EOR or Canadian subsidiary? How set-up time, cost and risk compare

With your own corporation, your group signs the employment contract, holds the CRA payroll account and answers to the province for employment standards. Hire through Employer of Record Canada and that legal employer role passes to us as employer of record, while your company directs the work through a services agreement with us.

Statutory employment costs are close to identical on both routes. CPP, CPP2 and EI apply to every employer at the same 2026 rates, and the employee’s net pay is the same whichever entity pays it. The differences sit in the fixed costs of running an employer and in one Ontario levy, the Employer Health Tax, whose exemption depends on the size of the employer’s group.

Control over the work does not change much either. On both routes your managers set objectives, review performance and decide on pay rises. What changes is who holds the paperwork, who deals with the CRA and the province, and whose name appears if an employee files a claim.

Liability is not a clean split on the EOR route. Ontario’s agency rules, where they apply, expose the client to joint claims for unpaid wages, overtime and holiday pay, and forbid it from knowingly using an unlicensed agency. With your own corporation, the whole of that liability sits with your group, along with responsibility for every filing deadline.

Incorporation happens either at federal level, under the Canada Business Corporations Act (CBCA), or provincially, for example under Ontario’s Business Corporations Act. Federal online incorporation through Corporations Canada costs CAD 200 and is processed in 1 business day, with a 4-hour express service for a further CAD 100. A Nuans name search report is not needed when you file online with a word name, and the federal annual return costs CAD 12.

A CBCA corporation needs at least one director, and a quarter or more of its board must be resident Canadians, with a board of fewer than four needing at least one. For a foreign parent with nobody in Canada, this rule alone can shape the decision, because it means finding a resident Canadian willing to sit on the board and carry a director’s duties.

Provincial incorporation in Ontario runs through the Ontario Business Registry, costs CAD 300 and is processed immediately. The fees for each option are listed on the Ontario registration costs page and the Corporations Canada fees page.

Federal incorporation is often chosen when a company expects to hire in several provinces, since the corporation then registers in each province where it carries on business. Provincial incorporation keeps things in one registry when all activity is in that province. Either way, the corporation cannot pay anyone until it holds its own CRA and provincial payroll accounts.

Extra-provincial registration is how a corporation formed elsewhere gets permission to carry on business in a province. A federal corporation that operates in Ontario registers there extra-provincially: the initial return costs nothing and takes 2 business days.

A company incorporated outside Canada has a different path. If it operates in Ontario directly, as a branch and without forming a Canadian corporation, it must obtain an extra-provincial licence: CAD 330, with a 5-business-day turnaround. The branch then acts as the employer, so the foreign company itself becomes the party to Canadian employment contracts and to any employment claims.

These Ontario figures do not cover other provinces. A hire in British Columbia, Alberta or Quebec means checking that province’s registry rules separately, and a Quebec presence brings registrations with Revenu Québec and the CNESST as well as French-language duties towards staff.

Each province you register in adds its own annual filings and its own employer accounts. For one or two employees spread across provinces, that multiplication is often what tips the decision towards an EOR, because the employer of record already holds the provincial registrations it needs.

Before paying anyone, the corporation needs a CRA business number (BN) and a payroll program account (RP). The payroll account is the one under which source deductions of income tax, CPP and EI are remitted, and a regular remitter has until day 15 after each month closes to pay.

Provincial accounts follow the payroll account. In Ontario, that means registering with WSIB for workplace insurance and, once Ontario payroll exceeds the exemption, for the Employer Health Tax, whose annual return is due on 15 March. Quebec staff bring registration with Revenu Québec for source deductions and with the CNESST. Timing rules for each differ, so confirm them with the body concerned before promising a start date.

Then comes the operating layer, which is where most of the effort goes:

• a bank account able to pay Canadian salaries and make CRA remittances
• payroll software or a payroll bureau that applies the T4127 formulas and collects TD1 forms
• a routine for T4 slips each February and Records of Employment filed on ROE Web, normally within 5 calendar days after pay stops
• employment contracts with termination clauses that comply with the ESA, and in Ontario, for employers with 25 or more staff, written policies on disconnecting from work and electronic monitoring

Incorporation itself can take a day. How long the bank account and registrations take depends on your group’s circumstances, so build them into the plan before an offer names a start date.

Headcount brings further Ontario duties. Once an employer has 25 or more employees, it must give new hires written information before their first day, follow the 2026 rules on pay ranges and AI disclosure in public job postings, and hold written disconnecting-from-work and electronic-monitoring policies. A growing corporation has to watch for that threshold itself.

For a single CAD 85,000 hire in Ontario, the EOR route costs about CAD 102,515.97 a year: CAD 93,029.25 of salary and statutory employer costs, plus the monthly fee from USD 560 at about CAD 790.56. The first year also carries the one-off EOR set-up fee that usually applies, which your quote will name. That assumes the employer pays EHT at 1.95% with no exemption, WSIB Class L at CAD 0.18 per CAD 100, no benefits plan and vacation paid within salary.

Your own corporation would pay the same CPP (CAD 4,230.45), CPP2 (CAD 416) and EI (CAD 1,572.30). The Employer Health Tax may differ. An eligible employer can claim the CAD 1 million exemption only if its associated group’s Ontario remuneration is CAD 5 million or less; below the exemption, EHT on one employee would be nil and the statutory cost CAD 91,371.75. A group above that size gets no exemption. WSIB follows your own rate class, which may be higher than Class L: a class at the 2026 average of CAD 1.23 per CAD 100 would put WSIB at CAD 1,045.50 on this salary, whichever route you take.

The own-corporation route swaps the EOR fee for other costs. Government fees are small: CAD 200 federally, CAD 12 a year for the annual return, CAD 0 for Ontario extra-provincial registration. The larger items are accounting, payroll processing, contract drafting, annual accounts and management time, which are set by your advisers and do not shrink to fit one employee the way a per-head fee does.

A practical test is to price both routes for the headcount you expect over the next two years, including one departure with notice costs. The fuller breakdown of employer costs is in the cost of employing someone in Canada.

An EOR tends to fit when you are hiring a few people in Canada and want them on payroll without first building a corporate and payroll structure. Common cases are a first sales or engineering hire, a small team testing demand, or staff in two provinces where separate registrations would double the administration. It also fits when you cannot yet say how long the Canadian presence will last, since ending an EOR service is a contractual matter while winding up a corporation means closing its payroll and provincial accounts.

The EOR route has firm limits. It cannot support an LMIA, because the Temporary Foreign Worker Program looks to the business that actually hires and pays, and an agency recruiting for someone else does not qualify. Intra-company transfer permits need a corporate link, such as parent and subsidiary, between the Canadian employer and the company abroad. Termination exposure also stays with you in substance, since common-law reasonable notice applies whoever the employer is. The employer of record explainer sets out what the employer of record does and does not take on.

A subsidiary makes sense when Canada becomes a lasting part of the business: a growing team, plans to move existing staff in on intra-company transfer permits, or a need to hire foreign workers through the LMIA route as their actual employer. It also suits groups that want contracts, IP and payroll records held directly.

The routes can run in sequence, with an EOR for the first hires and a transfer to your own corporation once the team justifies it. Ontario’s agency rules keep that door open, since an agency cannot bar a client from employing the worker directly. Agree in writing how earlier service will be treated, because length of service drives ESA notice. Exit terms worth checking are listed in choosing an EOR provider in Canada, and the EOR services page covers the transfer support available.

Q01Which costs less for a first hire, an EOR or a subsidiary?+

A.It depends on headcount. Government fees for a corporation are small, but accounting, payroll and legal set-up are not, so for one or two hires compare those running costs with the annual EOR fee. For a larger team the per-employee fee adds up, and a corporation with a small eligible Ontario payroll may also avoid EHT on its first CAD 1 million of remuneration.

Q02Does a federal Canadian corporation need a resident director?+

A.Yes. Under the CBCA a quarter of the board must be resident Canadians, and a board with one to three members needs at least one of them.

Q03Can a foreign company employ staff in Ontario without incorporating in Canada?+

A.It can register as an extra-provincial corporation with an Ontario licence, at CAD 330 and 5 business days. It then needs its own CRA business number and payroll account, and it becomes the employer for all purposes.

Q04What are the BN and the RP payroll account?+

A.The business number (BN) identifies the corporation to the CRA, and the payroll program account (RP) is the account under which income tax, CPP and EI deductions are remitted. Both are needed before the first pay.

Q05Is it possible to transfer EOR employees to our own corporation later?+

A.Yes. Ontario’s rules stop an agency from preventing a client hiring the worker itself. Set the transfer terms and the treatment of earlier service in writing before the move.