Beginner’s Guide to Canadian Payroll

August 29, 2017

Switching payroll systems is a major undertaking. Switching payroll systems for a multi-national company adds another layer of complexity. If your company has employees working in the United States and Canada, be sure you’re aware of these payroll differentiators.


With the implementation of any new payroll system, whether in the United States or Canada, you’ll need to consider some crucial questions to ensure that you are minimizing the disruption of changing payroll providers. These should include:

  • What is your timeline? Is it realistic, and will it allow enough time to perform a high quality implementation? Does it include any external events which could impact team availability or project resources?
  • When do you need your new system to go live? Is this in tandem with a specific timeframe like Quarter-End or Year-End?
  • Will you be changing any policies, procedures, or pay frequencies simultaneous to rolling out the system change?
  • Will the system integrate with other human capital management (HCM) technologies currently in place?
  • How will you be entering data into your new system? Are you able to import this from a file, or does everything need to be entered manually?

Key Differentiators

Canada’s employment rules and regulations are primarily governed by each province.   In the United States, there are many federal regulations and some regulations that are state-driven.  Understanding Canadian payroll means your business will have to know the rules of each province or territory in which you do business, so as to manage employees correctly.

In the United States, there is a federally mandated minimum wage, but minimum wage may be higher depending on the city or state the employee lives. In Canada, minimum wage is set by each province, and this generally varies, so make sure to verify that your wages for all Canadian employees are compliant within their province.

In Canada, payroll tax consists of, at a minimum, Federal tax, provincial tax, Employment Insurance (EI), and the Canada Pension Plan (CPP). In the United States, Payroll tax consists of: Federal tax, State tax (where applicable), Federal Insurance Contributions Act (FICA), which includes Social Security for retirement benefits, and Medicare for age 65+ health insurance, Federal Unemployment Tax Act (FUTA), and State Unemployment Tax Act (SUTA). Some states/provinces may also have additional taxes.  In many areas there can be city, county or school taxes.

In the United States, most employers must remit their Federal Payroll Tax Return (IRS Form 941 report) quarterly. This form reports the amount of federal income tax, Social Security and Medicare taxes that the employer withheld from employees, as well as the employer’s portion of Social Security and Medicare taxes. In Canada, source deductions are reported on a quarterly, monthly, semi-monthly or weekly basis using a form PD7A to the Canada Revenue Agency (CRA). Your reporting period is assigned by the CRA based on your remitter type.

Employers in both countries are responsible for withholding payroll tax in Canada. Exercise your due diligence and check provincial rules.  In British Columbia, Alberta and Ontario, medical premiums are also withheld and are reported by submitting government forms 941, and PD7a. Also in Canada, the employer pays provincial workers compensation premiums (WCB).

Canada and the United States have different payroll tax forms –  T4 and T4A forms for employees in Canada, and W-2 forms in the United States. Each country may also have a different deadline for issuing the T4 or W-2 forms to employees.

Upon hiring an employee in Canada, the employee must fill out a form called the TD1, and upon termination of an employee in Canada, the employer is responsible for filing a Record of Employment (ROE).

Now that you’re familiar with some basics of Canadian payroll, it is time to start thinking about shopping for your new payroll system, or deploying your existing United States payroll system in Canada. Whether you’re just starting your shopping, are getting ready to implement, or need some support along the way with those challenging test scenarios, parallel payroll, or reports, HRchitect has expert consultants who are able to lend a hand. As a full-service HCM technology consulting firm, HRchitect can also assist with HCM technology strategic planning, evaluation and selection services, client-side project management during your HCM implementation, and the all so important change management.

Disclaimer: Wage and Hour information current as of date of initial posting. Before making any financial decisions, please consult your software provider to ensure you are in compliance or financial/accounting professionals.

Written by: Claas Koenig

Claas is an Implementation Consultant at HRchitect. He is currently based in British Columbia.