What is the difference between a Professional Employer Organization (PEO) in Canada and the United States?
Broadly speaking, not a great deal on the surface, but some key differences are present.
Both Canadian and American PEOs support client companies by providing: staff onboarding, employment contracts, Human Resource provision, PTO management, managed payroll, technology (such as a data management or HRIS system), benefit sourcing, benefits administration and employee offboarding.
PEO Infrastructure
When using a PEO it is the client company (E.g. ACME Inc) that is the legal employer of record.
This means Acme Inc. is the employer. The insurance, payroll registrations, benefits, legal contracts, accounting and filing requirements amongst others all sit with 'ACME Inc.'
With a PEO arrangement the PEO takes care of the payroll submissions, the onboarding and offboarding paperwork, benefits and other employment related issues. It does this on behalf of the company, in this case ACME Inc. This is important to distinguish as it a key difference between a PEO and a EOR (Employer Of Record). EOR’s provide a very similar service but with their own infrastructure.
- A PEO is an outsourced provider of services to a company.
- An EOR is a business that provides employed solutions to businesses.
Whilst the distinction is subtle, it is an important one. You can read more about the difference between an Employer of Record Vs a PEO Here.
Payroll tax.
Differences arise between the USA and Canada in Taxation and employment law.
Canada has 13 provinces with varying tax requirements for payroll. Nunavut is the lowest province by starting rate of payroll tax, but it is complex! The latest rate information can be found here if you are thinking of doing it yourself! It’s not surprising people outsource.
The customary pay period in Canada is Semi-monthly, although bi-weekly, monthly and weekly payrolls are also common.
The United States has 50 states, each with their own taxation levels, with California typically having the highest tax burden.
Employment law – Fire at will or fire at wont!
When considering hiring talent in the U.S. or Canada, it is important to compare the overall employment landscape.
Both countries have distinct HR and labor laws that must be adhered to.
Canada’s history and interpretation of employment law through its courts have led to increased workers' rights in certain provinces. However, terminating an employee on performance grounds or due to redundancy is more straightforward in Canada compared to countries like France, where employee rights are heavily protected by legislation.
Generally, employees in Canada have more rights from the start than those in the U.S. This is not necessarily negative for an employer however as it drives the creation of a solid recruitment process. When hiring in Canada, there is clear protection for both the employee and employer.
Regulations in Canada allow for effective performance management, fostering a reliable and hard-working workforce.
In the U.S. despite a thorough recruitment process, employees may leave a company soon after joining, resulting in wasted time and resources. This is in part due to the U.S. having ability to "terminate at will," which does not exist in Canada. The ability to retain people is driven from commercial negotiations rather than statutory protections.
Across the USA, there is variation between states that relate to employee terminations. Disputes can become quite litigious in acrimonious cases.
Benefits costs. Same but different.
Benefits costs also differ significantly; in the U.S., employers often offer extensive private benefits, which typically cost just under 30% of the total employment cost when you include employment benefits and gross wages.
Canada’s legally mandated benefits are government-funded and mandatory employers contributions have to be made to cover CPP (Canada Pension Fund) & EI (Employment insurance) . These mandatory costs generally account for 15% of a company's employment cost in Canada at a base level. It is common for employers to offer additional private benefits, which can, with a generous package take the cost up to the 30% range making it comparable to the USA.
RRSP and 401k – Both are pension pot in the relevant country – 401k’s being the pension fund in the USA whilst the RRSP is a retirement Savings Plan in Canada.
Wage variations by country.
Salary costs between both countries are comparable when viewed dollar-for-dollar, but the exchange rate makes a Canadian workforce more affordable. One U.S. dollar buys 1.42 Canadian dollars. (March 2025).
For example -
At the time of writing the average the average salary for a Marketing Director is CAD $111,451* per year in Canada.
The average salary for a Marketing Director is of USD $113,343* per year in the USA.
This means you can employ a marketing director in Canada on a base salary of $78,000 USD whilst the equivalent candidate in the USA is $113,343 USD. That is 31% less! Same time zone, same skills, same language – less cost!
While Canada may not be suitable for all roles and locations—such as staffing a store in Washington—remote roles such as technical, IT, HR, or marketing are ideal for Canadian hires. This can result in significant savings on payroll costs, as demonstrated above. The complexity of hiring across borders has traditionally been a barrier, but the growth of PEO and Employer of record businesses that facilitate cross-border employment is mitigating this challenge. Therefore, if you are looking for specialized talent outside your local area, considering Canadian employees could be advantageous.
*Source – Glassdoor.com