Companies are becoming more and more comfortable with having senior leaders and executives work remotely, even from outside their home country. Meanwhile, it’s becoming more common for experienced executives to spend a portion of their career working as an executive consultant or contractor. These two trends overlap when growing companies look to remote working contractors to temporarily fill gaps in their leadership team. In this blog, we look at the pros and cons of hiring remote executive contractors, and the benefits of looking to the Canadian market specifically.
What are the Pros and Cons of Hiring an Executive as a Contractor?
Hiring executive consultants or executive contractors is a great way to fill gaps in your leadership, and help your organization reach its next stage of growth. Executive contractors are typically very experienced leaders who have moved on from leading companies full time, to helping leadership teams evolve. They can bring unique experiences and perspectives that your team lacks.
Executive contractors can take on different roles in your company such as building out departments and processes, tackling major projects, and even coaching your leadership team.
Executive roles can be contracted out so long as there are no limitations to doing so in your industry, and they maintain their:
- Duty to manage the business
- Fiduciary duty to the corporation
- Duty of care, as in meeting the standard of an executive
However, executive consultants and contractors cannot fill every role on your leadership team. For example, a contractor might be the right fit for your first CEO, but they can’t provide the long-term leadership that your team will need as it grows. Those roles should be filled by employees who can provide continuity and direction for years to come.
How Can I Hire a Canadian Contractor for a US Company?
US companies looking to hire Canadian contractors can more or less use their established contractor process. However, there are some things you should keep in mind.
Payment Is International
Just like hiring local contractors, when you hire Canadian contractors, it is a business-to-business relationship. That means that you do not need to have a local subsidiary or branch in place to employ Canadians, you just need an international payment process. Some US companies opt to work with a local payroll provider or Employer of Record, because they cannot process international contractor invoices or may direct deposit payments.
Compliance Still Matters
Although contractors are exempt from many employment laws, there may still be employment and tax laws to contend with. US companies should always have a human resources or legal advisor when they are hiring outside of their home country – especially when hiring large groups or executive contractors. If you hire the wrong way, you may inadvertently create a permanent establishment, open yourself up to a large international tax bill, or misclassify your new hires.
That’s why so many US companies opt to work with an Employer of Record when hiring international contractors!
What is the Difference Between a Contractor and Employee?
In Canada, employees are classified based on their employment relationships, not on their contracts. That is, authorities may do a double take if you hire someone as a contractor but treat them as an employee. This form of misclassification is considered tax evasion and can result in heavy fines and back taxes. When it comes to executives, it is even more important to get their classification right.
What is a Contractor?
- Fixed term or project-based contracted; can be renewed
- Provides own tools and training unless required by you
- Can often subcontract, set own hours, and define their own approach if objectives are met
- Often has other clients
What is an Employee?
- Indefinite contract length
- Provided tools and training
- Hours, approach, and metrics defined by their manager
- Usually not always exclusively employed by you
Misclassified executives are unlikely to be missed by a tax, labour standards, workers comp, or business audit. The consequences for your business can include long-term heightened attention from authorities, regular audits, fines, and a hefty tax bill.
Can I Convert Contractors to Employees?
As we explained above, not every role in your leadership team can be filled by a contractor. But what if your existing contractor COULD be the right fit for a newly established employee role? Can you just make an offer and convert them from contractor to employee? Yes, but also no.
Converting contractors to employees is popular for a reason. The candidate has already proven themself and has already gone through your hiring process. However, when extending an employment offer to an existing contractor, there are a few things that you should keep in mind.
- Employment Relationship: Their contract should go from fixed term to indefinite; their independence will be limited; they should be formally added to the org chart
- Benefits and Perks: They should gain access to all the benefits and perks that other employees have; because they are an executive, you might want to consider adding a new tier of competitive benefits
- Compensation May Decrease: Contractors typically command higher rates because they are expected to make employer and employee tax contributions, and supply their own tools and training; employees pay lower benefits and enjoy company infrastructure
- Nature of the Role: The role and their duties cannot be identical to what they did as a contractor; you should be able to justify why the role must be filled by an employee now, but was filled by a contractor before
- Seniority, Tenure and Severance: They should maintain their original seniority date; you will have to reconsider their severance package
How an Employer of Record Like Canadian Payroll Services Can Help
and the administrative aspects of employment. For companies that are looking to hire international contractors, at any level of seniority, they provide in-country payroll and compliance advice. Because they specialize in employment, they are uniquely suited to help companies transition contractors to employees when the time comes.
Canadian Payroll Services has broad experience in contractor payroll, EOR, and in helping US companies hire leaders in Canada. If you’d like to learn more about how we can help, get in touch!
