Hiring Canadian Employees for a US Company | Easy Guide

The transition to remote work is reshaping how and where employees work, and how employers approach hiring. Hiring employees abroad enables businesses to expand internationally and tap into a broader talent pool beyond their physical locations.

If you’re considering taking on workers outside the US, hiring from Canada offers advantages when it comes to time zones, language, and workplace culture.

However, there are factors that you need to consider to ensure the process goes smoothly, such as differences in employment and tax regulations between provinces. This article explains what you need to know about hiring Canadian employees for a US company.

For a fast and easy way to pay employees in Canada, consider using a Wise Business account. Wise charges the mid-market rate on international payments, helping you to save money on currency exchange.

🚀 Pay Canadian employees
with Wise Business

Hiring Canadian Employees for a US Company: First Steps

Before delving into the specifics of hiring Canadian employees from the US, it's important to address some preliminary questions. Firstly, is it possible to hire Canadian employees as a US company? The answer is yes, but it's crucial to be aware of the applicable regulations in Canada to ensure your business operates in compliance.

Beyond the basic question of feasibility, there are other considerations before you start integrating Canadian residents into your teams, such as employment standards, immigration regulations, and any industry-specific certifications or licenses needed. You’ll also need to understand your tax obligations and set up tax filing and payment systems.

Resources such as the Government of Canada's website on Human Resources regulations in Canada can provide valuable insights into the legal framework governing employment in Canada.

📝 Read on to find out more:
Ways of Hiring Canadian Employees as a US Company Key Points to Consider When Hiring Canadian Employees for a US Company Mistakes to Avoid When Hiring Canadian Employees Wise Business: The Easy Way to Pay Employees in Canada

Ways of Hiring Canadian Employees as a US Company

There are three main ways US businesses can approach hiring talent from Canada.

Hire Canadian Employees Via an Employee of Record

Using an Employer of Record (EOR) provider is the most convenient way to take on employees abroad. An EOR is a third-party service provider that acts on your behalf as a documented employer, managing payroll and human resources. With an EOR, there’s no need for your company to establish a new legal entity in Canada to comply with Canadian labor laws.

An EOR can onboard Canadian employees and manage their employment from drafting contracts to managing payroll, salary payments, benefits and termination. They also ensure compliance with tax regulations in Canada as well as the US, including federal, provincial, state, and local requirements.¹

Although using an EOR takes the task of managing employees abroad off your hands, allowing you to focus on your core business, it can cost more than other options. EOR typically charge setup charges, monthly service fees, and per-employee charges, which can add up over time.

Handing over HR functions to an EOR also means giving up some control over hiring and employee management decisions, and relying on the provider to maintain a good service. Any lapses in service delivery, such as payroll errors, compliance issues, or communication breakdowns, can disrupt business operations and strain relationships with employees.

🔍 Read the guide on EOR vs PEO to see which one could be best for your business

Hire Canadian Employees as Independent Contractors

If you want to maintain control and manage employees directly, you can hire Canadian workers as independent contractors, or freelancers. This is a common and straightforward approach that allows you to take on candidates for a project based on specialized skills and expertise without the long-term commitment associated with standard employment.

You should negotiate compensation terms such as payment rates and invoicing procedures, and formalize the relationship with a signed independent contractor agreement.²

Hiring independent contractors from Canada gives US companies the flexibility to quickly adapt to changing workloads and business needs. It also reduces costs compared with hiring full-time employees such as benefits, payroll, and management.

It’s important to keep in mind, however, that while hiring independent contractors from Canada offers advantages, it also presents potential drawbacks and risks.

Misclassifying workers as independent contractors when they should be treated as employees can have legal and financial consequences for your business and could result in higher tax bills or penalties from the Canada Revenue Agency (CRA).

Furthermore, independent contractors operate with greater autonomy and may have multiple clients, limiting control over their work schedule. This lack of direct oversight can lead to challenges in ensuring that their work aligns with business objectives.

Set Up a Foreign Entity in Canada

Establishing a foreign entity in Canada involves registering a business entity in compliance with Canadian laws and regulations.

Opening a local office in Canada gives you a physical presence in the market and complete control over your Canadian operations – including the hiring and management of your employees. If you sell products or services in Canada, you have the advantage of greater flexibility in decision-making to tailor your operations, pricing strategies, and products to the needs of Canadian consumers.³

However, while opening a local office provides more control and presence, it is significantly more complex than using an EOR or hiring independent contractors. Setting up a foreign entity can be expensive and time-consuming. It requires a good understanding of Canadian regulations and comprehensive strategic planning.

Even if you don’t intend to set up a local entity, you should note that if you hire an employee in Canada in a sales position that gives them the authority to contract on behalf of your US company, you may be presumed to have established an entity in Canada, requiring you to register for Canadian goods and service tax (GST), harmonized sales tax (HST), and provincial sales tax (PST) tax and file annual corporate tax returns in Canada.

If you do decide to open a local entity in Canada, it's advisable to consult with legal and compliance professionals to help guide you through the process.

Key Points to Consider When Hiring Canadian Employees for a US Company

There are many factors you need to consider when it comes to taking on Canadian employees. Understanding these points will help you to put the right systems in place to ensure a seamless hiring process.

Canadian labor laws vary across provinces

It’s important to know that labor laws apply in Canada at both the federal and provincial levels, and different laws can apply in different provinces. Each of the 10 provinces and three territories in Canada have their own set of regulations that apply to various areas of employment, including probationary periods, taxation, benefits, social security, and so on.

Depending on where your Canadian employees are based, different regulations may apply, so it’s crucial to ensure that your company complies with the applicable rules. If you use an Employer of Record, be sure to confirm that they are aware of the laws in each province or territory.

Employment in Canada vs. US

Unlike the US, Canada does not recognize at-will employment. Employers can only terminate employees without a notice period, or pay in lieu, for “just cause”, which can only be applied in cases where there is clear evidence of serious misconduct.

It’s important to understand this difference when drawing up employee contracts, which must specify a reasonable notice period, and if there is a situation where you might need to terminate an employee.⁴

Employee benefits in Canada

There are certain benefits that employers are required to provide their full-time employees in Canada, including:

Paid time off (PTO): Canadian labor laws increasingly emphasize PTO entitlements for employees. Employees must receive two weeks of annual PTO after they have worked for a company for 12 months, which rises to three weeks after five years of consecutive employment.⁵

Personal leave and holiday pay: Employees must receive five days of personal leave after working for a company for three months or more, although employers are only required to pay for the first three days. Employees receive mandatory holiday pay if they work on a federal or provincial holiday as soon as they start an employment contract.

Parental benefits: Employees in Canada are guaranteed at least 15 weeks of federally funded maternity leave, and some provinces mandate longer periods. New parents are entitled to at least 27 weeks of leave – rising to 35 weeks in some provinces – regardless of gender.⁶

🔍 Read the full guide on employee benefits in Canada to learn more!

Minimum wage and overtime rules

Each province and territory in Canada sets its own minimum wage and reviews the rate regularly to reflect factors like inflation.⁷ Provinces also specify thresholds for overtime pay, although federal law allows employees to choose extra PTO, typically at a rate of 1.5 hours of pay or PTO for each hour of overtime.

Your employees in Canada will be subject to the regulations in the province or territory where they reside.⁸

Hiring and discrimination protections

It’s important to be aware that Canada has stricter regulations than the US when it comes to the questions employers can ask job applicants. Employers in Canada are prohibited from asking about an applicant’s age, gender, sexual orientation, religious beliefs, marital status, immigration status, and so on.⁹

Payroll records collection

Employers in Canada are required by law to gather and maintain comprehensive records for full-time and part-time employees, including payroll information. These records must be kept for at least 36 months from the collection date. Companies must ensure they adhere to the rules while also complying with privacy and data protection laws.¹⁰

Employment, health and other insurance types

Canada’s employment insurance program supports workers who become unable to work and employers are required to make deductions from employees’ pay. Deductions vary in Quebec compared with other provinces.

While the Canadian government offers publicly sponsored health coverage, employers tend to provide private health insurance as a benefit to attract talent. Many also offer vision and dental insurance.

All employers and employees are required to pay into the Canada Pension Plan outside Quebec and the Quebec Pension Plan (QPP) in Quebec.¹¹

Mistakes to Avoid When Hiring Canadian Employees

There are potential pitfalls to hiring Canadian employees for a US company that you should be aware of for a successful international expansion strategy.

Hiring contractors for full-time positions

Misclassifying employees as independent contractors can lead to legal and financial consequences, including back taxes, penalties, and potential lawsuits. Make sure your employees and contractors are classified correctly based on the nature of their work and relationship with your company.

Errors in payroll

Accurate and timely payroll processing is crucial to maintaining employee satisfaction and compliance. Using payroll software or outsourcing payroll functions can help streamline the process and reduce the risk of mistakes. This can prevent costly errors that can result in under or overpaying employees, which may damage their morale and your company’s credibility.

Failure to recognize your company's permanent establishment in Canada

If your company has a fixed physical location such as an office or warehouse, or a significant business presence in Canada, it may be considered a permanent establishment, subjecting you to Canadian taxation and regulations.

To avoid unexpected tax liabilities and compliance problems, you should seek professional advice to assess your tax obligations and mitigate legal risks associated with establishing a permanent entity in Canada.

Discover Wise Business: The Easy Way to Pay Employees in Canada

If you are considering hiring Canadian employees for your US company, you’ll need an easy and cost-effective way to pay them. US banks won’t always be able to offer the best solution.

Wise is not a bank, but a Money Services Business (MSB) provider and a smart alternative to banks. The Wise Business account is designed with international business in mind, and makes it easy to send, hold, and manage business funds in 40+ currencies. You can get major currency account details for a one-off fee to receive overseas payments like a local. You can also send money to 160+ countries.

International payments are made at the mid-market rate. This means that paying employees and contractors in Canada is not only easy, but you’ll also save money for your business.

Open a Wise Business account online

Wise Business offers a range of features tailored to streamline international payments and simplify cross-border transactions:

• No monthly fees: Wise offers transparent pricing with no hidden fees or monthly charges.
• Easy batch payments: Simplify payroll processing with bulk payments to make efficient fund transfers to multiple employees or contractors at the same time.
• Connect to QuickBooks: Seamlessly integrate your Wise Business account with QuickBooks Online accounting software to track and manage payments with ease.
• Multi-currency management: Send and manage more than 40 currencies in one place.
• Local account details: Get local account details for major currencies to receive payments with ease.

You can find out more information about how Wise Business can support your international payroll needshere.

Read the guide on how to open a Wise Business account

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Sources:

¹What is an employer of record (EOR)? Employ overseas staff with EOR - Wise
²Hiring independent contractors in 8 Steps | Complete Guide | 2024 - Wise
³https://wise.com/ca/blog/register-a-business-in-canada
⁴Termination, layoff or dismissal - Canada.ca
⁵Annual vacations and general holidays for employees working for federally regulated employers - Canada.ca
⁶Employment Insurance benefits - Canada.ca
⁷Current and Forthcoming General Minimum Wage Rates in Canada
⁸Hours of work - Federally regulated workplaces - Canada.ca
⁹Rights in the workplace - Canada.ca
¹⁰GST/HST and payroll records - Canada.ca
¹¹Canada Pension Plan

All sources checked March 2024.