Many US companies cross the border to do work in Canada. When an American company hires Canadian employees, it must abide by all Canadian payroll laws and ensure that those workers are paid in compliance to the government’s current payroll rules and regulations. Though American and Canadian business activities are quite similar, their payroll processes are just different enough to make it more difficult for an American company to do Canadian payroll. US companies have a few options available to them when it comes to paying their workers north of the border—some of which are better than others.
Going at It Alone
An American company might think that expanding business operations into Canada and paying workers there is similar enough to American payroll to go at it alone. However, the payroll laws are stringent and the tax requirements are different. So simply using the same old payroll processing software and following American deadlines and rules is going to get you into trouble. You’ll need relevant software and you’ll need to continuously stay up to date on changing legislature. Using outdated information you gathered up years ago (or even just a few months ago) related to Canadian payroll won’t work—the laws change too often to be able to rely on it.
And if you’re thinking of just avoiding paying taxes altogether by classifying your Canadian workers as independent contractors when they don’t fit that bill you risk being caught and having to pay heavy fines and penalties for this illegal activity. The government pays close attention to companies that classify their employees as such and may look closely into your business activities if you do.
If you’re planning to do Canadian payroll internally, you’ll have to do so legally. This means establishing a presence, signing up with the government, learning about payroll laws and employee classifications, calculating the right tax deductions and other contributions, and remitting these withholdings to the right government officials on time, every time.
Sound too complicated? You have other options to consider.
Outsourcing to a Payroll Provider
When you outsource your Canadian payroll processing to a back office payroll provider, you won’t have to worry about being in compliance and doing your due diligence. You can rely on the experts you hire to take care of the payroll calculations, classifications, pay stubs, tax filings, and all the rest of the paperwork associated with managing payroll. Some back office service providers will even offer to take your HR administration off your hands, offer payroll financing, and ensure you’re compliant with all other employment laws, too. Outsourcing can allow you to focus on your core business without being bogged down by government bureaucracies and paperwork, while ensuring that your payroll processing is always accurate and legal.
Employer of Record
Your other option is to engage an employer of record (EOR). This option is ideal if you’re not quite ready to establish a Canadian presence just yet or you want to pay your workers remotely. When you engage an EOR, your employees become its legal responsibility and the company will take care of all the administrative tasks associated with paying your Canadian workers.
Which Option Will You Choose?
When American companies expand their business activities into Canada, they must ensure that their new north-of-the-border employees are paid legally and properly under Canadian legislature. They can try to go at it alone, but this is a risky endeavour if they’re not familiar with Canadian payroll laws. Or, they can outsource their payroll processing to a payroll service provider or an employer of record.