Successfully expanding your business into Canada requires hiring a talented local workforce and navigating the country's complex payroll and tax regulations. Understanding statutory contributions, tax withholding, and reporting requirements is critical before you can compliantly pay your team.
Key aspects of payroll in Canada
Administering payroll in Canada involves compliance with both federal and provincial/territorial laws. Key components include income tax withholding, social security contributions, and specific reporting rules.
Canada income tax withholding
Canada uses a progressive tax system at both the federal and provincial levels. Employers are required to withhold income tax from employee earnings and remit it to the Canada Revenue Agency (CRA). As of July 2025, the federal income tax brackets are:
• 15% on income up to CAD 57,692
• 20.5% on income over CAD 57,692 up to CAD 115,384
• 26% on income over CAD 115,384 up to CAD 178,867
• 29% on income over CAD 178,867 up to CAD 252,987
• 33% on income over CAD 252,987
In addition to federal tax, employers must also withhold provincial or territorial income tax, which varies significantly by jurisdiction.
Social security contributions in Canada
Mandatory social security contributions are deducted from each paycheck. These are primarily federal programs, with a notable exception for Quebec.
• Canada Pension Plan (CPP): Provides retirement, disability, and survivor benefits. For 2025, the employee and employer contribution rate is 5.95% of pensionable earnings, up to an annual maximum.
• Employment Insurance (EI): Offers temporary income support for situations including job loss, illness, or pregnancy. For 2025, the employee contribution rate is 1.66%, and the employer contributes 1.4 times that amount (2.324%), up to an annual maximum.
• Quebec-specific plans: Companies with employees in Quebec must contribute to the Quebec Pension Plan (QPP) and the Quebec Parental Insurance Plan (QPIP) instead of the federal CPP and EI programs. These have different contribution rates and maximums.
Canada payroll frequency and payslips
Provincial employment standards set minimum pay frequency, which is typically semi-monthly or bi-weekly. Monthly pay cycles are uncommon and often not compliant. Every pay statement (payslip) must clearly detail the pay period, gross and net earnings, hours worked, pay rate, and an itemized list of all deductions, including taxes, CPP/QPP, and EI/QPIP.
Canada payroll options for companies
Businesses have three primary options for managing payroll in Canada:
• In-house payroll: After establishing a subsidiary in Canada, a company can manage payroll internally. This approach offers direct control but requires significant investment in local expertise to ensure compliance with complex, multi-layered regulations.
• Local payroll provider: A company can hire a Canadian payroll vendor to process payments. While this offloads some administrative tasks, the employer of record remains legally responsible for all calculations and compliance.
• Employer of record (EOR) partner: Partnering with a global EOR like G-P allows you to hire and pay employees in Canada without setting up a local entity. The EOR handles all aspects of payroll, tax, benefits, and compliance, mitigating risk and accelerating your market entry.
How to set up traditional payroll in Canada
If you opt not to use an EOR, setting up payroll requires several steps:
1. Incorporate a legal entity, either federally or in a specific province.
2. Obtain a Business Number (BN) from the CRA (or a Quebec Enterprise Number (NEQ) if operating in Quebec).
3. Open a payroll program account (known as an RP account) with the CRA.
4. Register with provincial bodies as required, such as the Workplace Safety and Insurance Board (WSIB) in Ontario.
5. Establish a process to accurately calculate withholdings, make timely remittances, and issue compliant payslips for each pay period.
Streamline Canadian payroll with G-P
G-P is the #1 rated employer of record helping your team fund payroll in over 130 currencies. Get on-time, error-free payroll with flexible payment options and easily add bonuses, commissions, and exceptions in just a few clicks. G-P EOR is the preferred partner for leading HCM, PEO, and payroll platforms. Bring your workforce data together in one place to maintain existing workflows while ensuring consistent and accurate data across your integrated systems.
Contact us today to learn how we can help you hire and pay talent in Canada.
