A Guide for U.S. Companies Hiring Employees in Canada

Canada is a neighboring state of the U.S., with lots of highly qualified and competent employees of potential value to American business. That’s why the practice of hiring Canadian employees for a U.S. company has become widespread, especially recently, with the rising pay expectations among local employees and contractors.

Yet, the process of cross-border hiring, and specifically official employment in the U.S., is not as straightforward as it might seem at first glance. The USA and Canada have different employment laws and taxation systems, so there is a long way to ensure compliance at all stages of hiring employees in Canada.

This article examines the nuances and risks of hiring a Canadian citizen to work in the U.S., both with and without a physical relocation. Read on to master these peculiarities and learn about the EOR solutions that can simplify the process of hiring employees.

An Introduction to Canada’s Employment Law

The initial dilemma that every American employer faces is, “Can a U.S. company hire a Canadian employee?” To clarify this matter, one should take a deeper dive into Canadian employment law.

The first thing you should take into account for a U.S. company hiring a Canadian employee is that Canada has a fusion of federal and provincial employment laws, just like the U.S. has federal and state legislation. That’s why it is necessary to check the local requirements, such as, for instance, the employee termination laws of Ontario or specific overtime pay rules in British Columbia.

Here are the main aspects of Canada’s legislation a U.S. employer hiring a Canadian employee should respect.

Payroll & Taxation

Every employer should register with the Canada Revenue Agency (CRA) to pay tax withholdings on behalf of local staff. The tax deductions mandatory for all employed Canadians are the income tax, Canada Pension Plan (CPP) contributions, and employment insurance premiums. Businesses hiring employees in Ontario are also tasked with covering the Ontario Employer Health Tax.

Minimum Wage & Overtime

Minimum wage rates are higher in Canada compared to the U.S., with CAD$15 in Ontario, CAD$14.25 in Quebec, CAD$15.2 in British Columbia, and CAD$16 in Nunavut. Overtime calculations are also province-dependent, with the number of hours falling within the regular working week ranging from 40 to 44. The cost of work over that threshold is commonly calculated at x1.5 of the regular hourly pay rate.

Vacations & Paid Leaves

Canada’s legislation presupposes the employee’s right to paid leave for 2-3 weeks every year. There is a list of public holidays, many of which are province-specific, that require premium payments and mandatory days off.

U.S. companies hiring employees in Canada on a remote basis have to follow these rules because of the dominance of local labor law in such an employment arrangement. The same goes for vacations and paid leaves, with employees working in a company for less than five years entitled to two weeks with 4% of gross pay compensation and those working for over five years – to three weeks with 6% of gross pay compensation.

Termination & Severance Pay

U.S. employers hiring employees in Canada should know that local laws favor the rights of workers in all termination cases, so it’s important to organize the process compliantly to avoid fines and litigation risks. The right procedure presupposes a preliminary notice of termination based on local standards and common law principles. In some provinces (such as Ontario), statutory severance pay may be mandatory for staff with a long track record with the employer.

Employee Benefits & Healthcare

Canada is a country with a public healthcare coverage system, but many employers, both domestic and overseas, offer covering the cost of extra health and dental benefits. Besides, many employers offer the Registered Retirement Savings Plan (RRSP) – a tangible employee benefit in the local labor market.

This way, every American company hiring a Canadian employee will need to learn to navigate the complexities and risks of Canada’s employment laws and local regulations to ensure compliant and safe recruitment practices.

Employment Options to Consider

Every U.S. company employing a Canadian resident should understand the nuances and risks of employee classification. This is the most important dimension of planning the strategy for hiring employees in Canada because misclassification is a grave violation of labor law associated with high fines on the part of the CRA.

Here are the main characteristics distinguishing full-time staff and independent contractors under Canadian law and CRA provisions.

Employee

A Canadian working in the U.S. on a remote basis is regarded as the company’s full-time or part-time employee if they match the following employment parameters:

• The worker uses the employer’s equipment, software, or other tools.
• The worker performs tasks for one employer.
• The worker’s activities are integral to the employer’s operations.
• The employer regulates workers’ schedules and workloads, determining the place and manner of working tasks’ execution.
• The employee complies with corporate rules, policies, and procedures.

In this case, the employee is legally regarded as the U.S. company’s staff member, with all taxation and labor law regulations applicable to the employment arrangement. An American employer hiring employees from Canada as permanent remote staff should register with the CRA, oversee tax remittance, conduct payroll, and respect all applicable province-specific employment standards.

Independent contractor

Can a U.S. company hire a Canadian independent contractor? Yes, this option for organizing a working relationship is also possible. Yet, the parameters that determine a contractor arrangement are as follows:

• Contractors are solely responsible for setting their working hours, scheduling their operations, and determining the mode and place of work completion.
• Contractors can work with several clients simultaneously.
• Contractors bear personal responsibility for their profits and losses. The contractor chooses the number of clients and their workload.
• Contractors commonly use their own software and tools to complete the employer’s tasks.

In this case, the U.S. company hiring a Canadian independent contractor faces fewer legal hassles in terms of payroll and taxation. Since the contractor is officially regarded as a self-employed person, they bear personal responsibility for salary reporting, tax deductions, and other issues. The U.S. company hiring a Canadian contractor only has to make proper arrangements for issuing payroll overseas, and the rest of reporting and tax filing happens on the contractor’s side.

How to Hire an Employee in Canada?

Just like a Canadian company hiring a U.S. employee, American businesses working with Canadians need to follow the local taxation and labor law (if the employee stays in Canada and works remotely) or apply domestic taxes and employment regulations (if the employee relocates to the United States). American businesses have three options for making this process legal and compliant.

• Set up a local legal entity. The most sustainable option for a U.S. company hiring employees in Canada is to set up a local entity that makes the American business’s international operations legal. This variant is ideal for businesses planning a long-term presence in the Canadian labor market and ready to go through the legal hassle once to conduct legal operations for years to come.
• Partner with an EOR provider. An employer of record (EOR) is a great starting point for a U.S. business new to the Canadian labor market and wishing to take the first steps in this jurisdiction. EOR companies like GEOR provide consulting services, hire Canadian employees on behalf of their U.S. clients, and assume full responsibility for payroll, taxes, and staff administration to let the U.S. business concentrate on core tasks.
• Hire Canadians as independent contractors. Another viable variant is to sign a contract with Canadian tech specialists and fix a temporary work arrangement with a contractor. This method is the least legally binding and the most suitable for the employer in terms of cost, but it is suitable only for project-based work and temporary tasks. No long-term collaboration can be set up using the contractor arrangement, as the risk of misclassification and associated CRA fines are very high.

Relocation of Canadian Workforce: Do Canadians Need a Working Visa?

Working for a Canadian company in the U.S. is totally different in legal terms from the situation for a Canadian working for a U.S. company. In the first case, there is no visa requirement, while in the second case, Canadians need to receive a working visa of a specific type to be legally employed.

The main types of visas Canadians may receive are as follows.

The Practical Side of Payroll

Now, let’s proceed with the question, “How does a U.S. company pay Canadian employees?” Indeed, the question of executing payroll is significant when it comes to ensuring compliance in cross-border staff management and avoiding the financial risks. The answer depends on whether the U.S company hiring in Canada has relocated its employees for operations in the American territory or collaborates with them on a remote basis. Let’s take a look at both scenarios.

Domestic Payroll

Employees from Canada who have relocated to the USA and receive salaries within the U.S. borders will be eligible for a regular payroll procedure applying to all American employees. They will receive salaries to their U.S. accounts and will produce tax deductions as U.S. citizens because they stay in the country using a work visa and are currently classified as U.S. residents.

International Payroll

Another case is paying a Canadian working for a U.S. company in Canada without relocation. This situation is largely widespread, with many remote employees hired by American businesses in the neighboring state for hybrid and remote jobs. In this case, the U.S. business will either pay salaries via its local legal entity or using the assistance of an EOR provider.

The Cost Breakdown: Pay Rate Comparison

Another vital question is whether Canadian contracting for a U.S. company is a generally lucrative deal. At first glance, international hiring comes with added administration hassle and international labor law complications, which are a source of risk. So, is this risk worth the hassle?

The quick answer to this question is yes. According to The Logic experts, American companies hiring Canadians can save a significant portion of their budget on more competitive pay rates across all industries. Here is a quick comparative breakdown of the IT sector to illustrate the point.

This brief comparison illustrates a sharp divide between the salary expectations of American and Canadian software engineers and tech specialists. The difference is heavily determined by the higher cost of living in the U.S., which may be partly compensated by remaining in Canada while occupying a tech job at a U.S. company. This way, U.S. businesses find the Canadian tech workforce to be highly appealing in terms of more affordable remote employment without work performance and qualification compromises.

Want to Hire Staff from Canada? GEOR Can Help