Payroll & Employment Guide Canada

In Canada, employment contracts can be written, verbal, or implied. However, written contracts are highly recommended and often required to clearly outline the terms of employment and mitigate legal risks.

Notice periods: 1 week to 8 weeks, depending on the service period

Termination of employment: Termination can be with or without cause. For cause, the employee can be dismissed immediately without notice or severance due to serious misconduct. Without cause, the employer must provide notice or pay in lieu of, and severance if applicable.

Employers in Canada must provide all the mandatory benefits, with specific requirements varying by province and employment type. Many companies go beyond the minimum by offering optional benefits to attract and retain talented employees.

Mandatory benefits: Canada Pension Plan (CPP), Employment Insurance (EI), paid vacation
Common perks: Health & dental insurance, wellness programmes, retirement plans
Leave policies: Maternity leave, paternal leave, annual leave, public holidays, medical leave, and critical illness leave.

Canada has a well-structured tax system that applies to both employers and employees. Employers are required to deduct personal income tax and social security contributions from employees’ salaries and submit them to the tax authorities. Additional tax regulations apply to corporate profits, dividend income, GST, and others.

Personal income tax rate: In 2025, Canada’s federal personal income tax system is progressive, meaning higher earnings are taxed at higher rates. The first $57,375 of annual income is taxed at 14.5%. Income between $57,375 and $114,750 is taxed at 20.5%. Earnings from $114,750 up to $177,882 are taxed at 26%, while income between $177,882 and $253,414 is taxed at 29%. Any income above $253,414 is taxed at the top federal rate of 33%.

VAT: Canada’s federal VAT is known as the Goods and Services Tax (GST) and is set at 5%.

Additional tax reliefs: Employees may be eligible for various personal tax credits, which reduce their taxable income. Many of these can be applied automatically when the employee completes a TD1 form.

Key federal personal tax credits include:

• Basic personal/spousal amount: $2,108 – $2,339
• Disability amount: $1,470
• Infirm dependents (18+): $1,247
• Age amount (65+): $1,309
• Pension income credit: 14.5% of eligible income (max $290)
• Tuition fees: 14.5% of eligible fees (min $100, carry forward allowed)
• Student loan interest: 14.5% of eligible interest (carry forward up to 5 years)
• Medical expenses: 14.5% of the amount exceeding the lower of $2,834 or 3% of net income
• Adoption expenses: 14.5% of eligible costs (max $2,839)
• Charitable donations: 14.5% on first $200, then 29% or 33% on excess (up to 75% of net income)
• CPP/EI contributions: 14.5% of the base, max credit $643 (Quebec: $547)
• Employment income credit: 14.5%, max credit $213

Canadian employment is governed by both federal and provincial laws. Key areas include wage requirements, working hours, health & safety, and termination practices.

Total employment cost:

• Employer’s social security contributions: General CAD 5,938.57 and CAD 6,618.68 (for employees in Quebec)
• Employees’ social security contributions: General CAD 5,507.58 and CAD 6,079.99 (for employees in Quebec)

Minimum wage: $16.55/hour (general); $15.60/hour (students)

Probation period: Not legally mandatory.

Using EOR services in Canada allows you to legally employ individuals in the country without opening legal entities there. The EOR takes over all the legal responsibilities as an official employer, including:

• Legal employment and contracts
• Payroll processing
• Tax withholding
• Benefits administration
• Onboarding/offboarding employees

Using PEO services in Canada provides HR and administrative support, while you remain the legal employer. PEO services are ideal for employers who already have legal entities in Canada but need support to manage their workforce operations, including:

• HR support and workforce administration
• Payroll and benefits management
• Compliance and local labour law guidance
• Employment contracts assistance

Native Teams provides a payroll calculator adjusted per Canada’s labour laws. Estimate gross-to-net salaries, tax withholdings, and employer costs in Canada with our localised calculator. Designed to meet all payroll and compliance requirements.