How to Hire Your Canadian Contractor as a Full-Time Employee

As a U.S.-based employer, engaging Canadian independent contractors can be an effective way to manage specialized projects without committing to the complexities of full-time employment. But if you’ve had a positive working relationship with your Canadian contractor and appreciate their unique flare they bring to work, you may be considering offering them a full-time role. 

On the other hand, navigating employment tax, benefits, and compliance regulations in Canada can quickly become a complex task. Here’s a guide to help you through the process, with key tips on structuring pay, benefits, and tax withholdings — and how Justworks can make this transition seamless.

Why Transition a Contractor to an Employee in Canada

Converting a contractor to a full-time employee can be an effective way to fill a critical need within your team when you ramp up hiring. It brings their specialized skills in-house to support your long-term goals and adds someone already familiar with your projects and processes. As a full-time team member, they can engage more fully in your company culture, which often enhances productivity and strengthens collaboration across the team.

What Challenges Should I Expect? 

In Canada, this transition comes with challenges, including navigating Canadian tax laws, adjusting pay rates, and ensuring compliance with mandatory benefits like paid time off, employment insurance, and contributions to the Canada Pension Plan. Managing these regulations requires careful planning, as Canadian employment laws differ significantly from those in the U.S., and mishandling these requirements could lead to compliance issues and fines. 

3 Steps to Convert a Canadian Contractor to an Employee

Below we’ll explore three major steps every business owner should consider before employing  a Canadian contractor. 

1. Determine a New Hourly Rate or Annual Salary

One of the trickiest steps in converting a contractor into an employee is setting a fair salary. Unlike contractors, who typically charge higher rates to cover their self-employed taxes and business expenses, full-time employees receive a comprehensive pay package that includes both wages and benefits. This change means you’ll need to determine an appropriate salary based on Canadian pay standards for similar full-time roles.

Using Justworks for our international EOR capabilities can help you set a new rate that aligns with fair market value for the position. Justworks provides insights into Canadian compensation standards and can help you develop a competitive pay package. It’s a critical step to ensure that your converted employee feels valued and adequately compensated for the work they’ll perform as a fully committed member of your team.

If you simply want to pay contractors in Canada, Justworks also has an International Contractor Payment tool that allows employers to pay independent contractors in over 40+ countries. 

2. Employment Taxes and Withholdings

Canadian tax regulations for employees differ significantly from those for independent contractors. For contractors, you typically don’t withhold taxes or contribute to payroll taxes. But for full-time employees, you’ll need to manage several mandatory contributions:

• Employment Insurance (EI): Employers are required to contribute 1.4% of insurable earnings for each employee.

• Canada Pension Plan (CPP): This is a shared contribution, with both the employee and employer paying into the CPP, currently at a rate of 5.95% for employee and employer. 

• Income Tax: Income tax rates vary widely in Canada, so contractors should be aware of what their income tax deductions will be depending on employee salary. 

Justworks can simplify this process by managing these deductions accurately and in compliance with Canadian tax laws, so you can avoid penalties because our payroll practices are always in line with regulations.

3. Establishing Benefits and Bonuses

An essential part of offering full-time employment in Canada is ensuring that employees receive the required benefits and mandatory leave entitlements. Some of the key benefits Canadian employees expect include:

• Paid Time Off: Two weeks after the first year, three weeks after five years, and four weeks after ten years.

• Sick Leave: Paid sick days to ensure job security during illness.

• Parental Leave: Paid maternity of at least 15 weeks and paternity leave options.

• Retirement and Healthcare: Contributions to the Canadian Pension Plan and enrollment in Medicare are mandatory.

Offering a competitive benefits package not only fulfills legal requirements but also signals to your new employee that you value their well-being and future in your company. Justworks’ expertise in Canadian labor laws allows us to tailor benefit packages that comply with local standards, helping your company remain competitive in the Canadian talent market.

Justworks Knows International Expansion

Transitioning a contractor to a full-time role can be an exciting opportunity for your business and your Canadian team. But navigating international employment laws can feel overwhelming. Justworks makes this process seamless by managing the complexities of tax compliance, benefits, and payroll for Canadian employees and countries around the world.  With our EOR services, you can confidently bring on full-time talent in Canada and focus on building a strong, committed team. Ready to make the shift? Get started today.