Employer of Record (EOR) Canada

An Employer of Record (EOR) in Canada acts as the official employer for workers, often referred to as a Global Professional Employer Organization (Global PEO). This role encompasses a broad range of employment functions, ensuring full compliance with local labor laws and regulations, managing payroll, administering taxes, providing legally required benefits, and handling employment contracts.

With our Employer of Record (EOR) services, expanding your business into Canada becomes easier and more efficient. Our solution eliminates the need for setting up a local entity, providing a seamless path to establish a legal presence in Canada. We ensure full legal compliance across Canada’s federal and provincial employment frameworks, manage payroll, protect your intellectual property, and handle work permits, so you can focus on growing your business and building your workforce in one of North America’s largest talent markets.

Things you need to know before hiring in Canada

Canada’s 2026 Payroll and Termination Law Updates

Several Canadian payroll thresholds reset every 1 January: for 2026, the Canada Pension Plan’s Year’s Maximum Pensionable Earnings (YMPE) rises to CAD 74,600, the CPP2 second-tier ceiling (YAMPE) rises to CAD 85,000, and the Employment Insurance (EI) employee premium rate eases slightly to $1.63 per $100 while Maximum Insurable Earnings rise to CAD 68,900. Ontario’s general minimum wage increased to CAD 17.60/hour from 1 October 2025, and most provinces index their own minimum wage separately each year. Employers should also note a continuing 2024–2025 trend in Ontario case law (following Dufault v. Ignace) invalidating many standard termination clauses, which is widening employers’ exposure to uncapped common-law “reasonable notice” beyond the statutory minimums — a live compliance risk worth reviewing annually.

Employment Contracts in Canada

Canada has no true “at-will” employment. Most private-sector employees (roughly 90% of the workforce) are governed by provincial employment standards legislation — this page uses Ontario’s Employment Standards Act, 2000 (ESA) as the default reference province — while federally regulated industries (banking, telecommunications, broadcasting, interprovincial transportation) fall under the Canada Labour Code. Quebec operates under its own civil-law system with materially different rules, including French-language workplace requirements.

Working Hours

Ontario’s default standard is 8 hours per day and 44 hours per week. Overtime is calculated weekly rather than daily. Without a signed excess-hours agreement, the maximum is 48 hours per week; with a signed agreement (and Ministry approval above certain thresholds), up to 60 hours per week is permitted.

Notice of Termination

Ontario’s ESA sets statutory notice (or pay in lieu) at 1 week per completed year of service, capped at 8 weeks, available once an employee has 3 months of continuous employment. Employers may provide working notice or pay in lieu of notice.

Severance Pay

A separate ESA statutory severance payment applies where an employee has 5 or more years of service and the employer has an Ontario payroll of CAD 2.5 million or more (or terminates 50+ employees within six months): calculated at 1 week’s pay per year of service (pro-rated), up to a maximum of 26 weeks. These statutory amounts are a floor — common-law reasonable notice, described above, is assessed separately and can substantially exceed them.

Protected Categories

Termination that is discriminatory or made in reprisal for exercising statutory rights (such as taking a protected leave) is prohibited under human rights and employment standards legislation, independent of the standard notice and severance rules.

Compensation for Unused Leave

Any accrued but unused vacation pay must be paid out on termination.

Employees vs Independent Contractors

Canadian courts and the Canada Revenue Agency (CRA) apply a common-law, multi-factor test to distinguish employees from genuine independent contractors: control over the work, ownership of tools and equipment, chance of profit and risk of loss, and integration into the business. No single factor is decisive, and a contract’s label does not override the day-to-day working relationship.

Misclassifying employees as independent contractors is a recognized enforcement risk in Canada: a CRA reassessment can require the payer to remit both the employer’s and the employee’s share of CPP and EI in arrears, plus penalties and interest, potentially spanning multiple prior years.

Comparison Table: Employee vs Independent Contractor

Understanding these differences is essential for ensuring compliance and correctly determining entitlements such as leave, notice, and statutory contributions.

Social Security and Payroll Contributions in Canada

Outside Quebec, employers and employees jointly fund the Canada Pension Plan (CPP) and Employment Insurance (EI). Quebec instead operates its own Quebec Pension Plan (QPP) and Quebec Parental Insurance Plan (QPIP), administered by Revenu Québec.

CPP, CPP2, and EI thresholds are indexed and reset every 1 January — Mercans confirms the current-year rates and ceilings for each engagement, and administers QPP/QPIP separately for Quebec-based employees.

Payroll in Canada

Minimum Wage

Canada has no single national minimum wage for provincially regulated employees — each province and territory sets its own rate, indexed annually. Ontario’s general minimum wage is CAD 17.60/hour, effective 1 October 2025. By comparison, the federal minimum wage (for Canada Labour Code employers) is CAD 17.75, Alberta’s is CAD 15.00 (the lowest in Canada), and Nunavut’s is CAD 19.75 (the highest). Employers should confirm the applicable rate for each employee’s province of employment.

Payroll Cycle

Biweekly pay (26 pay periods a year) is the most common payroll cycle in Canada; semi-monthly and weekly cycles are also used. Payroll is run in Canadian Dollars (CAD). Employers must provide itemized pay statements showing gross pay, deductions, and net pay, file annual T4 slips and a T4 Summary, and retain payroll records for at least 6 years.

Working-hour and overtime rules vary by province — Mercans confirms the applicable standard for each employee’s province of employment.

Mercans’ payroll capabilities

Personal Income Tax in Canada

Canada applies progressive federal income tax on top of which each province adds its own tax. Federal 2026 brackets are:

• Up to CAD 58,523: 14%
• CAD 58,524 – 117,045: 20.5%
• CAD 117,046 – 181,440: 26%
• CAD 181,441 – 258,482: 29%
• Above CAD 258,482: 33%

Using Ontario as the reference province, provincial tax adds a further 5 brackets from 5.05% to 13.16%, plus an Ontario surtax at higher income levels. The combined federal and Ontario top marginal rate is approximately 53.53% for 2025/2026. Combined rates differ by province, since each sets its own brackets.

Canada Employee Hiring Cost

When hiring an employee in Canada, employers must budget for gross salary plus mandatory employer CPP and EI contributions, plus any applicable provincial payroll taxes (such as Ontario’s Employer Health Tax above a payroll threshold) or workers’ compensation premiums.

*Excludes any applicable provincial payroll tax (e.g., Ontario Employer Health Tax) and industry-rated workers’ compensation premiums, which vary by province and sector; Mercans confirms the full employer cost for each engagement.

Employee Benefits in Canada

Canadian employees are entitled to a combination of mandatory statutory benefits and, increasingly, supplementary benefits offered at the employer’s discretion.

Work Permit in Canada

Most foreign nationals require authorization to work in Canada, obtained through one of several federal immigration routes.

Labour Market Impact Assessment (LMIA)

Most foreign hiring requires the employer to obtain a positive Labour Market Impact Assessment (LMIA) from Employment and Social Development Canada (ESDC), demonstrating that no Canadian worker is available for the role. Recent processing times run approximately 8–12 weeks for high-wage positions and 12–16 weeks for low-wage positions.

LMIA-Exempt Categories

Certain categories fall under the International Mobility Program and do not require an LMIA, including CUSMA/USMCA professional and intra-company-transfer categories for US and Mexican citizens, and general intra-company transferees who have worked for the foreign affiliate for at least 1 year within the prior 3 years.

Global Talent Stream

A dedicated fast-track for in-demand tech roles, with median processing times of around 2 weeks, in exchange for the employer committing to a Labour Market Benefits Plan rather than a standard LMIA.

Important Considerations for Employers

Employer Sponsorship

A Canadian entity is generally required to sponsor a foreign national’s LMIA or work permit application — an EOR partner such as Mercans allows companies without a local entity to still hire and sponsor talent compliantly.

Provincial Variation, Including Quebec

Work permit categories are federal, but day-to-day employment terms remain governed by the province of employment — Quebec in particular applies its own immigration selection process (the Quebec Selection Certificate, CSQ) and French-language workplace requirements alongside the federal work permit.
Understanding these pathways can streamline the hiring process, allowing employers to bring skilled talent into their Canada-based operations effectively.

EOR Solutions in Canada

Best Employer of Record Canada