Expanding into Canada brings opportunity, but also complexity. From tax obligations to compliance issues, managing employment in a new country requires careful planning. For many international companies, outsourcing HR and payroll functions is a strategic move. However, not all third-party employment solutions are the same.
This guide outlines the three most common models—Employer of Record (EOR), Professional Employer Organization (PEO), and staffing agencies—to help determine the best fit for your business.
1. Understanding Your Options
- Employer of Record (EOR):
An EOR legally employs workers on your behalf. It handles payroll, benefits, taxes, and compliance, but limits your control over employment terms. This model is ideal for companies that need to hire quickly without establishing a Canadian entity. - Professional Employer Organization (PEO):
A Canadian PEO supports HR and payroll, but you remain the legal employer. Unlike the co-employment models used in the United States, Canadian PEOs work in the background, allowing you to retain control while reducing administrative workload. This model suits companies with long-term or strategic growth plans. - Staffing Agencies:
These firms supply temporary or contract labour and act as the legal employer. They are useful for high-turnover or seasonal roles, but not well suited for permanent or long-term workforce planning.
2. Legal and Compliance Considerations
Canada does not recognize joint or co-employment in the same manner as the United States. This can create risks when using some mechanisms over others.
- EORs may reduce your access to tax credits and government programs. They may also expose your company to joint employment liabilities.
- Staffing Agencies are appropriate for temporary positions, but can still expose clients to legal risk depending on how much control is exercised over the workers.
- Canadian PEOs allow you to retain legal employer status, report payroll under your own business number, and maintain full authority over employment decisions.
3. Managing Risk the Right Way
Adopting a U.S.-style EOR in Canada can lead to challenges:
- Workers’ compensation rates may be higher due to pooled classifications, especially if your company operates in a low-risk industry.
- Government grants and programs often require that the employer seeking the grants be the actual company performing the services, which is not the case when using an EOR.
- Legal recognition of joint or co-employment is limited in Canada, which increases the risk of legal disputes.
A Canadian PEO avoids these problems by providing support without assuming control of the employment relationship.
4. Flexibility and Scale – PEOs
Canadian PEOs are valuable during transitions such as restructures, mergers, or name changes. They can assist with aligning payroll, updating employment contracts, managing benefits, and supporting clear employee communication. This level of service is typically not offered by staffing agencies and may be restricted under EOR arrangements.
Whether you are hiring your first Canadian employee or expanding across multiple provinces, a Canadian PEO can scale with you. From onboarding to compliance and benefits management, a PEO helps your team grow without compromising your ability to make key employment decisions.
5. Which Model Fits Your Needs?
Here is a brief comparison by use case:
- Hiring quickly without a local entity: → EOR
- Long-term workforce growth: → Canadian PEO
- Short-term or seasonal roles: → Staffing Agency
- Full control with compliance support: → Canadian PEO
- Business transition or restructuring: → Canadian PEO
Final Thoughts
The right employment partner can make a significant difference when expanding into Canada. EORs and staffing agencies serve specific purposes, while Canadian PEOs offer a unique blend of flexibility, compliance support, and long-term partnership.
We have worked with providers such as PEO Canada, which offer robust infrastructure and in-depth local knowledge. Their model allows international employers to grow confidently while staying compliant.
If you are considering entering the Canadian market, we encourage you to consult with our team for tailored guidance. Having the right HR support is just as important as sound legal advice.
