With the U.S. and Canada having one of the largest international borders in the world, it’s no wonder that we have an inherent need to develop a cross border workforce. Without taking the initiative to move across the border either way, you are missing out on a huge potential market audience. As a Senior Human Resources Consultant with HR Options, I have been answering cross border questions for the last 10 years and have come up with three key considerations for U.S. companies to think about in regards to employing in Canada.
Immigration Considerations
Many times our U.S. clients prefer to have their internal workers from the U.S. carry on their business in Canada. The U.S. worker in such situations, are usually specially trained and their job specific skills are needed across the border. In these cases, companies need to look at how they are going to get past Citizenship and Immigration Canada (“CIC”), whose purpose is to protect Canadian jobs from being taken by unqualified “foreign workers”. So what options are available for your U.S. worker?
Right away, I want to eliminate the option of the U.S. worker coming to Canada as a business visitor. The second your worker contributes to the Canadian Labour Market, the business visitor option is out the window, not to mention the Business Visitor Category has come under more scrutiny as of late.
If you try to sneak your worker in through this category and they don’t qualify (i.e. they are not just attending meetings or trainings etc.), you could get caught and face fines and penalties, such as being barred from sending workers to Canada for up to 2 years. Another option you might consider is the North American Free Trade Agreement (NAFTA) based work permit. NAFTA lists up to 60 specific occupations (e.g. engineers, computer analysts etc.) in which a U.S. worker can enter Canada without having to go through a Labour Market Opinion (LMO) Survey process.
Under NAFTA, the employee prepares their educational and other entry documentation and applies for their 1-3 year work permit at any port of entry. However, if your worker does not “fit” into one of those specific occupations, your worker’s entry options become more costly and time consuming. Outside of the NAFTA based work permit or other specialty work permit categories (e.g. Intra-Company Transferees); to fill a Canadian position with a U.S. worker, you will have to obtain a Labour Market Opinion. You may apply for a LMO at Service Canada (www.servicecanada.gc.ca).
Part of the application process includes advertising the job that you’ve identified, to the Canadian Labour Market. You have to advertise for at least four weeks, using three different posting methods, and at least one method must have national reach. However, our immigration partners would recommend four months continuous advertising to ensure you include the time it takes for the LMO to actually be processed (current LMO processing time in Ontario is 10-12 weeks).
You must also show that a qualified Canadian could not fill the role you wish your U.S. worker to fill (which means documenting all the unqualified applications that come in from your advertising efforts). Once your advertising is complete and you have met all the minimum employment conditions (e.g. you are providing the market salary outlined by the Government of Canada etc.) you will mostly likely obtain the LMO from Service Canada. The approved LMO will then allow your worker to apply directly for a LMO based work permit with the CIC (ensure you use a legally licensed representative to complete the permit applications for your worker). As with any immigration process, there are many rules, regulations and other ways your worker might qualify to enter Canada, but the information I’ve provided is just a snap-shot of options.
Taxation Considerations
Once you’ve determined which immigration method best works for bringing your U.S. worker to Canada, it’s a good idea to think about the worker’s pay and taxation while they are in Canada.
According to the Canada Revenue Agency (“CRA”), unless you applied and qualified for a tax treaty (i.e. 6 months where you can still remit taxes to the U.S.), your worker (who is considered “non-resident”) would be subject to Canadian income tax on the earnings from the work he/she performs in Canada. The length of time the worker is working in Canada does not matter, income tax still applies. Moreover, your worker will most likely be required to file a Canadian income tax return (i.e. a T4, similar to the W2 in the U.S.).
Depending on the facts of your worker’s employment in Canada, as part of the taxation process, you will also have to remit to the CRA, the worker and the employer portions of the Canadian Pension Plan taxes and Employment Insurance taxes. If you don’t properly remit this taxation and issue the worker a T4, you could face penalties and interest payable to the CRA. If your U.S. company is considered a non-resident in Canada you could be found to be “carrying on business” in Canada via the activities of the worker you hired to perform work for you.
This means that your company could be subject to Canadian income tax on your business income and would have to file a tax return in Canada. This may also force you to register for Canada’s Federal GST/HST (Goods and Services Tax and Harmonized Sales Tax), which could have a major impact on your business in Canada. Many companies prefer to avoid the risk of employing in Canada and instead use a Total Outsourced Employer such as HR Options to be the “employer of record”, to hire their employees for them to sidestep the bureaucratic issues around employing and registering in Canada. For those of you currently using a third party vendor for your employment needs in Canada, and your company maintains non-resident status in Canada, you may be classified as zero-rated and GST/HST would not apply to your third party vendor employment service invoices.
Canadian Employment Legislation Considerations
Finally, you have your worker’s immigration papers worked out and you’ve determined how you are going handle taxation, now you must also consider Canadian Employment Legislation. Let’s say for example, your worker is scheduled to work a 60 hour work week in Alberta (which you have budgeted for) only to discover Alberta’s employment legislation applies to your U.S. worker while they are on the job in Canada.
How does this affect your budget? In Alberta your worker is not considered an exempt worker (i.e. they are not managerial or fall into a specific work category that is exempt) and therefore overtime applies to every hour they work past 8 a day or 44 a week, whichever is greater. Now you have to worry about the added cost of overtime and potentially premium pay on holidays, not to mention the dreaded vacation pay laws across Canada (i.e. a mandatory 4% of all gross earnings).
A costly oversight! It is very important to know all aspects of the legislation in the province where your U.S. worker will be performing their duties. Specifically, be aware of what legislation applies to them and what that means to your company’s project or compensation budgeting. One of the major differences in Canada, aside from vacation pay, that I get asked about is termination notice.
This is a payment made to employees who the company terminates without cause across Canada (there are provincial variations), generally speaking a week of earnings paid to the terminated worker for each year worked. There are many cases of wrongful and constructive dismissal by U.S. parent companies who wrongly believe Canadian legislation wouldn’t apply to their U.S. worker. Proper contracts are required to ensure your U.S. worker is aware of what legislation and termination notice applies to them for their time and work while in Canada.
Since there are so many intricacies involved with moving a U.S. worker to Canada, and with a Canadian population of 35 million people, it is advisable to find a trustworthy worker in Canada to perform the work for you in Canada. To simplify the process, use a Total Outsourced Employer to manage all the payroll, taxing, employment etc. This will make your company goal of expanding to a new market an easier and less risk intensive reality.