Country Playbook
Region: Americas
Country: Canada
August 2015
Any US tax advice contained herein was not intended or written to be used, and cannot be used, for the purpose of avoiding penalties that may be imposed under the Internal Revenue Code or applicable state or local tax law provisions.
These slides are for educational purposes only and are not intended, and should not be relied upon, as accounting advice.
This material has been prepared for general informational purposes only and is not intended to be relied upon as accounting, tax, or other professional advice. Please refer to your advisors for specific advice.
Region – Americas
Country – Canada
1. Country Currency/Abbreviation
Canadian Dollar - CAD
2. Tax Year Designation
Calendar – Year Start 1/1; Year End 12/31
3. Minimum Pay Frequency
Employers must set a pay period and they must also set a regular day for employees’ pay day. Employers are required to pay all wages earned in the pay period on pay day.
4. National Minimum Wage
Minimum wage is set on a regional level and the range is between CAD 10.00 to 11.00 per hour.
5. Workday/Workweek
The standard workday 8 hours unless otherwise outlined in the employee’s ‘regular’ schedule. The maximum number of regular hours in a workweek is 44 hours.
6. Overtime Considerations
Overtime is paid based on a period of one week or more and is paid at a rate of 1.5 times the regular rate.
7. Employment Contracts *
In the majority of Canada all conditions of employment are considered contractual (Quebec is excluded). Canadian employment contracts can be in written form, verbal, or implied and must include essential responsibilities for the position along with salary, vacation time and other key elements of employment.
8. Social Security Program *
Canada’s social security program is government funded.
9. Income Tax Withholding *
Canada employers are required to withhold income tax from employees and remit on their behalf.
10. Unemployment Taxes *
Employers are required to contribute at a rate in the range of 1.97% to 2.49% of total wages. Employees are required to contribute at a rate in the range of 1.41% to 1.78%.
11. Termination Notes *
Canada has extensive and complex termination notice and severance laws. It is important to consult with an internal organization expert or an external expert when considering an involuntary termination of an employee in Canada.
12. Other Special Payroll Considerations *
· Employers are required to deduct contributions for the Canadian Pension Plan from employees.
· Employers are required to provide employees with detailed remuneration statements on or before payday.
· The T4 form is the year-end tax form employers provide to employees.
13. Summary Analysis/Recommendation
Country Labor Climate:
Canada has a sophisticated labor market and also has well established guidelines in regards to employee and contractor classifications. The four key drivers for status decisions are control, ownership of tools, potential profit or loss, and integration. The only element not built into the decision tree is integration. The Canada Revenue Agency defines integration as, “Where the worker integrates the payer's activities to his own commercial activities, a business relationship probably exists... Where the worker integrates his activities to the commercial activities of the payer, an employer-employee relationship probably exists.”
Employment Status Recommendation:
The decision tree should be used as a foundation for determining employment status, but if there is any ambiguity of status, please refer to the four conditions above. If the individual does not legitimately meet any of those four conditions, they are an employee.
Integration is not considered in the decision tree and in Canada it is an important element to consider when making the independent contractor determination.
Independent Contractor Payments:
There are no reporting requirements for organizations that contract with independent contractors that are Canadian nationals.
Recommendation:
1. Due to the low reporting requirements, there is a very low risk in paying Canadian independent contractors through accounts payable.
Employee Payments:
When making the determination of risk and cost of establishing an internal payroll program, numerous factors must be taken into consideration. Within this document, sections denoted with an asterisk “*” are some of the basic components of that analysis.
Once an individual is identified as an employee, there are many requirements inherited by the employer. Those requirements range from social benefit programs to employer related taxes directly attributed to headcount. Factors such as risk of being out of compliance, the capital cost associated with being in compliance, and additional administrative costs to establish and maintain the programs associated with the requirements are key components of determining the best solution for paying employees.
Recommendation:
1. Due to the extensive requirements related to payroll processing in Canada, the recommendation is to seek a 3rd party vendor to administer this program.
2. There are payroll and HRIS systems with configuration implemented to address the complex administration of Canadian payroll. With the right level of expertise internally, a program could be hosted by BU, but risk levels would rise to moderate.