For a US company, Canada is the most natural first international hire there is: the same time zones, a shared language (outside Quebec), a deep technical and professional talent pool, and a business culture that feels familiar from the first call. What surprises employers is how different the rules underneath are. Canada is not a smaller version of the US labour market — it is a country with no at-will employment, a separate legal regime in every province, and statutory leave and termination obligations that can cost far more than a US employer expects.
This guide covers what a US or global team actually needs to know to employ someone in Canada compliantly in 2026 — how jurisdiction works, vacation and vacation pay, the CPP and EI payroll math, income-tax withholding, and the termination rules that catch nearly everyone off guard — plus the two routes to getting it done: incorporating your own Canadian entity, or using an employer of record (EOR) like Deel that already has one.
Canada Employment at a Glance (2026)
Figures reflect 2026 federal numbers; provincial rules and rates vary and change through the year. Always confirm current thresholds against the CRA and the relevant provincial labour ministry before running payroll. All amounts are in Canadian dollars.
Canada Isn't One Employment Jurisdiction
This is the first thing to internalise, because almost everything else depends on it. Roughly 90% of Canadian workers are regulated by their province, not the federal government. Each province has its own Employment Standards Act setting vacation, statutory holidays, leave, and termination rules — so "Canadian employment law" really means thirteen provincial and territorial regimes that broadly rhyme but differ in the details.
Only employees in federally regulated industries — banks, telecommunications, airlines, and interprovincial transport, about 6–8% of the workforce — follow the Canada Labour Code. Don't assume the federal rules are the default; for most hires they don't apply.
And Quebec is effectively its own country for employment purposes: it runs its own pension plan (the QPP instead of the CPP), its own parental insurance program (QPIP), its own income-tax system administered by Revenu Québec, and a distinct set of statutory holidays and leave rules. If you're hiring in Quebec, treat almost every number in this guide as "check the Quebec equivalent."
Two Ways to Hire in Canada: Entity vs. Employer of Record
Before the compliance detail matters, you face one structural decision: do you become a Canadian employer yourself, or does someone do it for you?
| Factor | Your own Canadian entity | Employer of record (EOR) |
|---|---|---|
| Time to first hire | Weeks (incorporation + CRA payroll + WCB setup) | A few days |
| Who is the legal employer | You | The EOR's Canadian entity |
| Upfront cost | ~$200–$350 incorporation + setup & advisory fees | None — pay a per-employee monthly fee |
| Ongoing compliance burden | You run payroll, remittances, filings, ESA compliance | Handled by the EOR |
| Best for | Scaling a permanent Canadian team | 1–2 hires, market testing, speed |
Incorporating gives you full control and a lower per-head cost once you have a sizeable team. But it's a real commitment. You'll incorporate federally (under the CBCA) or in a province, register for a CRA business number and a payroll (RP) account, register with the provincial workers'-compensation board, open any provincial payroll-tax accounts, and take on every ongoing remittance and filing obligation. One detail trips up foreign founders: a federal corporation requires at least 25% Canadian-resident directors, whereas Ontario and British Columbia removed their director-residency requirements — so a foreign-owned company with no Canadian directors typically incorporates provincially in Ontario or BC.
An employer of record flips the model. The EOR already operates a Canadian entity and becomes the legal employer of your worker — running compliant payroll, withholding and remitting the right taxes, administering benefits, and issuing a province-appropriate employment contract — while you direct the day-to-day work. You can be live in days, which is why most teams making their first one or two Canadian hires start here and only incorporate once headcount justifies it.
Vacation and Vacation Pay: Two Separate Entitlements
Canadian leave works differently from US PTO in a way that confuses newcomers: there are two legal entitlements, not one. There's vacation time (the weeks off) and vacation pay (a percentage of wages that accrues regardless), and an employee is owed both. Vacation pay even accrues on the wages paid during vacation itself.
In most provinces — Ontario, British Columbia, and Alberta among them — employees earn 2 weeks of vacation after one year of service, rising to 3 weeks after 5 years, with vacation pay of 4% of gross wages rising to 6%. Federally regulated employees get an extra tier: 4 weeks (8%) after 10 years.
| Jurisdiction | Entry vacation | After 5 years | After 10 years |
|---|---|---|---|
| Federal (Canada Labour Code) | 2 weeks / 4% | 3 weeks / 6% | 4 weeks / 8% |
| Ontario, BC, Alberta (typical) | 2 weeks / 4% | 3 weeks / 6% | 3 weeks / 6% |
| Saskatchewan (outlier) | 3 weeks / 5.77% | 3 weeks / 5.77% | 4 weeks / 7.69% |
Saskatchewan is the standout: it's the only province that starts everyone at 3 weeks, and it expresses vacation pay as exact week-fractions (5.77% and 7.69%) rather than rounding to 6% and 8%. Statutory holidays are separate again and range from about 6 to 10 days depending on the province — nine in Ontario, ten federally and in BC — and include the National Day for Truth and Reconciliation (September 30) at the federal level.
Running Canadian Payroll: CPP, EI, and Income Tax
Canadian payroll runs through the CRA. Employers withhold income tax, CPP, and EI from each paycheque and remit them — together with the employer's own share — on a schedule set by the CRA based on payroll size. There are a few employer cost centres to budget for on top of gross salary.
Canada Pension Plan (CPP)
For 2026, employers and employees each contribute 5.95% on earnings between the $3,500 basic exemption and the year's maximum pensionable earnings (YMPE) of $74,600 — a maximum of $4,230.45 each. On top of that, the second tier (CPP2) adds 4% each on earnings between $74,600 and $85,000, up to $416 more. The employer matches the employee dollar-for-dollar, so a high earner can cost an employer up to about $4,646 in CPP alone. In Quebec, the equivalent QPP runs at a higher 6.30% each.
Employment Insurance (EI)
This is the line US employers most often forget. Employees pay an EI premium of $1.63 per $100 of insurable earnings in 2026 (up to a maximum insurable earnings of $68,900), and the employer pays 1.4 times that — about 2.28%, or up to roughly $1,572 per employee per year. Quebec employees pay a lower EI rate because the province runs its own parental-insurance plan (QPIP) alongside it.
Income tax withholding
Employers withhold both federal and provincial income tax through the CRA's source-deduction system in a single remittance — except in Quebec, where provincial income tax (and QPP and QPIP) go to Revenu Québec separately while federal tax and EI still go to the CRA. The lowest federal bracket is 14% for 2026 (reduced from 15%), and provincial rates stack on top, so combined top marginal rates range from roughly 44% to nearly 55% depending on the province. You don't need to compute these by hand — payroll software and the CRA's payroll deductions tables handle the math — but you do need the employee's province of work to get it right.
Other employer costs
Two more line items vary by province. Workers' compensation premiums are mandatory everywhere through the provincial board (WSIB in Ontario, WorkSafeBC, CNESST in Quebec, and so on), at industry-specific rates. And five jurisdictions — Ontario, BC, Manitoba, Quebec, and Newfoundland & Labrador — levy an Employer Health Tax; Ontario's, for example, exempts the first $1 million of payroll and then charges up to 1.95%. Most other provinces have neither.
Termination: Canada Is Not At-Will
If you remember one thing from this guide, make it this. There is no at-will employment anywhere in Canada. You cannot end an indefinite-term job with two weeks' notice and a handshake the way a US employer often can. Ending employment without cause triggers obligations that can run to months of pay, and underestimating them is the single most expensive mistake US employers make in Canada.
There are three distinct layers, and they are not the same thing:
1. Statutory notice (the floor)
Every employment standards act sets a minimum notice period — or pay in lieu. Ontario's, for example, is one week per year of service to a maximum of eight weeks; the federal Canada Labour Code uses a similar graduated scale capping at eight weeks. This is the absolute minimum, not the expected amount.
2. Common-law reasonable notice (the big hidden cost)
Here's what catches employers. Unless the employee signed a valid, enforceable termination clause that limits them to the statutory minimum, they're entitled to common-law reasonable notice, which courts set far above the statutory floor. There's no formula — judges weigh age, length of service, seniority of the role, and how hard it'll be to find comparable work — but awards commonly reach several months and are soft-capped around 24 months in all but exceptional cases. The rough "one month per year of service" heuristic you'll hear is just that: a heuristic, not a rule. And termination clauses are routinely struck down — in Ontario, a single defective phrase can void the entire clause and expose you to full common-law notice — so they must be drafted carefully and kept current.
3. Statutory severance (a separate, stacking entitlement)
In some cases there's also statutory severance pay, which is distinct from notice and paid on top of it. Ontario requires it when an employee has 5+ years of service and the employer has a payroll of $2.5 million or more (or is severing 50+ employees): one week per year of service, up to 26 weeks. So an eligible Ontario employee can be owed up to 8 weeks' notice plus up to 26 weeks' severance under the statute — before common-law notice is even considered.
Maternity and Parental Leave
Canada separates the money from the job protection, and the two come from different places. The income during leave is paid through federal EI benefits: maternity benefits run up to 15 weeks at 55% of average weekly earnings, and parental benefits are either standard (up to 40 weeks shared, max 35 per parent, at 55%) or extended (up to 69 weeks shared at a lower 33%). In 2026 the EI benefit is capped at about $729 per week. Quebec replaces this entirely with QPIP, which adds a dedicated paternity benefit and higher replacement rates.
The job-protected leave itself — the guarantee that the role is held open — comes from the province. Ontario, for instance, provides up to 17 weeks of pregnancy leave plus parental leave that can bring the combined total to around 78 weeks. Lengths differ by province, so confirm the local entitlement. Employers aren't required to top up EI benefits, but many do to stay competitive.
How Deel Handles Canadian Hiring
If you're hiring one or a handful of Canadian employees and don't want to incorporate, this is exactly the problem an employer of record solves. Deel operates its own Canadian entity and employs your worker on your behalf, which means the CPP, EI, income-tax, workers'-compensation, and province-specific complexity above becomes its responsibility rather than yours.
Specifically for Canada, Deel calculates and remits CPP/QPP, EI, and federal and provincial income tax to the CRA (and Revenu Québec where relevant), registers for the right provincial payroll and workers'-compensation accounts, tracks accruing vacation pay, and issues a province-appropriate employment contract — including a compliant termination clause, which, as we've seen, is where Canadian employers carry the most risk. With an entity already in place across the provinces, onboarding a Canadian hire takes days rather than the weeks an incorporation-and-registration build would require.
Hire your first Canadian employee without incorporating
Deel's Canadian entity handles CPP/EI, income-tax remittance, workers' comp, vacation pay, and a province-compliant contract — so you can onboard in days instead of standing up a company.
See how Deel hires in Canada →Deel isn't the only option — it competes directly with Remote.com and others in the EOR space, and the right pick depends on your country mix, headcount, and budget. We break down the leading providers side by side in our Deel vs. Remote.com comparison. To see how Canada's vacation entitlement compares globally, see annual leave around the world, or our guides to hiring employees in the UK and hiring employees in Australia for other markets.
Frequently Asked Questions
How much vacation do employees get in Canada by law?
In most provinces, employees earn 2 weeks of paid vacation after one year of service, rising to 3 weeks after 5 years, with vacation pay of 4% of wages rising to 6%. Federally regulated employees get a third tier of 4 weeks after 10 years (8% pay). Saskatchewan is the outlier, starting everyone at 3 weeks. Vacation pay is a separate legal entitlement that accrues as a percentage of wages, not just time off.
Is employment at-will in Canada?
No. Canada has no at-will employment. To end an indefinite-term job without cause, an employer must give statutory notice (or pay in lieu) and, unless a valid employment-contract clause limits it, common-law reasonable notice — which can run to many months of pay and is the single biggest cost US employers underestimate. Statutory severance can apply on top in some provinces.
Do I need a Canadian company to hire a Canadian employee?
No. You can incorporate a Canadian entity (federally or in a province) and open a CRA payroll account, or use an employer of record that already has a Canadian entity and legally employs the worker for you. An EOR lets you hire in days; an entity makes more sense once you're building a permanent team. Note that a federal corporation requires at least 25% Canadian-resident directors, while Ontario and BC have no director-residency requirement.
What are the employer payroll costs in Canada for 2026?
On top of salary, employers match CPP at 5.95% on earnings up to $74,600 (plus 4% CPP2 between $74,600 and $85,000), and pay EI at 1.4 times the employee premium — roughly 2.28% on insurable earnings up to $68,900. Some provinces add an Employer Health Tax, and every province requires workers'-compensation premiums. Quebec uses its own plans (QPP and QPIP) at higher rates.
Why does hiring in Canada differ by province?
Most employment law in Canada is provincial, so vacation, statutory holidays, leave, and termination rules are set by each province's employment standards act. Only federally regulated industries (banks, telecom, airlines, interprovincial transport) follow the Canada Labour Code. Quebec is a separate regime for nearly everything, including its own pension plan, parental insurance, and income-tax system. Always confirm rules for the employee's specific province.
How long does it take to hire someone in Canada?
With an employer of record that already operates a Canadian entity, you can typically onboard an employee in a few days. Setting up your own corporation and CRA payroll account takes longer — incorporation itself is quick, but allow time for the business number, payroll (RP) account, workers'-compensation registration, and any provincial payroll-tax accounts before the first payday.