What is a salary, and how are salaries determined in Canada?

For many employees, understanding what factors determine their salary and how they can increase it is a crucial subject. That's why as an employer, it's best practice to set clear expectations on salaries for your employees.

We've created this focused guide to help you cut through the confusion. Keep reading to unpack key elements that can be used to define your employees' income and deliver straightforward strategies for setting salaries in accordance with the average salary in Canada.

Understanding salaries: key concepts and terminology

A salary, which is generally paid periodically, is a fixed compensation serving as the core remuneration for many employees’ regular work or services. It’s a predictable income stream that doesn’t fluctuate based on your employees' performance.

This fixed salary, often in the form of weekly, biweekly or monthly payments, is typically calculated based on the standard workweek. It typically will not include non-cash benefits contributing to the employee’s annual salary.

Sometimes, the concept of a salary can be challenging for some employees to grasp. For example, some may find it difficult to differentiate between their annual salary and hourly wages. While these figures may appear similar, they differ significantly.

Factors affecting salary levels

Salaries aren't the same or fixed for all employees; they vary based on a multitude of factors, such as:

• Job title
• Location
• Industry
• Education
• Experience
• Minimum wages

These elements all shape how much an individual can earn, and understanding them helps when strategizing for better compensation.

Job title and responsibilities

Job titles are more than mere labels.

They signal varying levels of responsibility and experience. Job titles influence career growth and professional assessments. It can set expectations about your employee's role, authority, and affect their relationships with coworkers and clients.

Maintaining a balance between the job title and actual responsibilities is essential, as a mismatch can be detrimental to not only your employee's salary but also their career advancement. This sometimes leads loyal employees to seek new job opportunities.

Location and cost of living

Your employee's salary can be significantly influenced by your geographical location and its associated cost of living. If your business is located in an urban centre, particularly one with a high cost of living, it's best practice to offer higher salaries. For instance, in Canada, regions with a high cost of living, such as Toronto and Vancouver, often offer higher average salary levels compared to the average salary in other cities.

But higher salaries aren't only available to workers in urban areas. To attract talent in remote and rural locations, some employers offer higher salaries for certain professions due to the lower availability of skilled workers and the need to compete with the allure of a higher salary in urban areas.

Industry and market demand

Your industry and the current market demand for certain skills can also significantly influence the salary you offer your employees. Some industry trends that are contributing to the growth of specific industries in Canada and influencing salary levels include:

• Digital transformation
• Automation
• Remote work
• The rise of the technology sector

These trends have led to an increasing demand for skilled professionals, including agricultural workers, in these industries.

Skills that are highly sought after in the Canadian job market include:

• Technology
• Healthcare
• Renewable energy
• Digital marketing
• E-commerce platforms
• Data analytics
• Financial and business acumen
• Regulatory compliance
• Specialized construction

Hiring workers who have these skills can potentially lead to paying them a higher salary.

Salary negotiation strategies

Sometimes, your employees may wish to negotiate their salary, or you may have to negotiate pay rates with a new hire. While salary negotiation can be daunting, understanding the market rates for a specific role is paramount in evaluating and setting salary expectations for your employees. This is especially important if they feel they're currently paid a lower salary. The job title and responsibilities should reflect the individual’s contribution to your business and can be leveraged to make decisions during salary negotiations.

It's also crucial to make sure your employee's salary is contained in the job offer and their acceptance is finalized in writing to prevent misunderstandings or withdrawal.

Analyzing the pay gap

A discussion about the average salary in Canada would be incomplete without examining differences in the average salaries between male and female workers.

Despite progress towards equality, the workforce still grapples with the persistent issue of the pay gap. In Canada, the gender wage gap among paid workers aged 20 to 54 decreased from 16% to 12% in the years 2007 to 2022. However, the wage gap is significantly wider for immigrant women and Indigenous women—pointing to the overlap of gender and race in wage disparities.

Education, job tenure, and full-time employment also play a significant role in reducing the wage gap among women. So, as an employer, it's important to ensure pay equity when setting salaries for your workers regardless of race or gender.

Canadian legislation, such as the Pay Equity Act, which came into force in 2021, encourages federally regulated workplaces to examine their pay practices and provide equal pay to male and female workers.

There are also provincial regulations that mandate employers to create pay equity plans, submit pay equity reports, and take active steps to make sure they pay their workers of different genders equally based on the work performed.

Salaried employees vs hourly workers

Although salaried employees and hourly workers may perform identical roles, their compensation structures can be significantly different. This is important when determining the pay rate for your employees, as salaried employees often receive a fixed wage and can work extra hours without additional compensation.

On the other hand, you must pay hourly employees time and a half for any hours over their standard workweek. Their pay is typically subject to minimum wage regulations, which are designed to ensure they receive at least the established minimum wage for your jurisdiction.

Salaried positions generally offer more job security as it is more complicated for you to cut hours or renegotiate salaries compared to reducing the hours of hourly employees. However, eligibility for benefits like workers’ compensation applies to both salaried and hourly employees, but confusion often arises around salaried employees’ eligibility for overtime pay based on job classification and local overtime regulations.

Utilizing a salary calculator

Using a salary calculator can be useful in estimating the correct earnings to offer your employees. It also helps when transitioning between various pay structures. It can help convert different types of earnings, such as hourly wages, to an annual salary and provide an estimate of net income after taxes. To use it, one should input details such as hourly wage, working hours per week, and whether they receive paid time off.

The calculator allows for adjustments based on paid or unpaid time off, affecting the hourly rate and annual income estimation. Additionally, it estimates income tax based on federal and provincial rates specific to the user’s location, providing a holistic view of potential earnings.

Employee benefits and compensation packages

When discussing salaries, you should take into account the entirety of the compensation package you are offering. The base salary is just one component. Annual compensation also includes financial benefits like:

• Bonuses
• Health insurance
• Retirement plans
• Other perks

Understanding the difference between annual salary and total annual compensation is vital to enable you to make informed financial planning and tax considerations.

Employee benefits in Canada represent a significant portion of payroll expenses, averaging 15% to 30%. These benefits range from mandatory ones like provincial healthcare, pension contributions, and employment insurance to supplemental benefits covering additional health insurance and retirement savings plans.

However, there is often a gap between the healthcare benefits employees value and what is actually offered by employers in Canada.

Common salary-related questions and misconceptions

Navigating salaries, taxes, and employee benefits can be challenging, so it’s not surprising that misconceptions and queries are plentiful. A common misconception is the difference between gross and net salary.

The gross salary refers to the amount earned before any deductions, while the net salary is what your employee actually receives after taxes and other deductions are applied.

Another common question revolves around tax slips. Employees can receive multiple T4 slips if they have worked in multiple provinces or for different employers in a single tax year.

A T4 tax slip is for regular employment income, whereas a T4A slip is issued for other forms of income like pensions or annuities. Understanding these nuances can help employees with tax planning and avoiding unnecessary financial stress.

Get help understanding salaries with BrightHR

A lot of factors determine the average salary in a country. As an employer, it's important to understand everything from key salary concepts to effective negotiation strategies and addressing pay gap issues to make sure you are offering your staff fair compensation.

Failure to offer your staff a competitive salary could leave them dissatisfied, leading to lower productivity and high turnover. Considering the complexities of understanding most salaries we have outlined in this article, it's helpful to have a handy suite of tools to make the process easier and less challenging.

BrightHR's range of tools and people management tools, like our Payroll Navigator, makes managing employees' pay and creating payrolls a breeze.

Interested in learning more about how we can help you manage your employee's salaries? Contact us on 1 888 220 4924 or book a FREE demo today.

Frequently Asked Questions

What is the salary in Canada?

The average Canadian salary as of November 2023 is $1,215.02 per week or $63,181.04 per year for full-time employees, with a positive overall salary trend.

What does it mean to get a salary?

Getting a salary means receiving a set amount of money on a regular basis from an employer. Salaried employees may also receive additional benefits such as paid vacation days and healthcare.

What is salary per pay?

The salary per pay can be calculated by dividing the annual salary by the number of pay cycles for the year. For instance, a worker earning $50,000 annually and paid biweekly would receive a paycheck of $1923.08 before deductions.

What is the difference between gross and net salary?

The gross salary is the amount earned before any deductions, while the net salary is what your employee actually receives after taxes and other deductions are applied. Therefore, the key difference lies in the deductions taken from the gross salary to arrive at the net amount.