Expanding North: The HR Essentials for U.S. Companies Employing Canadians
Expanding North: The HR Essentials for U.S. Companies Employing Canadians
Director of Customer Experience, AugmentHR
Cross-border employment between Canada and the U.S. is common, with many organizations operating on both sides of the border.
Employing Canadians from the U.S. can be a great way to access remote talent—but it must be done correctly. Hiring employees in Canada as a U.S. company comes with specific rules, requirements, and obligations.
U.S. companies hiring in Canada must comply with all applicable employment, tax, and payroll laws. Failing to meet these requirements can lead to serious compliance, regulatory, and legal consequences.
In this blog, we’ll talk about Canadian HR compliance for U.S. companies. Here’s what we’ll discuss:
- Top 10 things U.S. employers need to know about Canadian employment laws
- Do U.S. companies need a Canadian entity to hire employees?
- How to handle payroll taxes for Canadian employees as a U.S. employer
- What are the employment contracts and labour standards in Canada?
- What are the benefit requirements under Canadian law?
- What are the vacation requirements in Canada?
Top 10 things U.S. employers need to know about Canadian employment laws
Employment laws are different from they are in the U.S. Some rules have subtle differences, and others are very different. Here is a list of key considerations for the U.S. when hiring Canadian workers:
- Legal Entity / Employer Structure: Decide whether to incorporate a Canadian subsidiary or register your U.S. company as an “extra-provincial” corporation in the province where the Canadian employee works. You can also utilize an Employer of Record (EOR) in Canada to manage payroll, benefits, and compliance without establishing a full legal entity.
- Applicable Jurisdiction: Most employment laws are set at the provincial level. Certain industries (e.g., banks, railways) are federally regulated.
- Minimum Wage:
Minimum wages vary by province. For federally regulated employees, there is a federal minimum wage. U.S. companies cannot hire employees for less than the minimum.
- Hours of Work & Overtime: The rules around maximum hours, overtime pay, and rest periods vary by province.
- Termination, Notice & Severance: Canadian law generally requires minimum notice or pay in lieu of notice for termination without just cause. Learn more about severance pay.
- Leaves & Statutory Time Off: Employment standards legislation in Canadian jurisdictions mandates job-protected leaves, such as maternity/paternity leave, sick leave, and bereavement. Statutory holidays and vacation entitlements are also regulated at the provincial level.
- Payroll Deductions & Employer Contributions: U.S. companies are required to register for the Canada Revenue Agency (CRA) for payroll accounts. They must withhold and remit Canadian income tax, Canada Pension Plan (CPP) contributions, and Employment Insurance (EI) premiums.
- Employment Contracts: All written employment agreements must adhere to Canadian legal requirements.
- Human Rights & Pay Equity: Canadian human rights laws prohibit discrimination in employment.
- Data Privacy: U.S. companies are required to comply with Canadian data protection standards such as PIPEDA.
Note: Canadian pay equity changes take effect January 1, 2026. AugmentHR can help U.S. employers stay compliant. Let us guide you through the new requirements. Reach out to our HR team today at (416) 593-7999 or getstarted@augmenthr.com.
Do U.S. companies need a Canadian entity to hire employees?
U.S. companies do not necessarily need to establish a Canadian legal entity to hire Canadian employees, but they must navigate certain trade-offs and compliance requirements. Instead of incorporating, a U.S. employer can register as a non-resident employer with the Canada Revenue Agency (CRA) and set up a payroll, or “source deductions,” account to properly withhold and remit Canadian income tax, CPP, and EI contributions.
Not sure what strategy is best for your company? Reach out to our
HR services professionals for assistance.
How to handle payroll taxes for Canadian employees as a U.S. employer
U.S. companies must comply with Canadian payroll tax law, even if they don’t have a Canadian entity. Here are your payroll options:
Option 1: Run payroll directly through the CRA
You handle registration, tax withholding, remittances, benefits and compliance.
Option 2: Use a Canadian payroll provider
They calculate and remit payroll taxes, but you remain the employer and must still have a CRA payroll account.
Option 3: Use an Employer of Record (EOR)
The EOR becomes the legal employer in Canada and handles payroll taxes, contracts, compliance, and workers' compensation.
This eliminates the need for a BN or payroll account and is the easiest option if you only have a few Canadian hires.
Note: You do not withhold U.S. taxes from Canadian employees, do not issue U.S. tax forms or put Canadian employees on your U.S. payroll. Canadian employees must always be paid under Canadian payroll law.
What are the employment contracts and labour standards in Canada?
Canada is not an “at-will” employment system. Employment contracts are highly recommended. They play a role in protecting both employers and employees. Without a contract in place, termination becomes more expensive and riskier.
Each province has its own Employment Standards Act that outlines the minimum standards and information that should be included in all employment contracts.
- Job title and responsibilities
- Work hours and overtime eligibility
- Compensation and bonus terms
- Vacation and statutory holiday entitlements
- Benefits (if provided)
- Confidentiality and data protection
- Termination provisions
What are the benefit requirements under Canadian law?
Canada does not require employers to offer private health insurance, but many companies offer these benefits as part of their compensation package.
Companies are required to participate in several government-mandated programs:
1. Canada Pension Plan (CPP): A government program providing retirement benefits to workers.
2. Employment Insurance (EI): Covers unemployment benefits, parental and caregiving leave, and sickness benefits.
3. Workers’ Compensation Insurance: Provides wage-loss and injury benefits for workplace injuries.
4. Public (Statutory) Holidays: 5–13 paid public holidays per year, depending on the province. Employees must receive statutory holiday pay based on provincial formulas.
What are the vacation requirements in Canada?
Vacation time and pay are mandated by each province, but there are standard vacation minimums followed by most provinces:
After 1 year of service: 2 weeks of vacation and 4% vacation pay
After 5 years of service: 3 weeks of vacation and 6% vacation pay
After 10 years of service (in some provinces): 4 weeks of vacation and 8% vacation pay.
Vacation pay is mandatory and must be paid either in a lump sum when vacation is taken or paid out as a percentage with each paycheque. Vacation requirements and standards vary by province.
A final word about U.S. companies hiring Canadians
Hiring Canadian employees as a U.S. company requires a clear understanding of Canadian employment laws and compliance obligations. Many elements have specific Canadian requirements that differ from U.S. practices. By partnering with experts who work in the Canadian system, you can confidently expand your talent pool across the border while minimizing legal, tax, and regulatory risks.
Reach out to our
HR services professionals to ensure your U.S. company hires Canadians in compliance with existing laws and regulations.
Jeff Mignault has spent 15 years working in the HR outsourcing industry. With a passion for building client relationships based on communication and satisfaction, he leads AugmentHR’s Business Development and Client Experience.
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