With the world more connected and more jobs going remote, it’s no surprise that US companies are seeking out talent north of the border in Canada. After all, there are many benefits to hiring Canadian employees, including cost savings and diverse skill sets.
While the benefits are clear, there are compliance and payroll considerations to take into account. When an American company hires Canadian employees, it must abide by all Canadian payroll laws and ensure that those workers are paid in compliance with the government’s current payroll rules and regulations. Though American and Canadian business activities are quite similar, their payroll processes are 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.
How Can a US Company Pay Its Canadian Employees? It Can Try to Do So in House
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. Simply using the same payroll processing software and following American deadlines and rules is going to get you into trouble. You’ll need relevant Canadian payroll software and you’ll need to continuously stay up to date with changing legislation. Using outdated information related to Canadian payroll gathered even just a few months ago won’t work—the laws change too often to be able to rely on it.
If you’re thinking of just avoiding paying taxes altogether by classifying your Canadian workers as independent contractors, know that you risk being caught and having to pay heavy fines and penalties for misclassification. 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 a US company paying Canadian employees internally, you’ll have to do so legally. This means establishing a presence in the country, setting up the relevant insurance and banking infrastructure, opening a payroll account, and learning about payroll laws and employee classifications. More than just writing a cheque for hours worked, you’ll also be tasked with calculating the right tax deductions and other contributions, as well as remitting these withholdings to the right government officials on time. Sound too complicated or risky? You have other options to consider.
Outsource to a Payroll Provider
Payroll providers offer payroll services for Canadians getting paid from US companies. When you outsource your Canadian payroll processing to a payroll provider, you can take compliance off your plate and outsource it to the Canadian experts. You can rely on the payroll provider 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. This can help ensure that your payroll for Canadian employees is always accurate and legal.
Engage an Employer of Record: The Top Providers of Canada Payroll for US Companies
Your final option is to engage an employer of record (EOR) for payroll and compliance in Canada. This option is ideal if you’re not quite ready to establish a Canadian presence or you want to pay your workers remotely. When you engage an EOR, your employees become the EOR’s legal responsibility, and the company will take care of all the administrative tasks associated with paying your Canadian workers. Above and beyond what a payroll provider offers, an employer of record can also take care of benefits administration, human resources, health and safety, and more. Further, you can tap into the EOR’s infrastructure, so you don’t have to set up your own presence in the country.
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. You can try to go at it alone, but this is a risky endeavour if you’re not familiar with Canadian payroll laws. You can outsource their payroll processing to a payroll service provider, but the risk of noncompliance will still ultimately be on your shoulders. Finally, you can work with an employer of record like The Payroll Edge, which will take over the legal responsibility and the risk of employing your company’s Canadian employees, while offering a wide variety of payroll, compliance, and HR services.