When a Canadian employer hires a foreign worker through a Labour Market Impact Assessment (LMIA), they must process payroll exactly as they would for a Canadian citizen. The employer must verify the temporary 9-series SIN, strictly deduct CPP, EI, and income taxes, remit these to the Canada Revenue Agency (CRA), and issue a T4 slip by the end of February.
Securing an approved Labour Market Impact Assessment (LMIA) from Service Canada is a massive victory for any business facing severe labour shortages. Whether you run a bustling construction firm in Calgary, a tech startup in Waterloo, or a hospitality business in Halifax, bringing in skilled global talent helps your operations thrive. 📍
However, once your new employee lands and begins working, your administrative duties shift from immigration law to federal tax law. Many employers are confused about how to treat a temporary foreign worker on their payroll. The rule is incredibly straightforward: under Canadian law, foreign workers on standard LMIAs must receive the exact same payroll treatment, tax deductions, and employment standards protections as permanent residents. This business-to-business (B2B) guide explains how to properly set up their payroll. 💼
Step-by-Step Process for Employers in Canada
Ensuring your company remains compliant with both the CRA and Service Canada requires a tight administrative process. A failure in payroll can actually trigger a future LMIA compliance audit. ⚔️
Step 1: Verify the Temporary SIN
Before the employee works their first shift, they must visit Service Canada to apply for a Social Insurance Number (SIN). Foreign workers are issued a temporary SIN that begins with the number “9”. You must photocopy this document and record the exact expiry date, as it usually aligns perfectly with the expiry date of their IRCC work permit. 📜
Step 2: Collect the TD1 Tax Forms
Just like any Canadian hire, your new LMIA worker must fill out both the federal and provincial TD1 forms (Personal Tax Credits Return). This tells your payroll software how much basic personal income tax to deduct from their gross pay. Keep these signed forms secure in their HR file. 📈
Step 3: Calculate Required Source Deductions
Every pay period, you must calculate their gross earnings based strictly on the hourly wage promised in your LMIA approval letter. You must legally deduct the employee’s portion of the Canada Pension Plan (CPP), Employment Insurance (EI), and income tax. You can use the CRA’s free Payroll Deductions Online Calculator (PDOC) to ensure exact accuracy. 💰
Step 4: Remit to the CRA Monthly
You cannot hold onto the tax money. By the 15th day of the following month, you must remit all collected deductions-along with the mandatory employer portions of CPP and EI-directly to the Canada Revenue Agency using your business payroll account number (RP). 🏦
Step 5: Issue the Year-End T4 Slip
At the end of the tax year, you must summarize all their earnings and deductions. You are legally required to provide the employee with a T4 Statement of Remuneration Paid, and electronically file the T4 Summary with the CRA, no later than the last day of February the following year. 📑
How Much Does it Cost Employers in Canada?
Hiring an LMIA worker carries the exact same standard payroll burden as hiring locally. Here are the financial considerations in CAD your accounting department must prepare for: 💵
- Employer EI Portion: You must pay 1.4 times the amount of the Employment Insurance premium deducted from the employee’s cheque.
- Employer CPP Portion: You must match the employee’s Canada Pension Plan contribution dollar-for-dollar.
- Provincial WSIB/Workers’ Comp: You must pay provincial workplace insurance premiums based on their total gross payroll.
- Late Remittance Penalties: Failing to send the payroll taxes to the CRA on time results in a 10% to 20% penalty on the total amount owed, plus daily compounding interest.
How Long Does the Process Take?
Payroll compliance runs on a strict calendar. Getting the initial 9-series SIN at Service Canada usually takes the worker 1 to 2 hours in person upon arrival. After that, your payroll must run on its regular cycle (bi-weekly or semi-monthly). The critical deadline is always the 15th of the next month for CRA remittances, and the end of February for issuing T4 slips. ⏱️
Canadian Citizen vs. LMIA Worker Payroll Requirements
| Requirement | Canadian Citizen Hire | LMIA Foreign Worker |
|---|---|---|
| Social Insurance Number | Permanent SIN (starts with 1-7). | Temporary SIN (starts with 9); must track expiry. |
| CPP & EI Deductions | Mandatory standard deductions. | Mandatory standard deductions. |
| Income Tax Withholding | Based on TD1 forms. | Based on TD1 forms. |
| Minimum Wage / Salary | Provincial minimum wage applies. | Must strictly match the wage promised on the LMIA. |
Frequently Asked Questions (FAQ)
Do I have to deduct EI if the temporary worker cannot collect it?
Yes. Under Canadian law, you must absolutely deduct Employment Insurance (EI) premiums from all standard employees, regardless of their immigration status. Temporary foreign workers actually can access certain EI benefits (like sickness or maternity) if they meet the criteria.
Can I just pay my LMIA worker as an independent contractor?
No. An LMIA explicitly dictates an employer-employee relationship. Paying them as a contractor without deducting source taxes violates the conditions of the LMIA and will likely result in massive fines during an Employer Compliance Review.
What happens if their 9-series SIN expires?
If their work permit and SIN expire, they must stop working immediately unless they applied for a work permit extension before the expiry date. If they applied in time, they have “Maintained Status” and you can legally continue their payroll using the expired SIN until a decision is made.
Do I have to pay them for sick days?
Foreign workers are entitled to the exact same provincial or federal employment standards as Canadian citizens. If your province mandates 3 paid sick days, or if your LMIA contract promises specific sick leave, you must provide and pay for it.
Will the CRA share payroll info with IRCC or Service Canada?
Yes. During a federal Employer Compliance Audit, Service Canada routinely requests CRA payroll summaries (T4s and PD7As) to verify that you actually paid the foreign worker the exact wage you promised on the LMIA application.
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