How to Manage and Pay Contractors in Canada

Small and large businesses, both inside and outside of Canada, want to work with Canadian contractors due to their surplus of tech talent. For businesses based in countries like Mexico or the U.S., this also means finding an effective way to make payments across borders without having to deal with transaction fees for wire, digital, and other international money transfers when paying contractors.

What is the Difference Between an Independent Contractor and Employee in Canada? 

Hiring in Canada means understanding the distinction between full-time employees and independent contractors in the eyes of the Canadian government.

In the province of Quebec, the Québec Civil Code regulates how businesses classify independent contractors. In other jurisdictions around the country, the Canada Revenue Agency (CRA) sets out the guidelines for distinguishing employees and independent contractors.

Some general distinctions between employees and contractors are: 

• Employees are on payroll while contractors are paid per project 

• Contractors file and deduct their own taxes 

• Employees are entitled to benefits while contractors are not 

• Contractors are not entitled to notice or severance

• Contractors set their own hours and completion of projects while employees have a set schedule 

In general, employees work directly for a company, while independent contractors are hired to complete a service or project in a specific industry. 

Contractors have more freedom with building the projects they take on and how they complete their projects. However, contractors are responsible for deducting their own taxes at the end of the year and finding their own benefits. Full-time employees in Canada, on the other hand, already have taxes taken out of their paycheck and are entitled to specific benefits.

How to Determine if you Need a Contractor in Canada

Determining whether you need to onboard a contractor in Canada will depend on the scope of the project and your industry, as well as the amount of time you need the contractor for. 

Ask yourself these questions before you decide to classify a worker as an independent contractor: 

• Is this person going to be working enough hours to be entitled to benefits and other compensations from my company? 

• What qualifications does this person have that make them specialized to complete a specific project? 

• Do they need to put in bids to compete for these projects or can I assign them everyday tasks like an employee? 

• Can I give this person independence to complete this project without inserting managerial opinion along the way? 

• How long will it take to complete this project? 

It can be helpful to consult CRA resources for additional guidance. If you determine that you’ll need an independent contractor (instead of hiring a full-time employee), then you can begin the search.

Where to Find Contractors in Canada

Once you build up your business, it may be easy enough to source contractors from word-of-mouth referrals and recommendations. 

If you don’t have any referrals starting off in Canada, check out job board sites like: 

• LinkedIn

• Indeed

• Upwork

• Fiverr

You can also use online directories and digital bid boards designed for businesses to find independent contractors. 

How to Onboard Contractors in Canada

An easy way to prevent problems when hiring independent contractors is to create a strong independent contractor agreement that details the scope of the relationship. 

Putting a clear and detailed independent contractor agreement in place protects both you and the contractor, as well as helps you avoid any future misclassification or liability problems. 

Independent contractor agreements outline important details between the contractor and client, including: 

• Description of the services being provided

• Length of the project or service 

• Payment and other billing details (keep track of these payments through your payroll in Canada)

• Dispute resolutions

If a problem arises between either party during the project, the courts in Canada will be able to use the agreement to settle disputes. 

How to Pay Contractors in Canada

As the first invoice hits from the contractor, you’ll need to know exactly how to pay them. 

You generally shouldn’t put a contractor on your payroll in Canada, as it causes problems with misclassification and compliance. One of the simplest ways to avoid payment and transaction fees when paying contractors is to use a service like Justworks International Contractor Payments. We take the headache out of paying contractors abroad. Partnering with Justworks is also a good strategy for avoiding unexpected fees, bad conversion rates, and high foreign transaction (FX) fees.

You have a few options to legally pay independent contractors in Canada: 

• Justworks International Contractor Payments. If you are a PEO or EOR customer at Justworks, you can make international contractor payments to workers in Canada.

• Set up a bank account. You can set up a bank account in Canada to pay your contractors. However, you’ll normally need to set up an entity within the country and register with the proper bureaucratic organizations (which can take months and thousands of dollars). 

• International money order. One of the common ways to pay a Canadian contractor without an entity is to set up an international money order. They can take a while to process, and the contractor will have to physically deposit them. This is a good option when you’re only paying someone one time. 

• Digital wallets. You can set up a digital wallet through multinational peer-to-peer lending companies like PayPal or Duel that help you deposit and transfer money into your contractors' accounts. This is one of the quickest ways to pay contractors without partnering with an EOR service like Justworks. Most of these services do charge fees, so be aware of that before choosing this option. 

• Money transfer services. Another popular option for employers  looking to send large amounts of money across borders is using a money transfer service like Payoneer. This option has a high transfer limit, quick transfer time, and different options for sending money. These transfers can occur relatively fast and usually ensure a prompt payment. But, if you transfer money in a different currency than Canadian dollars, there usually is a conversion fee. Payoneer, for example, charges $1.50 for domestic transfers and a 2% fee for non-currency transfers. 

Justworks EOR Can Help with Global Hiring

Ready to hire top talent in Canada? With Justworks, you can seamlessly navigate local labor laws, manage cross-border payments, and ensure compliance — all without the hassle of HR admin tasks. Let us handle the complexities of hiring and paying employees and contractors in Canada, so you can focus on growing your business. Partner with Justworks and expand your team with confidence!

From access to top talent pools around the world to streamlined international hiring processes, the advantages of working with Justworks are undeniable. Get started today. 

FAQ

What does independent contractor mean in Canada? 

An independent contractor in Canada is a Canadian resident or citizen who is providing services to a company to complete a project or service. You’ll need to make sure that you’re properly classifying your independent contractors which means ensuring you’re paying the right taxes and correctly classifying workers.

How are independent contractors paid in Canada? 

Independent contractors are paid a few different ways in Canada including: partnering with an EOR service like Justworks, setting up a bank account and paying them from a Canadian bank, or using wire transfers and digital wallets. 

Are independent contractors considered self-employed in Canada? 

Yes, independent contractors are considered self-employed in Canada. They are allowed to set their own schedule, determine the pricing of their services, and dictate how work is completed. If a company onboards an independent contractor in Canada and treats them as an employee, they could face legal and tax repercussions. 

How much tax do independent contractors pay in Canada? 

Independent contractors contribute 11.4% of their self-employed earnings for taxes.