Hiring Canadian talent can be a game changer for US companies looking to expand their workforce with skilled professionals in the global talent pool. With Canada’s proximity and cultural similarities to the US market, Canadian employees can seamlessly integrate into US teams, bringing fresh perspectives, experiences, and expertise. 

However, navigating the legal complexities of hiring across borders can be daunting. US companies must contend with varying labor laws, immigration regulations, and tax requirements. This article provides a comprehensive guide for US companies seeking to tap into the Canadian talent pool.

Can a US Company Legally Hire a Canadian Employee?

You must be wondering - can a US Company hire a Canadian employee? The answer is yes! With the United States-Mexico-Canada Agreement (USMCA), formerly known as (NAFTA) cross-border employment is facilitated between the US and Canada. The USMCA provides a framework for the movement of professionals across North American borders, including provisions for intra-company transfers and specialized knowledge workers. 

However, US companies hiring Canadian employees must adhere to specific regulations governing work permits, visas, and other legal requirements to ensure compliance and mitigate potential risks. 

How to Hire a Canadian for a US Company

US companies have several options for hiring Canadian professionals. The right choice depends on your business goals, budget, and how directly you want to manage employment.

1. Set Up a Canadian Subsidiary

Establishing a legal entity in Canada allows your US company to hire employees directly. This provides full control over payroll, benefits, and compliance but requires significant time, cost, and administrative effort.
You’ll need to register your business provincially or federally, handle Canadian payroll, file taxes, and comply with local employment laws.
This option suits large or long-term expansions where you plan to hire multiple employees in Canada.

2. Sponsor a Work Visa for Canadian Employees

You can hire Canadians to work in the US through specific work visas and permits. Common options include:

• TN Visa (USMCA Professional): Available to Canadian professionals in approved occupations such as engineers, accountants, and scientists. It’s faster to obtain and requires fewer steps than most US work visas.
• H-1B Visa (Specialty Occupations): For specialized roles requiring advanced knowledge. The process is more complex and requires a labor certification from the US Department of Labor.
• L-1 Visa (Intra-company Transfer): Used to transfer employees from a Canadian entity to a US branch or affiliate.

This route is best for roles that require the employee to physically relocate and work in the US.

3. Partner with an Employer of Record (EOR)

Using an Employer of Record (EOR) like Gloroots allows US companies to hire Canadian talent legally without setting up a local entity.
The EOR becomes the legal employer in Canada, managing payroll, taxes, benefits, and compliance with local labor laws. Your company maintains control over day-to-day work and performance.
This is the most efficient and compliant way to hire Canadians remotely, ideal for fast-growing teams or test-market hires.

4. Hire Independent Contractors

For short-term or project-based work, hiring Canadian professionals as independent contractors is a flexible and cost-effective option.
You pay them per project or milestone, without handling benefits or payroll taxes. However, contractors must be properly classified to avoid misclassification penalties.
When you hire international contractors, it's crucial to correctly classify them to avoid legal and financial ramifications arising from misclassification. 

How Much Does It Cost to Hire an Employee in Canada?

When considering hiring Canadian employees for a US company, it's essential to factor in various costs beyond just salaries. In Canada, employers typically provide benefits such as healthcare, retirement plans, and paid leave, which contribute to the total compensation package. Additionally, administrative expenses, including recruitment fees and onboarding processes, must be accounted for:

Breakdown of costs

Salaries: The base salary for Canadian employees varies depending on factors such as industry, experience, and location. Conducting market research to determine competitive salary ranges is crucial for attracting top talent.

Benefits: Canadian employment standards mandate certain benefits, such as healthcare coverage and paid vacation days, which can impact overall compensation costs. Employers must comply with provincial regulations regarding benefits and ensure equitable treatment of all employees.

Administrative Expenses: Recruiting, hiring, and onboarding processes incur administrative costs, including advertising job postings, conducting interviews, and processing work permits or visas for foreign hires. Partnering with a reputable Employer of Record (EOR) can streamline these processes and mitigate administrative burdens.

Comparison of Labor costs

Labor costs in Canada differ from those in the US. For a US company hiring Canadian employee, it's essential to conduct a comprehensive cost-benefit analysis to assess the overall impact on the company's bottom line. Factors such as currency exchange rates, tax implications, and regulatory compliance can influence the cost-effectiveness of hiring Canadian talent.

Navigating Canadian Employment Laws

Unlike the United States' federal system, Canada's employment laws are a complex web of federal and provincial regulations. The Canada Labour Code sets the minimum standards for a limited number of federally regulated industries, like air transportation and telecommunications. For everything else, each province has the freedom to establish its own minimum requirements. This means that, as a US company expanding to Canada, understanding these variations is crucial for ensuring compliance.

Here's a breakdown of key employment aspects to consider:

Minimum Wage

Canada has a federal minimum wage, but it only applies to federally regulated industries. Provincial minimum wages exist and are often lower than the federal rate. For instance, Manitoba's minimum wage is CA$13.50 per hour, while the national standard is CA$16.65.

Working Hours and Overtime 

The standard workweek in Canada is 40 hours, with overtime starting after that. However, there are provincial variations. A standard workweek in Ontario is 44 hours, while British Columbia follows a 40-hour standard. Overtime pay calculations also differ by province.

Leave Entitlements 

All Canadian employees are entitled to sick leave, annual vacation, and parental leave. Federally regulated industries offer 10 days of paid sick leave, while provincial regulations vary. Annual vacation typically ranges from two to four weeks, with similar variations across provinces. Parental leave benefits are generous, with federally regulated industries offering 15 weeks of paid maternity leave and additional parental leave options.

Statutory Benefits

Employers in Canada must provide mandatory statutory benefits like the Canada Pension Plan (CPP) for retirement (except in Quebec, where the Quebec Pension Plan applies) and Employment Insurance for unemployment. Provincial health insurance and workers' compensation are also mandatory.

Termination and Severance

Termination rules differ significantly by industry and province. Federally regulated industries require two weeks' notice or pay in lieu of notice for termination without just cause, with severance pay amounting to a minimum of five days' wages for each year of employment. Provincial regulations can be more or less generous with notice periods and severance.

Probationary Periods and Retirement

Probationary periods are common, typically lasting three to six months. Employers can include termination clauses within these periods. The retirement age in Canada is 65, but employees can continue working and contributing to the CPP until they are 71.

Permanent Establishment & Tax Exposure Risks

When a US company hires Canadian workers without a local legal entity, it can unintentionally create what’s called a Permanent Establishment (PE) in Canada. This happens when a company is seen as having a fixed place of business or a dependent representative operating in the country.

If a Permanent Establishment is triggered, the company becomes subject to Canadian corporate taxes on income earned from that activity. This can also lead to backdated tax liabilities, penalties, and interest for non-compliance.

Key triggers of PE include:

• Having employees or contractors regularly working from Canada on behalf of the company.
• Conducting core business operations or signing contracts in Canada.
• Maintaining a physical presence such as an office or warehouse.

To avoid unintended tax exposure, US companies should:

• Limit in-country activities to roles that do not constitute a fixed business presence.
• Use an Employer of Record (EOR) to employ Canadian talent compliantly without creating a PE risk.
• Consult tax professionals to review cross-border operations and ensure compliance with US-Canada tax treaties.

A careful approach to hiring and business structuring helps companies access Canadian talent while maintaining tax efficiency and full legal compliance.

Key Compliance Risks When Hiring Canadian Employees

If you are a US company hiring Canadian employee, you must adhere to several key compliance factors to ensure legal and smooth operations like:

Labor laws

Understanding Canadian labor laws is crucial to ensuring compliance with regulations regarding working hours, wages, and employee rights. Each province in Canada has its own set of employment standards that US companies must familiarize themselves with to avoid any legal issues.

Tax withholding

Taxation is another critical aspect to consider when you hire employees internationally. US companies must understand the tax implications for both the employer and the employee, including income tax, social security contributions, and other deductions. Failure to withhold taxes correctly can lead to penalties and legal complications.

Immigration regulations

Depending on the nature of the employment, a work permit or visa may be required for the Canadian employee to work legally in the US. Understanding the intricacies of immigration law is essential to avoid potential legal barriers and ensure a smooth transition for the employee.

Gloroots offers comprehensive Employer of Record (EOR) solutions designed to streamline the hiring process and mitigate compliance risks for US companies hiring Canadian employees. Leverage our expertise in navigating labor laws, tax withholding, and immigration regulations, ensuring a smooth and legally compliant hiring experience for your organization.

Hire Canadian Employees Compliantly with Gloroots

Building a diverse workforce with qualified Canadian talent can significantly benefit US companies. Gloroots, as a leading EOR provider, can simplify the process of streamlining and allow companies can tap into this valuable talent pool while eliminating risks around compliance while hiring Canadian employees for US company. Spanning 140+ countries, our EOR services are adaptable to businesses of all sizes and industries. Enjoy a range of services including streamlined onboarding, seamless payroll management, regulatory compliance, global compliance, and reliable benefits administration with strict adherence to labor laws. Our transparent approach ensures timely payroll processing and expert guidance on international employment laws, while automated payroll features simplify management for distributed teams.

For a seamless and legally compliant hiring experience, reach out to us at Gloroots. 

Let us guide you through the intricacies of cross-border hiring and help you build a successful, global workforce.

FAQs

Can a US company legally hire a Canadian employee?

Yes. A US company can hire Canadian workers, but it must comply with Canadian labor, tax, and employment laws. This can be done by setting up a Canadian entity, partnering with an Employer of Record (EOR), or hiring contractors for specific projects.

What are the different ways to hire a Canadian for a US company?

US companies can hire Canadians by establishing a local subsidiary, using an EOR like Gloroots, sponsoring a work visa for relocation, or engaging independent contractors. The right option depends on the company’s hiring goals and compliance capacity.

Do Canadian employees need a US work visa?

Only if the employee will physically work in the United States. In that case, they’ll need a valid work visa such as a TN, H-1B, or L-1 visa. If the employee works remotely from Canada, no US work visa is required.

What are the tax and payroll obligations when hiring in Canada?

Employers must register for Canadian payroll, deduct and remit taxes such as Canada Pension Plan (CPP) and Employment Insurance (EI), and comply with provincial labor laws. Using an EOR simplifies this process by handling all withholdings and filings on your behalf.

What is permanent establishment risk when hiring Canadian employees?

Permanent Establishment (PE) risk arises when a US company’s activities in Canada are considered a taxable business presence. This can trigger Canadian corporate tax obligations. Partnering with an EOR helps prevent PE exposure by acting as the legal employer in Canada.

Is it better to hire a Canadian employee through an EOR or as a contractor?

An EOR is best when you want long-term, full-time engagement with full compliance and benefits. Hiring contractors works for short-term or project-based work but requires careful classification to avoid legal or tax risks.