How to hire employees in Canada

Hiring an employee in Canada means either setting up a Canadian entity and registering for payroll with the Canada Revenue Agency, or engaging an employer of record (EOR) that employs the person for you. The first is the right foundation once you plan to build a Canadian team; the second gets a first hire working without a local company. Capstan does not offer EOR services, so if that is the route you need, engage a provider directly.

Canada looks familiar to anyone who has hired in the US, and then turns out to be different in the ways that matter most: most of the employment rules are provincial, not federal, and Quebec runs on a partly separate system again. This guide is a conceptual map, not a rate card. Rates, thresholds, maximums and provincial rules change, so confirm current figures with Canadian counsel or a Canadian payroll provider before you rely on them.

Entity or employer of record

If you form a Canadian entity, you register a payroll account with the CRA (and with Revenu Quebec if you employ in Quebec), withhold and remit source deductions, and carry the employment yourself. That is worth doing once you intend to hire more than one or two people or stay for the long term.

If you are not ready for that, an EOR employs the person under its own Canadian entity, handles their payroll and statutory remittances, and invoices you. You direct the work; they hold the employment relationship. It costs more per head and gives you less control, and it is a common bridge for a first hire. In both cases the person is an employee with provincial employment rights, not a contractor.

Source deductions: income tax, CPP and EI

Every Canadian payroll run withholds tax and contributions and remits them to the CRA. You do not need to run the maths, but you should recognise the pieces, because they shape what your payroll provider needs from you each cycle.

Income tax. Both federal and provincial income tax is withheld from each pay, based on the employee’s claim codes, and remitted to the CRA (Quebec provincial tax is remitted to Revenu Quebec).

Canada Pension Plan (CPP). Employer and employee both contribute up to an annual maximum. In Quebec the equivalent is the Quebec Pension Plan (QPP), which runs on its own rates.

Employment Insurance (EI). Both sides pay EI premiums, with the employer share set as a multiple of the employee’s, up to a yearly maximum. Quebec also operates its own parental insurance plan.

The pattern is a federal spine with a Quebec variant bolted alongside it, and figures that reset every year. That is why the calculation belongs with a provider who tracks it, and why this guide gives you none of the numbers.

The province decides most of the rest

This is where Canada differs most from a single national system. Employment standards are largely provincial: minimum wage, vacation entitlement and vacation pay, statutory holidays, hours of work, termination notice and severance, and workers’ compensation coverage all sit with the province, unless the work is in a federally regulated industry such as banking, telecoms or interprovincial transport.

Practically, that means the terms for someone in Ontario are not the terms for someone in Alberta or British Columbia, and Quebec adds language-of-work rules and its own labour standards on top. Workers’ compensation is a separate provincial registration and premium in most provinces. Do not carry one set of rules in your head across the country; confirm them per province with local advice.

Contracts, notice and termination

Written employment agreements are standard and set out role, pay, hours, and termination. Termination in Canada is more involved than at-will US employment: provincial standards set minimum notice or pay in lieu that grows with service, and beyond that, common law reasonable notice can be significantly larger unless a valid, enforceable termination clause limits it. A poorly drafted termination clause is one of the most common and expensive Canadian hiring mistakes, so have the agreement drafted by someone who knows the relevant province’s law rather than adapted from a US template.

Data protection and privacy

Employee data in Canada falls under federal privacy law (PIPEDA) and, in several provinces, provincial privacy statutes, with Quebec’s Law 25 the strictest and most recently strengthened. You need a proper basis for collecting and using employee data, sensible retention, and appropriate security, and some provinces give employees explicit rights over the data you hold. Keep employee data in one controlled place with proper access limits rather than scattered across drives and inboxes. Our note on HR data security and compliance covers the practices worth insisting on.

The contractor line

Canada takes the contractor-versus-employee distinction seriously, and both the CRA and the courts apply their own tests looking at control, ownership of tools, chance of profit and risk of loss, and integration into the business. Getting it wrong can bring back source deductions, CPP and EI, plus interest and penalties, and can expose you to employee entitlements you thought you had avoided. A genuine contractor runs their own business with real independence; someone integrated into your team, under your direction, on your schedule, looks like an employee whatever the invoice says. If you are unsure, read contractor versus employee and take Canadian advice before you commit.

Where Capstan fits

Capstan does not run Canadian payroll and is not an employer of record. It holds no CRA or Revenu Quebec tables and files nothing with any authority. What it does is be the system of inputs around the calculation: employee records, pay structures, joiners and leavers, leave, attendance, and adjustments, compiled into a documented export for your Canadian payroll provider. Their computed results come back onto the employee record, so your record and their remittances agree. Contractors live in the same workspace as your team, and the contractor module adds their portal, invoices and payout register on top; like every module it needs a paid plan under it.

Public holidays. There is no bundled Canadian holiday set, so you create the calendar, set its working week, add the dates, and assign it to the locations it covers. Because statutory holidays differ by province, a company hiring in two provinces already keeps two calendars. Bundled sets exist today for a short list of countries and Canada is not on it, which is worth knowing before you plan a first-day setup rather than after. The calendar itself works the same way everywhere: holidays typed as public or restricted, a cap on how many restricted days an employee may pick, and an employment inheriting its calendar through its location.

Jurisdiction rules are data, not code. Nothing in Capstan hardcodes a country. Contractor tax content is a country pack your workspace configures per jurisdiction. You fill in each country’s contractor withholding, tax lines and document requirements yourself: a draft pack appears the moment you add a contractor in that jurisdiction, and you activate it once the values are ready. It covers contractor invoicing, not employee payroll. For Canada, the tax treatment comes from you and your provider.

Where to go next

If your Canadian hire is one part of a cross-border team, the guide to hiring global contractors covers the wider structures, and the US country note follows the same shape and is the closest neighbour to compare against. If you are weighing an EOR against your own entity, employer of record explained sets out the trade. For the current CPP, EI and provincial figures this guide has left out on purpose, speak to a Canadian payroll provider or employment lawyer. The structure is the durable part; the numbers you confirm each year.