How to pay someone in Canada from the U.S.

How you pay someone in Canada is decided by the relationship, not by the payment method. An employee must be paid through Canadian payroll. A genuine independent contractor sends invoices and is paid by transfer. Getting the relationship right comes first; the bank wire is the easy part.

Employee or contractor: how payment differs

	Employee	Independent contractor
How they are paid	Canadian payroll, on a regular pay day	Against invoices, as the contract sets
Tax withheld by the payer	Income tax, CPP or QPP, EI (and QPIP in Québec)	None
Employer contributions	Employer’s share of CPP or QPP and EI, plus workers’ compensation	None
Remitted to	The CRA, and Revenu Québec for Québec employees	Nothing to remit
Year-end slip	T4 (and RL-1 in Québec), by the last day of February	No 1099-NEC; the contractor provides a Form W-8BEN

Is the person an employee or a contractor?

The CRA decides whether someone is an employee or a contractor from how the work is done, not from the contract’s title. If your company directs the work, sets the hours and supplies the tools, the person is likely an employee and must be paid through payroll. A contractor runs their own business and controls how the work gets done.

Paying an employee as if they were a contractor leaves the payer owing the CPP and EI that should have been withheld, with penalties and interest. Our contractor vs employee comparison explains the CRA’s test.

How do you pay an employee in Canada from the U.S.?

A U.S. company pays an employee in Canada through Canadian payroll, not as a plain transfer. Each pay, income tax, CPP or QPP and EI are withheld, the employer adds its own contributions, and the amounts are remitted to the CRA, with Québec amounts going to Revenu Québec. The company runs this itself or through an employer of record.

Running Canadian payroll yourself

A U.S. company can employ and pay someone in Canada without a Canadian corporation, but it becomes a Canadian employer with the same duties as a local business:

1. Register for a CRA business number and payroll program account, with workers’ compensation in the employee’s province, and with Revenu Québec if they work in Québec.
2. Collect the employee’s social insurance number and their federal and provincial TD1 forms, which set their tax credits.
3. Calculate each pay with the CRA’s payroll tables or payroll software, using the employee’s province.
4. Pay the net amount on the regular pay day, usually by direct deposit to a Canadian bank account. Provincial employment standards set how often employees must be paid.
5. Remit the withholdings and your contributions, usually by the 15th of the month after the pay date.
6. Report each employee’s earnings and deductions on a T4 slip by the last day of February, and issue a Record of Employment when someone leaves.

The CRA requirements checklist covers each registration and deadline, and the Canadian payroll guide explains how each deduction is calculated.

Paying through an employer of record

With an employer of record, the EOR is the employee’s legal employer in Canada. It runs the payroll above under its own accounts: it withholds and remits, pays the employee, and issues the T4. Your company pays one monthly invoice covering salary, employer contributions and the EOR’s fee, and has no Canadian payroll account to open. See how InfraDev’s employer of record works.

How do you pay a contractor in Canada from the U.S.?

A U.S. company pays a genuine Canadian contractor against invoices, usually by international wire or an international payment service, in the currency the contract sets. The company withholds no Canadian tax and issues no 1099-NEC. The contractor provides a Form W-8BEN for U.S. records and pays their own Canadian income tax and both shares of CPP.

The contract should describe deliverables and fees rather than hours or supervision. If the role starts to look like employment, the payment method has to change with it.

Which currency should you pay in?

Employees in Canada are normally paid in Canadian dollars, and payroll deductions and their limits are calculated in Canadian dollars even when a salary is agreed in U.S. dollars. Contractors can invoice in either currency. Agree in writing which currency applies and who carries exchange-rate movements, because a moving rate changes either the person’s pay or your cost.

What does it cost on top of the person’s pay?

On top of an employee’s pay, a U.S. company pays the employer’s share of CPP or QPP and EI, workers’ compensation and, in some provinces, an employer health tax, plus the cost of running payroll or an employer of record’s fee. Paying a contractor adds only transfer and currency-conversion fees.

Route	Paid on top of the pay	Who remits and files
Employing directly	Employer CPP or QPP and EI (EI at 1.4 times the employee premium), workers’ compensation, and in some provinces an employer health tax; plus payroll software or an accountant	Your company
Employer of record	The same statutory contributions, passed through at cost, plus the EOR’s fee	The employer of record
Contractor	Transfer and currency-conversion fees	The contractor, for their own taxes

Rates and maximums change every January, so check the CRA’s current CPP and EI pages, or run the numbers for one role in our Canadian employer cost calculator.

Summary

• Decide the relationship first: the CRA’s test, not the contract, decides whether someone is an employee.
• Employees are paid through Canadian payroll, with income tax, CPP or QPP and EI withheld and remitted, and a T4 at year end.
• A U.S. company can run that payroll itself after registering with the CRA, or pay one invoice to an employer of record that runs it.
• Genuine contractors invoice and are paid by transfer, with no Canadian withholding and a W-8BEN instead of a 1099-NEC.

Sources

• CRA: Payroll obligations for employers
• CRA: Employment status, employee or self-employed
• Revenu Québec: Source deductions and employer contributions
• IRS: About Form W-8BEN