Employee Benefits in Canada
Canada is a very flexible country for individuals to migrate to and for businesses to expand to, especially if you choose the right province to register your business. Besides ease and flexibility, businesses also benefit from an educated and motivated talent pool when establishing a presence in Canada. However, it’s imperative to remember your responsibilities as an employer with regard to employee benefits in Canada. Understanding these employee benefits is crucial for all Canadian employers.
Most of the employee benefits in Canada are statutorily mandated and enforced by the federal government. However, some provinces may have employee benefits other than what the federal government offers. This article does not include healthcare in the employee health benefits descriptions since it is available for all Canadians regardless of employment status. Note that the following benefits (unless otherwise specified) may apply to all provinces and territories other than Quebec. All numbers stated are for currently available information only and may be subject to legislative changes.
The official government pension system in Canada is called Canada Pension Plan (CPP), which almost every working Canadian pays into (unless they earn less than $3,500 a year). As an employer, you will pay 50% of an employee’s eligible contributions. The contribution rate is 11.4%, but it’s subject to an earning ceiling, which is calculated annually ($64,900 for 2022). So even if an employee has a yearly income higher than that, the total contributions would be 11.4% of the ceiling amount. The 11.4% is split evenly between employee and employer, so you must withhold half of the CPP contribution from their wages and pay the other half yourself. CPP also funds a wide range of survivor benefits.
CPP applies to all provinces except Quebec, where there is QPP. It has a different contribution percentage and regulations.
There is also an Old Age Security (OAS) pension that every Canadian over 65 years of age might be eligible for. However, it’s funded by the government, and neither your employee nor you (the employer) need to pay for that.
Employee Insurance (EI) is mandatory for most Canadian employees, and both employers and employees contribute towards EI. As an employer, you need to calculate (using this calculator) how much you have to deduct from your employee for EI. It varies from year to year, and for 2023, it is 1.63% of the maximum annual insurable earnings, which also changes annually. This is different for Quebec.
Whatever you deduct from your employee, you must add 1.4x the amount to establish the total EI contributions that you will have to pay to the government. You may qualify for a reduced number if you have a valid short-term disability program for your employees.
The idea behind EI is to help employees who lose their jobs and livelihoods because of factors beyond their control, such as injury, mass layoffs, etc. EI covers a wide range of benefits, including but not limited to the following:
- Financial compensation.
- Sickness/injury benefits.
- Assistance in finding a new job.
Leave policies are another one of the employee benefits in Canada, which vary by category. Broadly speaking, there are two categories:
Federally Regulated Workplaces: Businesses and companies that are associated with certain industries, including banks, airlines, railway companies, telecom, etc. Their leave benefits are defined and regulated by the federal government.
Others: If your business doesn’t fall in an industry-recognized field under the federally regulated umbrella, the leave benefits of your employees will most likely be governed by the province(s) you operate in.
Some of the leave benefits under federally regulated industries are:
- A paid personal leave of three days, assuming you’ve worked for at least three consecutive months.
- Paid medical leave (ten days) and unpaid medical leave (up to 27 weeks).
- Compassionate care leave of up to 28 weeks (unpaid) to take care of a family member that’s critically ill. There are multiple leaves in this category, and the periods are more generous if the employee needs to take care of a child.
In most Canadian provinces, employees must receive a minimum of 2 weeks of vacation for every year of employment (12 consecutive months) with vacation pay of not less than 4% of gross wages. After 5 consecutive years of working for the same employer, employees are entitled to 3 weeks of leave with pay equivalent to 6% of gross wages. After 10 consecutive years of employment, the entitlement is 4 weeks with pay equal to 8% of gross wages. There are also ten other paid holidays for New Year, Canada Day, Labour day, etc.
If your employees are working overtime, you need to pay them at least 1.5 times the regular wages. So, if they are working two extra hours, they get three hours of wages.
In addition to the above mandatory benefits, there are also other benefits you can offer your Canadian employees to make your workplace/business more attractive. The three most significant ones are:
Private Health Insurance
Despite the public healthcare system, most employers offer their employees some kind of public health insurance, partly or fully funded by the employer. So, if you are not offering a private health insurance plan, you may actually be in the minority, though it may vary for different regions and industries. Private health insurance gives your employees more healthcare options and, often, relatively quick access to health services which is highly desirable for most Canadian employees.
Retirement Savings Plan
In addition to the mandatory contributions to their EI and CPP, you can also offer a retirement savings plan where you match or exceed their contributions. You can contribute directly to their registered savings accounts (TFSA and RRSP) while adhering to their contribution limits. This additional compensation can make your business more attractive to prospective employees.
Employer Pension Plan
Even though the CPP and OAS pensions collectively make up a decent sum, you can make the retirement of your employees more financially secure by offering a pension plan. You can tie it to years of service to ensure better retention rates and motivate more employees and more talent to stay with your business for a long time.
There are several rules, regulations, and compliance practices you’ll need to keep in mind while hiring in Canada. If you fail to comply with employment laws or misclassify your workers, you may face hefty fees, penalties, or legal difficulties.