You just landed a dream job offer from a foreign company that allows you to work remotely for a US company. But you may be wondering how you will get paid and how to declare your income to the Canada Revenue Agency (CRA) and exactly how to handle the tax and legal logistics of working remotely for a US company as a Canadian.
Canadians citizens working in Canada for a US company or other foreign business have three options: become an foreign employee, become an independent contractor, or work through a PEO or EOR. Each comes with different benefits and challenges as well as different tax and legal ramifications.
As a Professional Employer Company (PEO) that offers Employer of Record (EOR) services, we know that most people don’t know what a PEO is or how EOR services work or why working with a PEO can a great fit if you’re a remote Canadian employee for a US company. These services include handling payroll, taxes, and employment compliance. We help clients that are working for a US company while living in Canada, so that you and your employer can focus on your core business objectives instead of getting bogged down in tax and employment logistics.
If you’re a Canadian remote worker for a US company, learning about the benefits of PEOs and EOR services can help you deal with the complexities of working for a foreign company.
Why Are Canadians Contracting For a US Company?
Many American companies look north to hire employees that will work from Canada remotely. It could be salespeople selling their products or services in Canada, technicians to service their Canadian installations, or simply Canadian talent to support their business inside the US or internationally. In such cases, a US work visa is not required as the Canadian worker is not relocating to the US but rather working remotely in Canada – typically out of their home or in a shared executive suite.
At Canadian Payroll Services, we know that Canadian talent can be of great benefit for US and other foreign companies. But as in any new market, there are bound to be problems that could have easily been avoided. That’s why we want to help you decide which setup would be better for you and your foreign client.
Many US companies want to hire Canadian remote workers but want to avoid tax and legal ramifications of having employees abroad. Not only does hiring employees in Canada create additional tax burdens for US companies here in Canada, it can make American taxes more complex too. Most US employers deal with this issue by asking you to become an independent contractor, which is a common strategy in the United States to avoid complex tax issues.
Should a Canadian Become an Independent Contractor for a US Company?
One solution is to become an independent contractor and maintain a business-to-business relationship with your US or international employer. Being an independent contractor means you get to be your own boss and most of the time, you also pay lower income taxes. While these are great benefits of becoming an independent contractor, there are also some disadvantages.
By distinguishing yourself as an independent contractor, you would have to register a business in Canada. This solution is fraught with potential problems. As you are now a business person and not an employee, you are not covered under your provincial Employment Standards Act, and you would also be subject to all sorts of business taxes like GST/HST, employer source deductions, worker’s compensation insurance (i.e. WorkSafe BC, WCB, WSIB, CNESST, WorkplaceNL). Lastly, you won’t be receiving a T4 from your US which will impede on your ability to easily file a personal income tax return.
To make matters worse, the Canada Revenue Agency (CRA) doesn’t like Canadian workers classified as independent contractors when they behave as employees, this is considered worker misclassification and could cause some serious problems for you or your client.
Although the CRA normally penalizes the employer for such worker misclassification, they can’t do so when your employer is outside the country. Hence, the CRA takes it out on you by deeming you as a “Personal Service Business” (PSB). All of a sudden, you would be disallowed to write off any business expenses, which means all your business revenue becomes taxable as personal income, and you would be forced to back pay all those missed employer payroll taxes, often with penalties.
If a US company is asking you to consider becoming an independent contractor to work remotely for them from Canada, it’s a good idea to understand what that actually entails and think about alternative work arrangements.
Work Through a Canadian Professional Employer Organization
Professional Employer Organizations (PEOs) are essentially intermediary employment agencies that act as your official employer in Canada. The PEO agency becomes the Employer of Record, and they place or lease you to your employer as their foreign client. As the Employer of Record your PEO would look after all the following:
- Employer payroll tax remittances
- Employee source deductions
- Worker’s compensation insurance
- CPP and EI contributions
- And even issuing you a T4 at the end of the year
For your US or international employer, such an arrangement also provides them with added security knowing that their company is in complete compliance with Canadian tax and labour laws, and their PEO partner can enforce their intellectual property, non-disclosure, and non-solicitation rules.
Most PEOs in Canada are also registered employment agencies, as Canadian labour and tax laws have specific regulations allowing employment agencies to hire workers as their agency employees, but placed under the direction and control of their clients.
Such specific employment agency laws not only protect placement worker rights, but also client rights in terms of limited employment liability and client protection from worker related fraud, misbehaviour, and enforcement of intellectual property, non-disclosure, and non-solicitation agreements.
Is a PEO Is Right For You as a Canadian Contractor for a US Company?
While there are benefits of becoming an independent contractor, the disadvantages become very apparent when compared to working with a PEO. To maintain your employer-employee relationship and avoid any unnecessary stress, we highly recommend remote Canadian employees work through a PEO. Doing so will also guarantee compliance with Canadian tax and labour laws.
Canadian Payroll Services is a PEO that works with Canadian citizens working remotely for a US company or other foreign entity, to make sure both you and your employer are maintaining compliance and getting the best experience possible.
Contact us to learn more about how you can better serve your US-based company as a Canadian remote worker with our PEO and EOR services.