Canada’s robust economy and wealth of skilled professionals make it an ideal market from which to hire independent contractors and remote workers. Whether your business is in Canada or overseas, it’s essential to comply with employment laws specific to hiring and paying contractors in Canada. Failure to adhere to Canadian regulations can result in paying high fees and fines, along with damage to your company’s credibility.
This article shows you how to hire and pay independent contractors in Canada quickly and safely. We also inform you how to pay a Canadian contractor while adhering to complex provincial employment laws.
The Difference Between Employee and Contractor in Canada
An employer in Canada is responsible for deducting Canada Pension Plan (CPP), Employee Insurance (EI) and withholding other employee taxes. A fully compliant company has to file these with the CRA (Canada Revenue Agency) on behalf of the employee.
A self-employed worker, or independent contractor, files their own tax and insurance deductions.
Employees in Canada typically receive benefits such as paid sick days, maternity leave, paid holiday leave, etc., from the state social security program. Many employers will also offer additional benefits to their employers. Typically, in these arrangements an employees agrees to abide by all the rules of the employer. Their contract will include many more legal protections than a contractor’s however.
An independent contractor is not entitled to any of these benefits. Their time off must be scheduled and won’t be compensated. Accordingly, independent contractors are given little to no protection according to the Canada Labour Code.
Should a worker be unclear on their categorization as employee or independent contractor, they or their employer can apply to the CRA for a ruling. This process can be quite complex and lengthy. As a result, it’s better to understand the guidelines and definitions before hiring independent contractors in Canada.
Employment Laws in Canada
Labor and employment protection laws in Canada vary according to province. Federal law dictates rules for all workers and employees across the country. However, provincial laws guide many labor relationships across the country.
There are ten provinces in Canada, and employment law is governed by common law in all but one of them. The Civil Code of Quebec governs these same relationships in Québec.
Canada does not operate under “at will” employment, and employers must give a reason for terminating an employment contract such as exposing trade secrets. Contractors do not fall under the same regulations, and employers may end their contracts much more simply and without notice.
Suppose there is any notice time or severance pay for a contractor. In that case, it must be specified and agreed upon in the work contract.
The hourly minimum wage in Canada differs by province and ranges from CAD$13 to $16. Contractors may agree to work for minimum wage or at a different price, depending on the work.
Independent Contractors and Taxes in Canada
Independent contractors in Canada, like most countries, file their own taxes, either by payment or by lump sum.
Employers don’t need to withhold taxes for independent contractors. However, are still tax forms required that you should be aware of and fill out correctly and on time.
For independent contractors, you need to give them the T4A form that includes the total compensation the contractor has received for their work. This is for the contractor to file their income taxes accurately.
If you or the worker are based in Quebec, they may also need to file an RL-1 form.
Five Ways to Pay Independent Contractors in Canada
If you have a branch of your company in Canada with access to local bank accounts, it should be easy to pay independent contractors.
However, for international companies setting up an overseas branch takes time and requires additional financial planning.
Digital Payment Options
Online payment systems such as PayPal provide efficient ways for contractors to receive compensation quickly and accurately. The transfer fees, though, including exchange rate fees, can be quite high.
International Money Order or Check
This traditional payment method is reliable and secure. Still, it often takes a long time for the employer to obtain and send paperwork physically. The contractor also needs to go to a physical location to deposit them, which can be inconvenient.
Although cryptocurrency is legal in Canada, the law considers them forms of bartering currency, and this may complicate your contractor’s income tax processes.
Given the nature of these currency types, many contractors may be unwilling to accept payments like this.
Your contractors will not be part of your company’s regular payroll, as they are not officially employees. However, third-party payroll services and partners work explicitly toward paying independent contractors and self-employed workers.
These payroll partners are equipped with the legal knowledge to ensure that your payment is being delivered swiftly and securely.
Get Global Expertise from INS Global
Hiring contractors from Canada or making contractor payments can be complex if you’re unfamiliar with local laws and regulations. You want to ensure that you are hiring workers safely and in full legal compliance. This way, you don’t waste any money or time on lawsuits and fines.
INS Global is a fast and secure partner for all your global expansion needs. Our legal advisors are always on hand to assist you in making intelligent and compliant hiring decisions. Never worry about necessary legal information like tax treaties or payroll taxes that could cause issues if left untouched.
Our payroll and HR services cover every aspect of your needs and guarantee timely and accurate payment for all your workers. We can even help manage all areas of HR functions, like vacation time, family and medical leave, and forming employment agreements to satisfy everyone.
INS Global offers industry-leading PEO and EOR services in over 80 countries worldwide. With INS Global, you can enter new markets quickly and confidently.
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