How to Pay Remote Workers: Canada

US companies hiring remote workers in Canada need to consider not only the differences in employment practices and tax requirements but also how to pay their Canadian workers once they’re hired.

If you’re considering taking on remote workers in Canada, or looking for more efficient and cost-effective ways to pay existing Canadian employees, this article tells you about how to pay remote workers in Canada from the USA.

Important Steps to Consider Before Paying Remote Workers in Canada

Before you can transfer payments to Canadian employees, there are compliance requirements and practical considerations you need to take into account. Errors here could cost you in penalties, taxes or the trust of your employees.

Worker Classification: Paying Canadian Employees vs Contractors

It’s essential for US companies hiring remote workers in Canada to differentiate between whether they are full-time employees or independent contractors to avoid worker misclassification. Companies found to intentionally or repeatedly misclassify employees as contractors can face fines under the Canada Labour Code.¹

Businesses working with Canadian contractors must send T4A statements to any contractors who are paid more than CAD$500 in a year. The T4A identifies the amounts paid during the calendar year for certain types of income from different sources, including self-employment.²

Required Payroll Deductions in Canada

It’s also important to understand your responsibilities as an employer to make payroll deductions and remit them to the Canada Revenue Agency (CRA).

Employers must deduct four amounts from employees’ pay:

• Canada Pension Plan contributions
• Employment Insurance premiums
• federal income tax
• provincial or territorial income tax

Employers must also pay Canada Pension Plan and Employment Insurance contributions for each employee.

Payroll deductions are calculated for each pay period. While the federal income tax is the same across the country, provincial and territorial tax rates vary.

You should confirm a remote employee's province or territory of employment to ensure you deduct the right amounts from their pay. For example, if an employee lives in Ontario but works at your company’s facility in New Brunswick, you must use the New Brunswick payroll deductions.

Quebec administers its own pension plan, which replaces the Canada Pension Plan. Employers must contribute to the Québec Parental Insurance Plan and the provincial income tax for Quebec is remitted to Revenu Québec. Employment Insurance is withheld at a lower rate.

As a new employer in Canada, you’ll need to open a payroll program account to remit deductions to the CRA. You’ll then need to ask your remote employees to provide their social insurance numbers and complete Form TD1—Personal Tax Credits Returns.

Payroll deductions must be kept separate from your company’s operating capital and must not be included in assets under liquidation, assignment, receivership or bankruptcy. It’s good practice to deposit the funds into a separate bank account until it's time to send the payments to the government.

The frequency of payments varies, with some submitted monthly on the 15th day of the following month or quarterly on January, April, July and October 15th. Employers can choose to make accelerated payments, up to two or four times a month.

At the end of each year, you must file a summary of all employees' income and deductions on a T4 or T4A slip. The CRA must receive a copy by the last day of February of the following year to avoid penalties.

⚠️ Be aware that employers who fail to deduct the contributions from employees’ pay or to remit the deductions to the government could be fined a penalty equal to 10% of the amount required for the Canada Pension Plan, Employment Insurance or income tax that should have been withheld. Companies that are penalized more than once in the same calendar year, will have to pay an additional 20% penalty if the failure was voluntary or in circumstances that amount to gross negligence. The CRA can take legal action, such as garnishing sources of income or seizing and selling property.³

Exchange Rate Considerations

When you employ remote workers in Canada it’s important to consider the exchange rate from USD to CAD. Fluctuations in the conversion rate between the two currencies mean that payments can cost more or less than expected at the time the transfer is processed. This can make it difficult to predict staffing costs and provide certainty to remote employees.

How to Pay Remote Workers in Canada

If you plan to hire and pay remote workers in Canada, there are two options.

Open a Local Legal Entity

Canadian employees must be paid either by a legal entity established in the country or a third-party payroll company. There are advantages to registering a local business entity in Canada, such as having a sales presence closer to customers and maintaining control over how remote employees are managed. You’ll be able to run payroll and administer employee benefits directly, giving you the flexibility to respond to changing business conditions quickly.

If you choose this option you’ll need to operate your company from a physical location in Canada and open a Canadian business banking account in person.

Use an Employer of Record (EOR)

If you want to avoid the costs and administrative headache of setting up a separate legal entity, you can use an employer of record (EOR). An EOR is a third-party service provider that manages the hiring of workers abroad and is legally responsible for following local employment laws.

An EOR can handle various tasks related to hiring and paying employees abroad, including international payroll, tax filing, onboarding, creating and implementing employment contracts, and managing workers’ benefits such as health insurance and pension funds. Your business remains responsible for managing employees’ performance.

Top Payment Methods to Pay Remote Workers in Canada

There are several different ways you can transfer salary payments to remote workers in Canada. The first step is to decide which payment method is best suited to your business and employees.

Pay Employees With BatchTransfer

BatchTransfer has an easy-to-use instant payments system that allows you to make multiple payments, for both domestic and international, in one go. Small businesses and enterprises can get access to BatchTransfer with no additional cost after getting a Wise Business account.

BatchTransfer’s core strengths for payroll:

What sets BatchTransfer apart is its commitment to providing the mid-market rate for currency conversions. This means that businesses get a fair and transparent deal when making international payments.

Another perk of using BatchTransfer for international payroll is its extensive coverage of over countries and currencies! With features like automatic payment scheduling and API integration, small businesses can streamline their payroll process, freeing up valuable time and resources for other important tasks.

• How can businesses use BatchTransfer for payroll?: Businesses can send up to 1000 payments with a single click with BatchTransfer. US-based business can access BatchTransfer at no extra charge.

• Connect to your accounting software: You can easily manage and reconcile your mass payments through accounting software integrations such as QuickBooks or Xero.

Start making payments
with BatchTransfer >>

Wise Features	Price
Mid-market exchange rate for currency conversions Payments to countries in currencies Delivery estimator, real-time tracking, pay-to-email & more	Free to sign up for US business accounts, no monthly fees, no minimum balance requirements. Transparent and competitive rates Free access to API, BatchTransfer, and integrations features. You can also get major currency account details for a one-off fee to receive overseas payments.

🔍 You can also read the guide on how to open a Wise Business account

Payment Platforms

You can use other online payment options such as PayPal or Payoneer, which like Wise offer faster processing than international bank transfers. They make it easy to pay employees abroad with just their email address. However, fees can be high – particularly for currency conversion – and exchange rates can be unfavorable, costing your business and your employees money.

Bank Transfer

Setting up local bank accounts to pay in local currency can be a challenge, but when you pay international employees through your US bank, the exchange rate is set at the bank’s discretion. This is typically an inflated exchange rate designed to profit the bank from the transaction. Your company could end up spending more to pay employees the same amount as with an online payment platform.

What is the Minimum Wage for Remote Workers in Canada?

The minimum wage in Canada is set at the provincial level as well as by the federal government. Current provincial hourly rates range from $14 in Saskatchewan to $19 in Nunavut.⁴

The federal minimum wage of $16.65 applies to labor market sectors under federal authority from the Constitution, such as international and interprovincial transportation, telecommunications and banking. Employees should be paid at least the federal minimum wage. If the minimum wage of the province or territory where the employee usually works is higher than the federal minimum wage, the employer is to pay the higher minimum wage.⁵

🔍 You may also want to read the guide on employee benefits in Canada

What Currency Should You Use to Pay Remote Workers in Canada?

Although it might seem easier for your business to pay Canadian employees in US dollars, foreign employers must pay their Canadian employees in Canadian dollars through payroll processors in Canada.

And while it may not be a requirement to pay Canadian independent contractors in Canadian dollars, you can build better relationships as it can help them to avoid foreign currency charges or tax complications.

Save Time and Money On Overseas Payments With Wise Business

Wise Business can help you save big time on international payments.

Wise is not a bank, but a Money Services Business (MSB) provider and a smart alternative to banks. The Wise Business account is designed with international business in mind, and makes it easy to send, hold, and manage business funds in currencies.

Signing up to Wise Business allows access to BatchTransfer which you can use to pay up to 1000 invoices in one go. This is perfect for small businesses that are managing a global team, saving a ton of time and hassle when making payments.

Use Wise Business >>

Some key features of Wise Business include:

• Mid-market rate: Get the mid-market exchange rate with no hidden fees on international transfers

• Global Account: Send money to countries and hold balances in multiple currencies, all in one place. You can also get major currency account details for a one-off fee to receive overseas payments like a local

• Access to BatchTransfer: Pay up to 1000 invoices in one click. Save time, money, and stress when you make 1000 payments in one click with BatchTransfer payments. Access to BatchTransfer is free with a Wise Business account

• Auto-conversions: Don't like the current currency exchange rate? Set your desired rate, and Wise sends the transfer the moment the rate is met

• Free invoicing tool: Generate and send professional invoices

• No minimum balance requirements or monthly fees: US-based businesses can open an account for free. Learn more about fees here

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Sources

¹Misclassification – IPG-105 - Canada.ca
²T4A Statement of Pension, Retirement, Annuity, and Other Income - Canada.ca
³Payroll Deductions—The Basics for an Employer | BDC.ca
⁴Minimum Wage by Province | Retail Council of Canada
⁵Current and Forthcoming General Minimum Wage Rates in Canada

All sources checked February 2024