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Know These Facts before Hiring a 1099 Employee in the US

Posted by Shannon Dowdall

|

Jan 14, 2019 9:00:00 AM

HKnow_These_Facts_before_Hiring_a_1099_Employee_in_the_USiring across international borders comes with its own unique set of challenges, as any hiring manager who has done it can attest. Differences in employment legislation can cause headaches in the hiring process. Even the differences in labour markets in different areas can prove challenging.

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For Canadian employers, hiring in the US can seem daunting. At first glance, hiring may not seem very different than it is here in Canada, but the regulations can vary widely from state to state. Even the federal definitions of different types of workers can vary from what’s familiar here in Canada.

You might be thinking about hiring what’s known as a 1099 employee for your American operations. If so, there are a few things you’ll want to know before bringing them on board.


A 1099 Employee Isn’t Really an Employee

In the United States, employee misclassification is a big concern. The IRS has a program dedicated to determining how a worker should be classified.

Worker classification determines an employer’s responsibility to them. Employees are entitled to certain benefits. And although they’re called “employees,” 1099 employees are actually contractors or freelancers.

Hiring a 1099 employee reduces the employer’s responsibilities to them. In most ways, it’s similar to hiring a vendor to deliver a service. You sign a contract with them, agreeing to pay them a certain amount for the services they deliver.


You Have Fewer Responsibilities

As mentioned, American employers have certain responsibilities towards their employees. Some of them will be familiar to Canadian business owners. For example, American business owners need to provide workers’ compensation and unemployment insurance for their employees. They’re also responsible for taxes.

When you hire a 1099 employee, however, you’re not responsible for these costs. You also aren’t expected to provide office space or equipment, as the contractor should supply their own. Finally, you don’t need to train them. The person you hire should already be competent. If they need more training, it’s at their discretion and cost.


You Also Have Less Control

When you hire an employee in the US, you’ll have control over many aspects of their job and how they perform it. For example, you can require them to be at work in your office between certain hours. You can also specify the equipment they’ll need to use, and you can provide it.

With a 1099 employee, you have much less control. The contractor can fulfill the terms of the contract the way they see fit. If you give them a deadline, they can work on the project when they have time, provided they meet the deadline.


There Are Penalties for Misclassification

As discussed above, there are concerns about employers misclassifying employees as contractors. The issue often stems from the concern that employers are purposefully misclassifying workers in order to reduce their responsibilities and save money.

The IRS uses a test to determine employee classification, which you should take advantage of.

There are penalties for misclassification, and some states levy their own fines as well.


Contractors Retain Rights to Intellectual Property

If you hire a contractor to produce work for you, they may still own their IP at the end of the day. Even if your contract specifies the work as being work-for-hire, the contractor might still have rights.

In order to qualify as work-for-hire, the work must meet three criteria. It must be specially commissioned, it must fall into one of several categories, and you and the contractor must agree to terms.


Working with a PEO Can Help

Hiring 1099 employees can be tricky for international companies. Working with a professional employer organization can help you navigate the nuances.

If you have more questions about how to hire the right people for your business, talk to a PEO today.


7-challenges-companies-face-when-expanding-into-the-us

Topics: Compliance

5 Best Practices for International Compliance

Posted by Anna Mastrandrea

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Jan 7, 2019 9:00:00 AM

5_Best_Practices_for_International_ComplianceWhen you operate across international borders, the legal situation for your company becomes more tangled. There are rules you’ll need to watch on either side of the border. You’ll need to ensure your compliance with the law no matter where you are, which can mean adjusting policies and practices for each new market you enter.

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This can be especially difficult for companies operating in North America. Canadian business owners may not realize all of the shifting details of American regulations, and their American counterparts may face a similar situation when they cross into Canada.

With these five best practices, you can improve your international compliance. No matter which side of the border you’re operating on, you’ll be ready to adapt to new laws and regulations wherever you go.


1. Read up on the Legislation

Before you expand into any foreign market, be it Canadian, American, or otherwise, you should familiarize yourself with the regulatory climate. Keep in mind that you may need to look beyond the federal level. In both the US and Canada, for example, states and provinces have at least some say in labour regulations.

It’s also a good idea to keep up with the ongoing changes. Subscribe to local newspapers or legal newsletters that can keep you up to date on proposed legislation and changes being debated or passed in the legislature. This can help you stay up to date and pre-emptively amend your policies.


2. Create a Compliance Plan (and Follow up on It)

It’s never too early or too late to make a compliance plan. Having a process in place for monitoring your compliance and correcting it can save you both time and money. After all, it’s better to make a proactive change than to pay fines and need to change your policies anyway.

Once you’ve created a compliance plan, you’ll need to make sure your employees are executing it. If they’re not, it’s time to ask why. Understand the challenges and make implementing and monitoring compliance as easy as possible.


3. Understand the Relationships Between Your Countries of Operation

Canada and the US are close neighbours and closer trading partners. In fact, the US is Canada’s largest market, and American companies often see Canadian operations as a prime market for their own services and products.

Given the close ties between these two countries, it’s little surprise they have many treaties and regulations governing trade. The most famous was probably NAFTA, which was just replaced in late 2018 with a new trade deal. The two nations also have tax agreements to minimize double-taxation.

They also have agreements about immigration and work permits, which can ease the process.

Be sure to investigate the various agreements governing trade between your home country and any foreign market you plan to enter. This is especially important for Canadian and American companies, but it’s a good rule of thumb no matter where you go.


4. Get Help from the Experts

You won’t know all the laws when you expand your business operations to a new country. Nonetheless, you will be expected to enforce compliance.

It’s difficult to comply with laws when you don’t know they exist or don’t understand the nuance of them. That’s why you should get help from the experts whenever you want to expand or ensure your compliance. A professional employer organization with experience in both the Canadian and American markets can help.


5. Remain Flexible

The regulatory framework is changing all the time. It can sometimes seem overwhelming to keep up. Remaining flexible is one of the best things any business owner can do, whether they’re maintaining compliance in their home country or in several international markets.

Taken together, these best practices will help you implement and maintain compliance, no matter where your business expansions take you.


7-challenges-companies-face-when-expanding-into-the-us

Topics: Compliance

Hiring in the US? 7 Ways to Reduce the Risk of Employee Misclassification

Posted by Anna Mastrandrea

|

Dec 19, 2018 9:00:00 AM

Hiring_in_the_US__X_Ways_to_Reduce_the_Risk_of_Employee_MisclassificationInternational hiring is often a challenge for businesses looking to expand into new markets. Even established businesses can sometimes run into trouble when it comes to finding the right people.

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One of the most common challenges is employee misclassification.

There are penalties for misclassifying employees as independent contractors, so you’ll want to be particularly careful about this. Luckily, there are many ways you can reduce your risks.


1. Know the Definitions Pertaining to Employee Misclassification

The first thing you should do when it comes to employee misclassification is to ensure you understand the terms and how they’re used. Who qualifies as an employee? Who should be classed as an independent contractor?

Generally speaking, employees work for you. They have relatively little say over the tools they use or the processes established. They will use your equipment and work on site as well.

Independent contractors, by contrast, have much more say over processes, tools, and even location.


2. Establish an Assessment Process

Once you understand the definitions and how different workers should be classified, you can begin assessing the people you’re hiring and working with.

The assessment process will help you accurately identify each and every worker. It’s a useful tool to employ during the hiring process, as well as throughout an employment contract.


3. Create Guidelines for Hiring Contractors

Your assessment process will help you identify who is an employee and who’s acting as an independent contractor.

How do you go about hiring contractors? You should establish some guidelines to help you move through the process. Good guidelines will help you not only determine who is a contractor but also how you should complete the hiring process.

This can include information about what documents the contractor needs to sign, their responsibilities, and more. Review your contracts and make sure everything is in good legal standing.


4. Conduct an Internal Audit of Your Workers

If you’ve been hiring in the US for some time, you may have some misclassified workers. It’s not a bad time to conduct a review of those who are already working for you.

An internal audit will help you identify any cases of employee misclassification. Then you can take steps towards correcting these cases.


5. Manage Contractors and Employees Differently

Remember the key differences between employees and independent contractors in the US. Employees have much less control over how their work is completed. You’ll often supply them with what they need for the job. Contractors, by contrast, have decision-making power over many aspects of a job.

You’ll need to employ different management styles for these two types of workers. If you try to manage employees as contractors, or vice versa, you may run into issues.


6. Form a Team to Handle Issues

An employee or contractor who feels they’ve been misclassified can go to the IRS and request a review. This triggers an investigation. You can also ask for a review, especially if a worker insists on claiming benefits you don’t believe they’re entitled to.

If possible, form a team to handle complaints. This expert team will help workers understand classification. They can also help with assessments and internal audits.


7. Work with a PEO

Perhaps the best thing you can do when it comes to avoiding employee misclassification is to work with a knowledgeable professional employer organization. They can assist you with independent contractor classification. They’ll also review contracts and ensure compliance with the law.

Talk to the experts, and get one step ahead of employee misclassification.


7-challenges-companies-face-when-expanding-into-the-us

Topics: Compliance

5 Things to Know about Working with Independent Contractors in Canada

Posted by Karen McMullen

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Dec 12, 2018 9:00:00 AM

5_Things_to_Know_about_Working_with_Independent_Contractors_in_CanadaWhether you’re looking to do business in Canada or just need to hire the right person for the job, you might be considering working with independent contractors in Canada. A Canadian contractor may have the right experience. They can also help you navigate the Canadian market and conduct business in Canada without needing to set up a permanent establishment.

Download our free guide on what US companies need to know about paying  employees in Canada.

Before you hire an independent contractor, however, there are some things you should know. These five tips will help you ensure your working relationship with any independent contractor in Canada is as smooth as possible.


1. Make Sure You’re Hiring Independent Contractors

This may sound obvious, but employee misclassification is a problem for many employers inside Canada and outside as well. Employers believe they’re hiring an independent contractor, but the letter of the law states they’ve actually hired an employee.

Generally speaking, employees have different rights than contractors, which can cause problems if you classify someone as a contractor, but the law classifies the same person as an employee.

What’s the difference? Independent contractors usually have more say about the scope of the work and how it’s completed. They may be able to decide what materials are used, for example. They may also work offsite and they supply their own equipment. They may also subcontract the work.


2. You May Have Less Protection

When you hire an employee in Canada, your business will be able to add provisions about intellectual property, non-competition, and more into the contract language. When you hire an independent contractor, you may find you can’t add these protections or you may need to water them down.

Always be sure to check the legal framework in the province you’re operating in.


3. You Are a Client, Not an Employer

Independent contractors work for themselves. In this scenario, your business is a client, not an employer. This benefits you, as you don’t have employer responsibilities towards the contractor.

It does also mean you’ll need to take a step back when it comes to dictating what the contractor does or doesn’t do. They’ll set their schedule, and they’ll often work on their own site, with their own equipment. They may even decide to do business for other clients, including your competitors.

So long as the work is being completed on time and to standard, you don’t have much control.


4. You Pay for What You Get

When you hire an employee, you may need to pay benefits, commissions, bonuses, or any number of other types of compensation. As the employer, you determine these payments. You are also obligated to take payroll deductions and fund vacation for employees.

When you work with independent contractors, you’ll pay for the services or products you receive. There are “extras” you’ll need to pay. Working with independent contractors can thus reduce your overhead and save you a little bit of money.


5. Breaking up Is Easy

If you’re not satisfied with the service a contractor has provided, it’s easy to end the relationship. You’ll need to pay the bill, and then you’re free of the contractor. You’re under no obligation to hire them again. You don’t even need to contact them again.

If the work was truly unsatisfactory, you might even decide to negotiate a discount on the bill. The only way you’ll face a lawsuit is if you fail to pay. This is completely different from the employee relationship, where you may need to pay severance or negotiate a wrongful dismissal suit.

Not sure if hiring a contractor is the right move for you? Talk to a professional employer organization. They can help you navigate the ins and outs of Canadian employment law and help you decide if you need independent contractors, employees, or a mix of both.


12 Things an American Company Looking to Hire a Worker in Canada Needs to Know

Topics: Compliance

7 Things to Know about Workers’ Compensation in Canada

Posted by Stacey Jones

|

Dec 10, 2018 9:00:00 AM

7_Things_to_Know_about_Workers_Compensation_in_CanadaNo employer likes to think there will be an accident in the workplace, but it’s a reality you must consider. It’s likely one of the reasons you carry insurance in your home country. If you have operations in Canada, you should be familiar with workers’ compensation.

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What exactly is workers’ compensation?

In Canada, it’s a program designed to protect workers if they should be injured or become ill in the workplace. It helps them cover out-of-pocket costs. As an employer, one of your responsibilities is working with workers’ compensation boards across Canada to make sure your employees have the right protections. Here are a few of the most important things for you to know.


1. Workers’ Compensation Is a Provincial Responsibility

There is no single body governing compensation for workers in Canada. Instead, each province maintains a Workers’ Compensation Board (WCB) or similar body. They function like insurance providers, offering employers coverage for employees should something happen in the workplace.

The rules about who has to register vary by province. In BC, people who hire housecleaners or gardeners must register with the WCB. In the Northwest Territories, businesses applying for a license will need to register, even if they don’t have any employees.


2. The Rates Depend on a Number of Factors

How much will you pay for workers’ compensation insurance? It’s a common question from business owners.

The rates are usually given per $100 in payroll. Rates fluctuate depending on a number of factors. Different provinces have different rates. Your industry and your overall rating with the Board also factor into the rate you’ll pay.


3. An Independent Fund Protects Payments

One of the principles of Canadian workers’ compensation is that the funds used to pay any claims should be independent. They’re also collective, meaning all employers share responsibility for them.

You’ll pay into the fund, and if one of your employees makes a payable claim, they’ll be paid from that fund. This ensures funds are always available, so payments can be made on time.


4. Insurance Is No-Fault

The Workers’ Compensation Board in your province will investigate any claim made. If an employee files an accident report and claims they needed medical attention, the WCB will follow up to determine if payment needs to be made.

Compensation is based on the no-fault principle. If it’s determined the employee was injured or became ill in the workplace, compensation will likely be paid. It doesn’t matter if the injury or illness came about because of the employer or the employee’s actions.


5. There Are Many Benefits for Employees

What your employees will receive from the WCB will depend in part on where your operations are based. As a rule of thumb, they’ll receive health care payments, lost wages, and permanent disability if they can’t return to work.

If an employee is killed on the job or dies following a workplace injury, WCB may pay survivor benefits. Employees who suffer debilitating injuries or illnesses may also be covered for rehabilitation.


6. Who Is Covered Varies

If you’re required to register for workers’ compensation in your province, you may believe everyone in your company will be covered. This isn’t always true.

The director of companies, for example, may not be covered. In some provinces, children may be covered. Even independent contractors are sometimes covered by WCB premiums.


7. You Can Receive Good Coverage Even If You Don’t Need to Register

Some business owners opt not to register for WCB unless they’re required to by law. An accident, injury, and illness can happen in any workplace, however.

Registering with your provincial WCB can provide you with the protection your business needs. If you’re not sure if you need to be registered, consult with a PEO. They can help you determine your needs.


What US Companies Need to Know about Paying Employees in Canada

Topics: Compliance

6 Things International Businesses Should Know about Cannabis Legalization in Canada

Posted by Ray Gonder

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Nov 21, 2018 9:00:00 AM

6_Things_International_Businesses_Should_Know_about_Cannabis_Legalization_in_CanadaThe Cannabis Act came into effect on October 17, 2018, paving the way for recreational cannabis all across Canada. While many Canadians celebrated, those in the business community were wondering what impacts this would have on their workplaces and operations.

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International businesses with Canadian operations and those looking to expand to the Canadian market are particularly concerned with cannabis legalization in Canada. What new responsibilities does this create for international employers, and what does it mean in terms of operations?

If this sounds like your situation, there are a few things you should know about cannabis legalization. Here are some of the most important.


1. Employment Contracts May Need to Be Revised

As an international employer, you may need to look at the employment contracts you’re using in Canada. You may need to revise the language used.

Previously, many employers discussed cannabis alongside with other illegal substances. As cannabis is no longer illegal in Canada, this sort of language needs to be removed or revised. You can still enforce policies about the use of cannabis in the workplace, but it is no longer criminal.


2. You Should Enforce Policies about Impairment

Under the Occupational Health and Safety Act, you’re responsible for ensuring your employees are completing their work safely and in line with the law. Employees who are impaired on the job site could pose a hazard to their co-workers or to themselves.

You can restrict the use of cannabis in the workplace after cannabis legalization in Canada. You may want to model your policy around any restrictions you have in place about the use of alcohol. You wouldn’t allow an employee who was impaired by alcohol to continue working, so treat those using cannabis in a similar manner.


3. Medical Marijuana Is an Exception to the Rules

Canadian employers have a duty to accommodate those who use medical marijuana. Employees will need to provide you with a copy of their authorization. In this situation, you may need to provide modified duties the employee can safely perform.

These employees will still need to respect both the law and your company policies. They need to respect their co-workers’ right to safety in the workplace, and they should comply with policies regarding impairment and cannabis in the workplace.


4. Cannabis Users Must Comply with Smoke-free Laws

Another thing you’ll need to monitor with cannabis in the workplace is the smoking of cannabis. Some employees will undoubtedly smoke cannabis. Hopefully, they will do this after their shift has ended, but you’ll still want to enforce rules about when and where they can smoke.

Several provinces have smoke-free laws, and these laws apply to smoking marijuana as much as they apply to cigarettes. Your employees will need to smoke outside, a certain distance from doors and windows. Shelters can be provided, but they may need to meet certain criteria.


5. Your Employees May Have Trouble Crossing Borders

Another thing you may want to keep in mind is that Canadians have been encountering increased difficulties at international borders. This is particularly true at the US border. Increased suspicion may mean it’s difficult or impossible for an employee to cross the border.

If you need Canadian employees to cross the border for any reason, be sure to provide the proper paperwork.


6. You’ll Want to Update Your Insurance

The insurance industry has been changing several kinds of clauses to make way for cannabis legalization in Canada. You may want to review your own policies and ensure they’re up to date.

Policies for commercial vehicles and for buildings should be updated to reflect cannabis legalization in Canada. If you work with a professional employer organization, ask them if your insurance is up to date.

Cannabis legalization in Canada has paved the way for big changes. International businesses need to be prepared.


12 Things an American Company Looking to Hire a Worker in Canada Needs to Know

Topics: Compliance

What Is the Pay Transparency Act?

Posted by Shannon Dowdall

|

Sep 19, 2018 9:00:00 AM

What-Is-the-Pay-Transparency-Act-compressorIf you operate your business in Ontario, you’ve likely been paying close attention to some of the changes coming out of the Changing Workplaces Review. Bill 148, which became the Fair Workplaces, Better Jobs Act, was a hot topic in 2017. Employers and employees are still waiting to see what the lasting effects of these new labour laws will be, and the new provincial government has vowed to undo some of the changes.

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Another piece of legislation on your radar is likely the Pay Transparency Act, or Bill 203. What is the Pay Transparency Act?

This Act is a new law set to come into effect on January 1, 2019. It will promote gender equality and equal compensation between men and women by enforcing increased transparency around compensation.

What Does the Pay Transparency Act Do?

The Act is designed to promote gender equality by increasing the amount of information available to employees about their compensation. Although Canada nominally has gender equal pay laws, they’ve been difficult to enforce because of a lack of transparency around compensation.

Traditionally, it’s considered poor form for employees to discuss their compensation with each other or to discuss their colleagues’ compensation with their employers. Silence around the subject has allowed employers to pay diverse employees different wages. Usually, this is justified by the employer as a difference in experience, training, or ability, but there is concern bias may come into play.

The Act is designed to lift the silence around the subject of compensation. With more information in hand, employees can more easily challenge discrepancies in pay, especially where there appears to be no just cause.

Is It Necessary?

Many critics of the Pay Transparency Act suggest it’s not necessary. Canada has gender equal pay laws, which require employers to pay employees the same regardless of sex and gender. To pay someone more or less than another employee in a similar position with similar training, experience, and performance is a form of discrimination. This is prohibited under the Canadian Charter of Rights and Freedoms, and under various provincial legislation as well.

While these laws are in place, it has been difficult to challenge discriminatory practices where they exist. A lack of information and a culture of silence around pay mean many employees aren’t aware their employers may be discriminating against them.

There are, of course, concerns that the Act will be abused by some individuals, and challenges will be made in cases where the employee feels entitled to more pay but their performance record suggests otherwise. Nonetheless, more information simplifies the process of applying existing laws, with the goal of truly enforcing gender equal pay legislation already on the books.

What Will Employers Need to Do?

Beginning January 1, 2019, job postings in Ontario will need to include a salary range. This creates a public statement of compensation for any position in the province, which employees can then refer to. Employers will also be prohibited from asking candidates about their past compensation. This prevents adjustments to the salary range “in line” with what the candidate had previously earned.

In addition, employers will be prohibited from acting against employees who disclose or discuss compensation. Those employers who include non-disclosure clauses in their employment terms will need to revise their employment contracts.

Finally, large companies with more than 100 employees will be required to establish a reporting framework to track, report, and post compensation gaps based on gender and other characteristics. This reporting will begin in May 2020.

Ontario is the first province to enact pay transparency legislation, and some question how much it is needed. As an employer, you’ll need to be prepared for the changes this new law will bring.

What US Companies Need to Know about Paying Employees in Canada

Topics: Compliance

A Compliance Regulation Checklist for Canadian Payroll and HR

Posted by Shannon Dowdall

|

Jun 11, 2018 9:00:00 AM

A_Compliance_Regulation_Checklist_for_Canadian_Payroll_and_HRPayroll and HR compliance are important aspects of any business. This is certainly true whether you operate in Canada, the United States, or another country around the world.

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Compliance is, of course, a big job. The legislation governing businesses can be quite convoluted, and laws are always changing and evolving. Take a look at the employment legislation in Ontario and Alberta. Both provinces introduced sweeping changes in 2018. Quebec appears poised to follow suit.

Keeping on top of your compliance can thus be a tall task. Using this checklist designed for HR and payroll in Canada can help you get a leg up on your compliance activities.


Record-Keeping

The first thing you should do when considering your payroll and HR activities in Canada is set up good rules for your record-keeping. The Canada Revenue Agency (CRA) demands good record-keeping from all businesses operating within Canadian borders. In fact, the federal Ministry of Finance outlines exactly what it takes to keep good records.

Take a look at the Ministry’s guidelines. Is your business keeping records in line with the requirements? If not, what can you do to ensure good record-keeping takes place? You may decide to upgrade the technology you use or streamline a process.

What happens if the record-keeping requirements aren’t met? The penalties associated can become quite hefty. If the CRA ever audits your business, you’ll want to be sure you have your records in order.


CRA Payroll Withholding

Payroll has many nuances, which can make it tricky to maintain compliance with the regulations. Tax withholding is a particularly important aspect of payroll compliance. A Canadian payroll calculator can help you determine exactly how much you need to withhold.

You’ll also want to do some reading on the regulations around what qualifies as taxable income, including benefits. The Canadian payroll calculator can help you here as well. Be sure to use an up-to-date version, so that the latest rules and regulations are being applied.


Vacation Pay

Each province in Canada has its own regulations surrounding vacation pay. If you’re monitoring HR and payroll compliance, you’ll want to be sure you’re using the most up-to-date rules for calculating vacation and vacation pay in each province you operate and pay employees in.


Overtime and Shift Scheduling

As mentioned above, both Ontario and Alberta began the process of revising their employment legislation standards in 2017. The code revisions began to take effect in early 2018. Employers will want to pay particular attention to changes regarding overtime, overtime pay, and shift scheduling in both provinces.

This is an important aspect of payroll and HR compliance for businesses operating in any province to pay heed to. Just as Alberta and Ontario have both changed their laws pertaining to each of these subjects, so too do other provinces handle them differently.


Pay Equality, Pay Transparency, and Discrimination

Ontario became the first province in Canada to introduce pay transparency legislation. The province has had pay equality legislation on the books for some time now. Pay transparency is designed to strengthen pay equality by allowing employees to see what an employer pays each and every person.

Discrimination is another long-standing concern for businesses in Canada and Canadian governments alike. HR professionals will want to look at the regulations around anti-discrimination and anti-bias measures and ensure they’re complying. For example, there are certain interview questions you cannot ask during the hiring process. Check your own interview process and be sure to remove any of these questions.


Ongoing Monitoring

Perhaps the most important thing to do when it comes to compliance in payroll and HR in Canada is ensure you’re monitoring your compliance. As demonstrated by Ontario and Alberta, laws can and do change. Keeping an eye on what’s required of you and striving to go above the minimums set out in the law will help you maintain compliance.


What Are You Leaving to Chance by Handling Payroll on Your Own

Topics: Compliance

How to Avoid Employee Misclassification Penalties before They Happen

Posted by Shannon Dowdall

|

Mar 30, 2018 9:00:00 AM

How_to_Avoid_Employee_Misclassification_Penalties_before_They_Happen.jpg“Penalties” isn’t a word most employers like to hear. Unfortunately, they’re probably more common than you’d like to think. They’re especially common for international companies with Canadian operations, partially because their staff members are less likely to be familiar with the nuances of Canadian employment legislation and payroll taxes.

Employee misclassification penalties are one particularly common type of problem international employers bump into. The good news is they’re relatively easy to avoid.

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What Are They?

Employee misclassification penalties arise when an employee is judged to have been misclassed for tax purposes. For example, you may have classed an employee as a contractor, but then the CRA reviews their employment and suggests they’re actually a full-time employee instead.

Most often, employee misclassification penalties arise when employers classify their employees using one definition while the CRA decides the employee falls into a different category.


The Linguistic Divide

Most often, employee misclassification happens because of a simple misunderstanding of terminology. It’s particularly common for international employers for this reason. In your home country, an “independent vendor” may be defined one way, and you applied that definition to your Canadian employees. However, in Ontario, an “independent vendor” is defined differently, and your employee doesn’t fall into this category.

Employee misclassification is the result.

Sometimes, employers willfully misclassify employees in an effort to avoid payroll taxes or to gain other benefits. An example would be letting an employee go, then hiring them back to do the same job as a “contract worker.” The CRA would identify this as misclassification because the employer has the employee doing the same job, just with a different classification. The employer appears to be abusing classification categories for their own advantage, to the employee’s disadvantage.


How Can You Avoid Misclassification Penalties?

The answer to this question appears to be quite obvious at first. If you don’t want to face employee misclassification penalties, make sure you classify your employees correctly! Since the cause of employee misclassification penalties is employee misclassification, using the correct categories will prevent penalties.

Of course, this is easier said than done in most cases. Most employers, particularly international employers, just don’t realize they’re misclassifying their employees. The “linguistic divide” issue, where different jurisdictions use different definitions of the same terms, causes confusion. Misclassification is often unintentional.

The remedy for this problem is knowing the definitions of each different employee class in the jurisdiction where you’re operating. Just because you class an employee one way in the United States doesn’t mean it will be the same in any part of Canada.


Work with a PEO

It’s a tall task to ask your HR employees to learn the ins and outs of up to 11 different definitions for one employee. The job might be the same across provinces, but each province may have a slightly different definition or require a slightly different classification.

Working with a professional employer organization (PEO) can help alleviate this stress. The PEO’s staff is familiar with these definitions already. They can help you identify the correct way to classify different employees across different provinces. They can even help you manage the payroll implications of each classification.

The PEO is also familiar with Canadian employment legislation, so they’ll be able to tell you how to go about hiring, letting go of, and rehiring employees in the right way.


You Don’t Need to Pay These Penalties!

Avoiding employee misclassification penalties is relatively simple. Review your employees’ classifications and adjust them if necessary. If you need help or clarification, a PEO is a great resource.

You can avoid these penalties before they even happen. Your business doesn’t need to pay these penalties so long as you avoid them before they occur.


What US Companies Need to Know about Paying Employees in Canada

Topics: Compliance

Struggling to Maintain Payroll Compliance? Follow These 4 Tips

Posted by Shannon Dowdall

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Feb 26, 2018 9:00:00 AM

Struggling-to-Maintain-Payroll-Compliance-Follow-These-4-Tips---compressor.jpgPayroll compliance is a big concern for many companies today, no matter where they operate. If you’re a firm with international operations, however, you’ll know compliance in your payroll activities is all the more complex and all the more important.

Download our free guide on what US companies need to know about paying  employees in Canada.

If you have operations in Canada and you’ve been struggling to maintain your payroll compliance, you can stop fretting. You can make compliance a breeze with these easy-to-follow tips!

1. Keep Tabs on Legislation

Have you looked at the Canada Revenue Agency’s website recently? If not, you should probably head over there and take a look around. The CRA’s website is an invaluable resource. It reports on the current legislative environment for payroll, including updates, penalties, and procedural information. 

You should also keep tabs on the legislatures of the province(s) you operate in. Ontario, for example, passed Bill 148 in November. The legislation was proposed in April, available for public comment during the summer, and finalized in November 2017. The full text of the law, in addition to summarizations, is available from the government’s website. 

Newspapers, magazines, and other periodicals are also important resources for keeping up to date on legislative changes.

2. Keep Good Records

One of the best things you can do is put good record-keeping practices in place if you want to maintain payroll compliance. Good records will show you exactly what was done, by whom, and when. 

Even if record-keeping alone won’t maintain full payroll compliance, it can be very useful if you find an error in your payroll. Going back and correcting the error, and even tracing how it happened in the first place, is much simpler when you have good records to refer to. 

Good records are actually part of compliance in Canada. The CRA can penalize you if you fail to maintain adequate records, as defined by the federal government. Good records are also important should you ever be audited.

3. Partner with a Payroll Provider

Keeping tabs on legislation in the US is a big enough task. Asking your HR department to learn and monitor legislation changes in a Canadian province, or maybe two or three, may not be met with great enthusiasm.

If your team members are feeling lost at sea or overwhelmed by the amount of work they need to do, there’s an easy way to maintain compliance and lift the burden from their shoulders. Team up with a Canadian provider to administer payroll for your Canadian employees.

Why work with a Canadian payroll provider? Quite simply, they know the ins and outs of the Canadian payroll environment. They can administer your payroll, monitor legislation for changes, and make recommendations about policy changes for your consideration. Partnering with a payroll provider is one of the easiest steps to take when to comes to maintaining payroll compliance.

4. Not Sure? Ask!

Many business owners and managers make the mistake of muddling through their payroll all by themselves. They mistakenly believe there’s no one to ask, or that if they ask, they’ll be admitting some sort of guilt.

If you’re not sure about payroll, however, the best thing you can do is ask. There are many resources available online, in addition to the CRA and provincial legislatures.

If you’re working with a Canadian payroll provider, you can always call on their expertise to help answer any questions you have. If you run into trouble, they can help you. Even if you don’t work with a provider, many have excellent free resources to help you work through the tangles of the Canadian payroll regime.

Payroll can be complex and changing legislation can make it difficult to keep up and maintain compliance. Following these four tips will help you stay ahead of the game.

What Are You Leaving to Chance by Handling Payroll on Your Own

Topics: Compliance

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