If you're a US-based company, Canada is a great place for hiring remote employees or contractors. There are a few reasons for this: one is that there is no language barrier. Canada is a predominantly English-speaking country. Even in a province like Québec, English is the official language, with the benefit of having many citizens that also speak French, if your company is looking for multi-lingual team members.
Another reason Canada is an ideal place to hire workers is its proximity. If you're a company in New York, you will be working on the same schedule as Toronto. If you're in Seattle, you will be in the same time zone as Vancouver.
In addition to its convenience, Canada is home to diverse, cosmopolitan cities, which have large immigrant populations and therefore are full of many cultures and traditions. The country also has a large indigenous population, which includes native groups such as the Inuit and Métis. Hiring in Canada can help increase the diversity of your team.
Popular Industries in Canada 👩💻
There are many popular industries in Canada. In Montréal, aerospace, software engineering, pharmaceuticals, and telecommunications are popular industries. In Toronto, aerospace is a popular industry as well, but the city is also known for its large design industry (the 3rd largest in North America), and tech industry. In fact, there has been what is known as "brain gain" in Toronto in recent years: A study in 2021 reported that Toronto had attracted 81,200 tech jobs and produced 26,338 tech degrees, which creates a net 54,862 tech workers
Film is a popular industry in Toronto as well: if you have ever seen an American movie that takes place in New York, wait until the end of the credits: the movie may have actually been filmed in Toronto.
Hiring employees versus hiring independent contractors
The employment law in Canada will vary depending on local tax laws in each province. There are ten provinces and three territories in Canada, including Alberta, British Columbia, Manitoba, New Brunswick, Newfoundland and Labrador, Nova Scotia, Ontario, Prince Edward Island, Québec, and Saskatchewan.
Québec's local tax laws and labor laws vary slightly from other provinces. Let's compare it to another province like Ontario, where many US companies look to hire employees and contractors. A province like Ontario has labor laws that are influenced by British common law. Québec is a unique province in that its labor laws are based on civil law in Europe. In Québec, the labor standards are known as Act respecting labour standards, which outlines the required conditions of employment in Québec. In Ontario, the labor standards are known as the Employment Standards Act (ESA). Both address minimum wage requirements, limits to the number of hours employees can work, termination of employment, vacation and parental leave, etc.
Minimum wage will vary as well in Canada. To continue our comparison between Ontario and Québec, Ontario's minimum wage as of October 2021 stands at $14.35 Canadian dollars an hour, whereas Québec's minimum wage is CA$13.50 an hour. In British Columbia, the province of Vancouver, the minimum wage is CA$15.20 an hour. The highest minimum wage in Canada is in the Province of Nunavut, which mandates employers pay CA$16.00 an hour.
If your company plans to hire Canadian employees, It's important to familiarize yourself with the employer-employee relationship in the province where your employee lives, and the labor standards therein.
In an employer-employee relationship in Canada, the employer has more oversight than they would with an independent contractor: the employer manages the worker's schedule and instructs the worker on their duties. When there is a disagreement about whether a person is an employee under a specific statute, courts refer to common law and civil law tests to determine employee status.
An employer in Canada is required to offer a written contract with employee benefits such as pension, parental leave, paid time off, employment insurance, and eye exams. Other benefits that are not mandated but may be included in an employee contract are retirement, healthcare, healthcare spending accounts, and even gyms.
The pros and cons of hiring employees
The advantage of hiring an employee is that you have a consistent worker to provide a service for an indeterminate amount of time, and some degree of control over how and when they work, as well as what tools they will use. It's also beneficial to hire an employee if a job requires collaboration between other employees.
On the other hand, hiring self-employed contractors in Canada may be prudent for those employers with a US company who want to avoid paying for a worker's benefits, like withholding tax, vacation pay, parental leave, or a Canada Pension Plan (CPP). Employers are also responsible for paying premiums for Employment Insurance if they hire Canadian employees.
In the US, if you were to hire an employee and you overlook your tax obligations, you would have to pay penalties which would include paying for the person's unpaid Social Security, worker compensation, and any outstanding benefits. In Canada, the penalties are similar: an employer who fails to provide benefits would be issued a penalty which would require them to pay back taxes or benefits owed to the employee. It's important to report taxes and iron out a solid written agreement or contract to ensure that your business is staying compliant with labor laws.
The labor laws for a self-employed worker in Canada, or an independent contractor, are quite different from that of an employee. An independent contractor works independently and receives compensation for their professional services, but generally they do not receive benefits, aside from the Canadian government's benefits, such as Employment Insurance (EI), or Medicare. They are also not entitled to things like paid leave, or severance pay if an employer ends their employment relationship with them. Contractors do not receive minimum wage, or overtime compensation for extra work.
One benefit to being a contractor is the ability to manage your own work schedule. Independent contractors work as their own entity, and usually use their own equipment to provide a service, or work within their own office space.
One disadvantage to contract work is that Canadian laws require self-employed contractors to pay a self-employment tax to the Canada Revenue Agency (CRA). This self-employment tax can add up to 10% of their income, but is capped at $5,796.
The pros and cons of hiring an independent contractor
Sometimes a reason that a company hires independent contractors is due to reduced costs from fewer tax obligations: hiring contractors means the company does not have to remit income taxes on behalf of the employer, or make Canada Pension Plan (CPP) contributions. When a business owner chooses to employ contractors, they can reduce overall costs on providing benefits for this type of worker. Hiring contractors is also prudent if a business owner has a limited scope project to complete by a specific deadline.
Circumventing paying taxes and benefits by hiring a self-employed contractor is especially helpful for small business owners. Small businesses may hire contractors because the incurred costs of employment taxes or payroll taxes may be high for companies who are just starting out.
Misclassifying an Independent Contractor 🚫
Accurate classification of employees and contractors is of utmost importance if you plan to hire in Canada, or anywhere outside the US. Classification is critical for employees and contractors' access to legal entitlements. Depending on whether your workers are defined as Canadian independent contractors or Canadian employees, they will be entitled to certain protections.
One of the riskiest mistakes foreign companies can make is overlooking legal requirements for employees versus contractors. As previously mentioned in our pros and cons of hiring each type of worker, misclassification may result in significant fines or even a lawsuit. Navigating local laws in foreign courts while managing a business is a timely and expensive burden for any US company. It's important to stay compliant with local tax agencies to prevent costly legal troubles.
In the US, if the IRS discovers that a business has misclassified an employee as an independent contractor, they will face penalties for not complying with employment requirements, such as any back payment for the employee's unpaid social security and Medicare taxes, unemployment tax, worker compensation premiums, or any outstanding benefits.
In Canada, the rules are similar. If an employer accidentally misclassifies a worker, they will be given a warning by a Labour Program officer, who will issue an Assurance of Voluntary Compliance (AVC) that outlines a plan for the employer to take corrective measures. If the employer continues to misclassify the worker, they will be subject to administrative monetary penalties (AMP), or they may name the employer publicly. The employer also may be subject to prosecution.
It's important for any business to familiarize themselves with labor laws in their contractor's country. Make sure that your hiring company's contracts clearly distinguish the worker's classification, and that you keep record of any written agreement or contract you have with your worker, should a Labor Officer contact you about classification.
Finding the Right Talent
Let's move on from the compliance side of hiring workers for a moment, and focus on finding the perfect global talent that best suits your company's needs. How will you find the right Canadian worker? First, you will want to find a job posting site. Global job board sites usually have a local version in Canada. Some popular sites include Indeed, Glassdoor, or Monster. Some job posting sites may be particularly popular in a specific province; for example, Eluta is a popular site in Toronto, and Jobillico is a popular site in Québec.
When posting your position, use detailed role descriptions as well as important information about your company in the listing. The potential foreign contractor or employee will show more interest if they have information about their pay and the type of service you need.
Depending on where you're hiring, you may have to translate your ad into another language, but fortunately, in the case of Canada, you do not have to worry about translation, as English is the official language.
You can sort through job applications manually, or you can use hiring software to sort through them. Some popular hiring software for Canadian workers includes CodeSignal, Greenhouse, Codility, and Humantelligence.
Virtual interviews are going to be your most convenient option for hiring a Canadian remote worker, and depending on where you're located, scheduling an interview is easy for both parties, given that US and Canada share time zones.
Paying taxes to the Canada Revenue Agency
So you have the talent. What's next? Tax compliance is the most important issue to consider when hiring foreign employees or foreign contractors. It's easy to get lost in the different tax laws in different countries, but usually the contractor relationship has less tax obligation.
The US has a strong relationship with Canada: currently over 700,000 people from the US live in Canada, and 800,000 Canadians live in the US, which accounts for about 60% of all Canadian emigrants. The two countries have incentivized hiring employees or independent contractors outside of each other's respective countries with a tax treaty known as the US Canada Income Tax Convention, which prevents foreign independent contractors and foreign employees from being double-taxed.
As mentioned previously, businesses are obligated to withhold income tax for employees, but are not required to do so if they hire contractors. Foreign persons who identify as self-employed contractors living in Canada but working for a US company must withhold their own income tax and make contributions to the Canadian Pension Plan if they make over $3500 a year.
Making international payments to employees and contractors 💸
What are the best payment options for paying workers in Canada? Here are a few options to consider:
Bank transfers using SWIFT 🏛
The Society for Worldwide Interbank Financial Telecommunications (SWIFT) is a network used by financial institutions around the world, and many companies find it useful to facilitate international payments. SWIFT is convenient because it is safe, and there is little risk that the payment will not reach a foreign worker's bank account.
The downside is that with SWIFT, there are additional bank fees that can reduce payees' compensation, or add to your own company's payroll costs. The reason for this is that SWIFT payments are routed through multiple banks before they reach the contractor’s bank, and a fee is deducted each time there is a transfer. Even if the same banks are used as previously, the cost may be different each time, which can be a hassle for any employer.
Money transfer companies 💳
Money transfer companies are companies such as Remitly, Xoom (owned by PayPal), and Wise (formerly Transferwise). These services, while convenient for both companies and workers with their online availability and lower markups on exchange rates, have some cons as well.
Namely, these services insist that customers, or payees, use company-issued debit cards, which charge a fee to the payee every time it is used. Additionally, transfer companies charge percent-based fees, or they might add markup fees for exchange rates. Their fees may be better than those of banks, but it's not ideal for a Canadian worker to have to fret about getting paid everything they are owed, especially if they are a foreign contractor with additional financial responsibilities like having to pay income taxes.
Traditional money transfer services 🏦
Companies like MoneyGram and Western Union have both online services and physical locations and are easy to find in Canada. They typically have better markups on currency rates than banks do, but they still charge percent-based fees or add markup fees for currency exchange.
Digital currency has become increasingly popular across the globe, but not everyone has a system set up for sending or receiving cryptocurrency. In Canada, crypto is not considered legal tender, so if a foreign contractor wants to be paid using cryptocurrency and needs to convert the payment into their local currency, the employer will need to be able to provide that. And just like other money transfers, parties will still have to accept exchange rates and potential fees.
Pilot, and the benefits of outsourcing international payments
Pilot is a company that specializes in compliance, remote payroll, and benefits for US-based companies hiring globally. Our international and fully distributed team has expert knowledge on everything from classifying a worker to acquiring a work permit, from payroll to taxes. Hiring in foreign countries can be complex, and we want to make it as easy as possible for business owners, whether you own a small business or a large corporation.
When it comes to payroll, Pilot never marks up exchange rates, and we don't require that contractors use a debit card or e-wallet. Instead, funds go straight to your independent contractors’ bank accounts. We support payments in over 240 countries around the world.
When you partner with us, it allows you to focus on the other essential aspects of your business. Contractors love Pilot, too, because our optimal exchange rates means that they get paid more.
Interested in learning more about Pilot? Schedule a demo with one of our experts.
⚖️ Legal Disclaimer: The information contained in this site is provided for informational purposes only, and should not be construed as legal advice on any subject matter.