Four Things Canadian Employers Need to Consider When Hiring U.S.-Based Employees

February 18, 2022

We work with many clients on both sides of the U.S.-Canada border on a wide range of legal matters (our downtown Buffalo office is seven minutes from the Peace Bridge, which connects Buffalo, New York to Fort Erie, Ontario). A significant portion of our practice focuses on assisting Canadian business owners that engage in, or want to engage in, cross-border operations. Given the closings and restrictions on border travel in the wake of the COVID-19 pandemic, the challenges for Canadians looking to conduct business in the United States is amplified.

It is common for a Canadian company looking to expand into the U.S to hire just one or two U.S.-based employees to begin. Despite the many similarities of the two countries’ legal systems, however, there are nuances in the rules for hiring and employing workers. For Canadian companies, hiring U.S.-based employees may seem daunting, but it doesn’t need to be. If your Canadian company is planning to hire your first U.S.-based employees, consider the following:

It begins with an EIN: The Internal Revenue Service requires employers to have a unique, nine-digit Employer Identification Number (EIN). The number is required when filing taxes. Securing an EIN is mandatory and straightforward; however, recent delays at the IRS make it imperative to apply early. You will not want to begin the hiring process without one.

Establish a Presence: Even if your employees are working remotely (from their U.S. homes), the company must establish a U.S. address and U.S. banking account. If your American operations are based in New York State, you also need to register your company with the State.

Worker’s Compensation Insurance: Similar to Canadian law, any business hiring a U.S.-based worker must carry worker’s compensation insurance to protect the worker(s) if he or she suffers an on-the-job injury.

Managing Your Payroll: American employers are required to withhold portions of their employees’ compensation for income tax, social security, and Medicare obligations; a process that can be complicated. Moreover, running afoul of the withholding obligations can carry serious consequences for the employer. We suggest hiring a payroll company to mitigate that risk. Even if only to manage payroll of one or two employees, engaging a payroll company creates peace of mind and minimizes stress. The cost is relatively small in comparison to doing it yourself and potentially making a costly mistake.

Speaking of payroll, here are a few more basic items to know about U.S.-based employees:

• For the most part, the employer is governed by the rules in the country where the work is being done. That means things like payroll taxes, minimum wage requirements, and overtime rules default, in these circumstances, to U.S. rules.
• Some employers choose to classify their cross-border workers as “remote contractors” instead of traditional employees. While this can be beneficial by eliminating withholding obligations, the qualifications necessary for such a classification are difficult to meet. Moreover, misclassifying an employee as a contractor can have significant consequences for the employer.

There are many reasons to expand your Canadian business into the U.S. and elsewhere. Properly hiring, classifying, and paying your U.S.-based workers can be tricky, but with the appropriate assistance, it can and should be simple. Our cross-border attorneys have been working with Canadian businesses for decades to simplify the process and allow them to focus on what they do best—operating their businesses.

If you have questions or want to discuss how we may be able to assist you in your cross-border endeavors, please contact me at 716-854-4300 ext. 251 or [email protected].

Nicholas A. Pusateri focuses his practice in the areas of business and corporate law, including business succession planning, mergers and acquisitions, and regulatory compliance. He works closely with private and not-for-profit clients on all phases of their business operations. Nick is admitted to practice law in New York and Florida.