notice
    Each province and territory sets minimum notice periods for termination without cause (usually 1–8 weeks, depending on length of service). For federally regulated employers (Canada Labour Code), the minimum is two weeks.
  • Common Law Notice
    Employees may be entitled to “reasonable notice” or pay in lieu, which is often much greater than the statutory minimum. Courts consider age, position, length of service, and likelihood of re-employment.
  • Continuation of Benefits
    Statutes require that all benefits (e.g., health, dental, life insurance) continue throughout the statutory notice period.

Termination With Cause

  • High Standard
    Dismissal for cause requires serious misconduct, such as fraud, gross insubordination, or criminal acts. Performance issues, “fit,” or minor misconduct rarely meet the threshold.
  • Procedural Fairness
    Employers must demonstrate clear evidence of misconduct, prior warnings (if appropriate), and an opportunity to improve, except in the most severe cases.

Severance Pay

  • Ontario
    Employees with five or more years’ service in firms with payrolls over CA$2.5 million are entitled to severance pay—one week per year of service up to 26 weeks.
  • Federal
    Employees with at least 12 months’ continuous service are entitled to two days’ pay per year of service, with a minimum of five days’ pay.
  • Elsewhere
    Other provinces do not mandate statutory severance pay but may owe pay under contract or common law.

Key Risks and Best Practices

  • Poorly drafted or ambiguous termination clauses are often unenforceable, defaulting to higher common law notice.
  • Fixed-term contracts with no clear termination provision may expose the employer to pay for the entire contract period if ended early.
  • Always document performance issues, warnings, and steps taken before termination.

Payroll, Tax, and Statutory Benefits in Canada

Employers in Canada must comply with both federal and provincial requirements for payroll administration, tax withholding, and statutory employee benefits. Non-compliance can trigger significant penalties and reputational risk.

Payroll and Tax Withholding

  • Registration:
    All employers (including EORs) must register for a payroll account with the Canada Revenue Agency (CRA) and, where applicable, provincial revenue agencies.
  • Deductions:
    Employers are responsible for deducting and remitting federal and provincial income tax, Canada Pension Plan (CPP) or Quebec Pension Plan (QPP) contributions, and Employment Insurance (EI) premiums from employees’ wages.
  • Employer Contributions:
    Employers must make matching contributions for CPP/QPP and EI, plus any relevant provincial payroll taxes (e.g., Employer Health Tax in Ontario).
  • Remittance Schedule:
    Most employers remit source deductions monthly; larger employers may remit more frequently.

Statutory Benefits

  • Minimum Standards:
    Employment standards legislation sets minimums for wages, overtime pay, vacation pay, statutory holidays, and protected leaves (parental, sick, compassionate care, etc.).
  • Health and Social Benefits:
    Provinces administer public healthcare; employers are not required to provide private health insurance but often do as part of competitive packages.
  • Vacation:
    Most provinces mandate at least two weeks’ paid vacation after one year, rising to three weeks after five years (Saskatchewan: three weeks after one year; four after ten).
  • Public Holidays:
    The number and dates of statutory holidays vary by province. Employees are generally entitled to paid time off or premium pay for work performed on those days.

Recordkeeping and Payslips

  • Employers must provide detailed payslips and maintain payroll and employment records (including tax forms and remittance receipts) for a minimum period—usually at least three to seven years depending on the jurisdiction.

Provincial Variations

  • Payroll tax rates, benefit minimums, and leave entitlements can vary significantly by province. Employers must ensure compliance in each province where staff are engaged.

Overtime, Working Hours, and Rest Periods in Canada

Employment standards for working hours and overtime in Canada are set by each province and territory, with separate rules for federally regulated employees. It is essential for employers to understand local requirements to ensure compliance.

Standard Working Hours

  • Typical Structure:
    In most provinces, the standard workweek is 40 hours (eight hours per day, five days per week). Some provinces, such as Alberta and Ontario, set the standard at 44 hours per week.
  • Maximum Hours:
    Maximum daily and weekly hours are set by law. Overtime is generally triggered when employees work more than these limits, unless an exemption applies.

Overtime Rules

  • General Rule
    Overtime pay is at least 1.5 times the regular hourly wage.
  • Thresholds by Province (as of July 2025)
    • Alberta, Ontario: Overtime after 44 hours/week
    • British Columbia, Manitoba, Quebec, Newfoundland & Labrador, Saskatchewan: Overtime after 40 hours/week
    • Nova Scotia, Prince Edward Island: Overtime after 48 hours/week
    • New Brunswick: Overtime based on hours exceeding the minimum wage threshold
  • Daily Overtime
    Some provinces (e.g., British Columbia, Quebec) also require overtime pay after a set number of daily hours (typically eight).
  • Double Time
    In some jurisdictions, double time applies for hours worked beyond a higher threshold (e.g., over 12 hours per day in British Columbia).

Exemptions and Special Cases

  • Certain roles (managers, supervisors, IT professionals, specific trades) may be exempt from overtime rules or subject to different thresholds.
  • Commission-based and piecework employees may have unique overtime calculation methods.
  • Compressed workweeks or averaging agreements may allow flexibility but must comply with statutory rules and, in some cases, require government approval.

Rest Periods and Breaks

  • Most provinces require a minimum rest period (e.g., 8 consecutive hours between shifts) and at least one unpaid meal break (typically 30 minutes) after five hours of work.
  • Rest day requirements vary but usually guarantee at least one day off per week.

Best Practices

  • Clearly document overtime eligibility and approval procedures in employment contracts and policies.
  • Monitor hours worked to avoid inadvertent non-compliance, particularly for remote or flexible staff.
  • Stay updated on local amendments, as provincial overtime and break laws are periodically revised.

Annual Leave, Sick Leave, and Parental Leave in Canada

Canadian employment law sets minimum standards for paid holiday, sick leave, and parental leave, with specific rules varying by province and territory. Employers must ensure compliance with both federal and provincial requirements.

Annual Leave (Paid Holiday)

  • Minimum Entitlement:
    Most provinces require at least two weeks’ paid vacation after one year of continuous service.
  • Enhanced Entitlement:
    After five years of service, the minimum rises to three weeks in most provinces. Saskatchewan requires three weeks after one year and four weeks after ten years.
  • Vacation Pay:
    Vacation pay is typically 4% of gross wages (6% after five years), paid either at the time leave is taken or on each paycheque.
  • Federal Employees:
    Employees under federal jurisdiction receive a minimum of two weeks’ leave, increasing to three weeks after six years, and four weeks after ten years.

Sick Leave

  • Statutory Requirements:
    Some provinces have introduced mandatory paid sick leave (e.g., British Columbia: five paid days per year; Quebec: two paid days per year). Unpaid sick leave is standard nationwide.
  • Employment Insurance (EI):
    Employees unable to work due to illness or injury may qualify for up to 26 weeks of EI sickness benefits.
  • Best Practice:
    Many employers offer paid sick leave beyond the minimum, as part of competitive benefits.

Parental and Maternity Leave

  • Maternity Leave:
    All provinces and territories mandate job-protected unpaid maternity leave, ranging from 16 to 19 weeks. The federal Employment Insurance (EI) programme pays up to 15 weeks of maternity benefits for eligible employees.
  • Parental Leave:
    Both parents (including adoptive parents) are eligible for job-protected parental leave. Duration ranges from 35 to 63 weeks, depending on the province and whether maternity leave was taken.
  • Paternity Leave:
    Unique to Quebec, fathers can take up to five weeks of dedicated paternity leave in addition to parental leave.
  • Benefit Payments:
    Parental and maternity leave benefits are provided through the EI system, subject to eligibility and wage maximums.

Compliance Points

  • Employers must reinstate employees to their previous (or equivalent) position after statutory leave.
  • Leave entitlements and benefit calculations should be reviewed annually for legislative updates.

Employment Standards Enforcement, Inspections, and Audits in Canada

Canadian employment standards are actively enforced at both the federal and provincial levels. Employers—whether direct-hiring or using an EOR—must be prepared for regulatory scrutiny.

Regulatory Bodies

  • Federal:
    The Labour Program of Employment and Social Development Canada (ESDC) oversees federally regulated employers.
  • Provincial/Territorial:
    Each province and territory has its own employment standards authority (e.g., Ontario Ministry of Labour, Quebec CNESST, British Columbia Employment Standards Branch).

Types of Enforcement

  • Complaints:
    Employees can file complaints about wage violations, terminations, unpaid overtime, discrimination, or benefit denial.
  • Inspections and Audits:
    Authorities may conduct random audits, targeted inspections, or investigations triggered by complaints, high-risk sectors, or data anomalies (e.g., payroll inconsistencies).

Common Areas of Focus

  • Accurate payment of wages, overtime, and vacation pay
  • Proper classification of workers (employee vs contractor)
  • Statutory deductions and remittances (tax, CPP/QPP, EI)
  • Recordkeeping and payslip requirements
  • Lawful termination procedures and notice/severance payments

Penalties for Non-Compliance

  • Financial penalties (fines, back pay, interest)
  • Legal orders to correct violations and reinstate employees
  • Public disclosure of violations (“name and shame” lists)
  • Risk of further tax or immigration investigations

Best Practices for Employers

  • Maintain up-to-date, detailed employment records for each worker (contracts, payroll, hours, benefits, terminations)
  • Conduct periodic internal audits to ensure ongoing compliance
  • Stay current with changes to employment standards in each jurisdiction where staff are engaged
  • For international employers using EOR/PEO solutions, ensure your provider’s practices meet Canadian statutory and regulatory requirements

Immigration, Work Permits, and the Role of Employer of Record (EOR) in Canada

International employers seeking to hire foreign nationals in Canada must navigate a complex immigration system. EOR solutions can streamline employment administration, but cannot replace or shortcut statutory immigration requirements.

Work Permit and Immigration Requirements

  • Work Authorisation:
    Most foreign nationals require a valid Canadian work permit before starting employment. There are two main categories:
    • Employer-Specific (Closed) Work Permits:
      Tied to a specific employer and often require a positive Labour Market Impact Assessment (LMIA).
    • Open Work Permits:
      Permit the holder to work for any employer in Canada but are typically limited to certain programs (e.g., spouses of skilled workers or international students).
  • Labour Market Impact Assessment (LMIA):
    Most employer-driven work permits require an LMIA — a process that demonstrates no qualified Canadian is available for the role. Certain exemptions apply (e.g., intra-company transfers, some free trade agreements).
  • Permanent Residency (PR):
    Programmes such as Express Entry and Provincial Nominee Programmes (PNPs) offer pathways to PR, but these are distinct from temporary work authorisation.

The Role of EOR/Global EOR in Immigration

  • Legal Employer of Record:
    An EOR acts as the Canadian legal employer for foreign workers, enabling international companies to hire and payroll staff without a Canadian entity.
  • Immigration Support, Not Sponsorship:
    An EOR can support document preparation and compliance, but the underlying immigration process and approvals must still be met, EORs do not have special exemptions or fast-track rights.
  • Compliance and Ongoing Obligations:
    The EOR ensures the employment relationship and payroll remain compliant with both immigration conditions and Canadian employment law.

Key Points for Employers

  • EOR solutions are ideal for companies needing to hire in Canada without local incorporation, but every foreign hire must have the correct work permit and, if applicable, LMIA.
  • Immigration costs, processing times, and risks remain the responsibility of the employer (or the EOR on the employer’s behalf).
  • Non-compliance with immigration or employment rules may result in penalties, removal orders, or reputational damage for both the employer and the EOR.

Choosing a Compliant Employment Model in Canada: Practical Decision Guide

Selecting the right approach for hiring in Canada depends on your business goals, local presence, and compliance risk appetite. The Canadian regulatory environment rewards proactive, transparent HR practices and penalises shortcuts.

Direct Hire via Local Entity

  • Best for:
    Companies with an established or long-term Canadian presence and resources to manage complex payroll, HR, and tax obligations directly.
  • Compliance:
    Full responsibility for all statutory obligations at federal and provincial level.

Employer of Record (EOR) / Global EOR

  • Best for:
    International employers without a Canadian entity who need to hire quickly, test the market, or manage cross-border teams compliantly.
  • Compliance:
    The EOR becomes the legal employer, assumes full statutory responsibility, and ensures payroll, tax, and employment law compliance—but cannot shortcut immigration requirements.

Independent Contractor

  • Best for:
    Short-term, project-based, or highly specialised work, where the contractor operates independently and is not integrated into your core business.
  • Compliance:
    High misclassification risk. Relationship must be genuinely arm’s length, or the CRA and provincial authorities may reclassify the worker as an employee, triggering penalties and back-pay obligations.

Staffing Agency / Labour Hire

  • Best for:
    Temporary, seasonal, or contract roles managed via a registered Canadian agency.
  • Compliance:
    The agency is the direct employer, but end-clients must still observe health, safety, and certain co-employment obligations.

Key Takeaways for International Employers

  • Compliance First:
    Canadian authorities enforce employment, payroll, and immigration rules rigorously. Penalties for non-compliance can be severe and reputationally damaging.
  • EOR Model Enables Global Reach:
    Employer of Record solutions offer a compliant, flexible alternative to entity setup for global companies, provided all immigration requirements are followed.
  • Stay Informed:
    Employment standards and immigration policies are updated frequently. Work with expert partners and review your approach regularly.

Need tailored advice or help with Canadian workforce compliance?
Acumen International’s team can guide you through direct employment, EOR onboarding, or global workforce structuring in Canada—ensuring every hire is fully compliant and future-proof.