When a US company makes the decision to take on Canadian employees, there is invariably a range of logistical issues to consider before it becomes a reality. One of the main factors is payroll processing. While it may seem like a simple, straightforward concept, when put into practice, many US companies soon discover the road is littered with potential pitfalls.
Here are 5 tips for US companies processing Canadian payroll that will help you stay on the right side of the law and manage all the different aspects of the Canadian payroll process.
1. Learn About Canadian Tax Laws
If there is one piece of information many Americans know about Canada, it is that Canadians pay a lot in taxes. For US companies processing Canadian payroll, there are several tax considerations that won’t come up when paying American employees. Elements such as Canada Pension Plan (CPP) contributions, employment insurance (EI) premiums, the proper income tax deductions, and other tax issues must be followed to the letter.
The Canada Revenue Agency (CRA) doesn’t have a sense of humor when it comes to American companies getting sloppy with their payroll tax practices. If you fail to follow the requirements, you may be looking at some stiff penalties.
2. Vacation, Stat Holidays and Overtime
In most Canadian provinces, employees are entitled to 4% vacation pay that can be accumulated or paid out in each pay period. They also receive holiday pay for statutory holidays, such as Christmas, Easter, Labour Day, Canada Day, etc. Not every province in Canada has the same stat holidays, so any US companies processing Canadian payroll will have to check before they begin the process.
For overtime hours, employers are required to pay 1.5 times the regular rate of pay for any hours an employee works over 40 in a given week. The overtime pay may be calculated on a weekly or a daily basis.
3. Beware the Independent Contractor
In an effort to circumvent some of the tax issues and other payroll laws, some American companies hire Canadian employees as “independent contractors.” Under this scenario, the company would send money from their own US bank account to the independent contractor’s Canadian bank account, and that would be that, nice and neat.
The problem with this type of activity is that, as mentioned above, the CRA doesn’t take kindly to foreign companies trying to game the system. Like the IRS in America, the CRA will investigate, and any US company doing business this way may end up being audited and be handed fines, bills for back taxes, or even have a criminal investigation launched.
4. Navigating the Worker’s Compensation Program
Any US companies processing Canadian payroll need to be aware of the Canadian Worker’s Compensation Program. It differs from the US, as the government runs it and every business that takes on Canadian employees must register an account in every province they have employees.
Also, the registration process differs from province to province, so it is important to have the correct information and keep all the details in order. Non-compliance by US companies can lead to significant fines, and if an employee does get injured, the process can be lengthy and complex if the employer is not well versed in the rules.
5. Take the Time to Find a Reliable Partner
Naturally, the best way to ensure a smooth transition into the Canadian marketplace is to enlist the help of a partner that has experience in all the complexities of the Canadian payroll process, as it pertains to American employers. At The Payroll Edge, we can act as your Employer of Record in Canada, so everything moves seamlessly and you never have to consider any of the issues mentioned above.
When you have a trusted partner working on your behalf, you can focus on your core business and leave the legalities and tax issues to us. Your employees will be paid on time, and you’ll never have to worry about the minor details that seem to trip up many US companies processing Canadian payroll. Contact us today and we’ll help you get the process started.