Remote work positions are the new trend among many small businesses. Since more people than ever before are working from home, it makes sense that your business might want to expand its borders to take advantage of international talent. Whether you’re located in the United States and want to hire a Canadian employee or vice-versa, there are a few differences you should know about in regard to how payroll works in the two countries.
Read this short guide to learn more about the differences between payroll in Canada and the USA:
Different Payroll Agencies
Businesses that reside in the United States and only hire domestic employees are accountable to the Internal Revenue Service (IRS). If you are making the switch to hiring employees in Canada, you will now be held accountable to the Canada Revenue Agency (CRA).
This means that you must be well-versed in the policies and procedures associated with both payroll agencies. This can be a bit tricky.
In the United States, employment is mainly controlled by the federal government regardless of what state you reside in. The individual state is able to expand on those services and terms, but most of the guidelines are already in place for every US resident. This isn’t the case for Canadian employees.
In Canada, you can expect the federal government to set payroll standards in some of the more regulated industries, such as those in the public service sector. However, the provinces often set the payroll regulations for their unique demographics. Individual provinces are responsible for setting out standards for minimum wage, vacation pay, and statutory holidays.
As you might imagine, this means that hiring employees from different areas of Canada can be a real hassle. The rules change as you travel across the country, which can definitely complicate things if you hire from multiple provinces.
Holiday pay is a nice bonus in the United States, but it’s actually mandatory in Canada. Known as statutory holidays, these will also vary based on the province where your employee resides. Keep in mind that this payment must be rendered to all employees on the holiday, even if they don’t work that day.
If they do work on a statutory holiday, you may be responsible for paying them extra to work this shift. While this is common practice for federal holidays in the United States, it’s not necessarily mandatory for a business owner to offer this type of compensation in the same way that it is in Canada.
The one aspect of payroll that remains very much the same for both United States and Canadian employers is the need to cover payroll taxes. The numbers are often very similar, but the agencies to which money is due are different.
Business owners in the United States must make sure to pay federal and state income tax, unemployment tax, social security, Medicare, and local taxes.
On the other hand, Canadians must pay federal and provincial income tax, employment insurance, Canada Pension Plan, Employer Health Tax, and Workers’ Compensation Board. There may be some minor changes to this arrangement based on the province where your employee resides, but this is generally what’s expected across the country.
Mandatory Vacation Pay
In the United States, employees may work themselves down to the bone in a given year with no reprieve. Vacation pay is a nice perk for many people, but employees don’t expect it at all places of employment. It simply is not a mandatory part of the business world to get paid time off work in the United States.
Canadian employers are a little more dedicated to their workers’ mental health and well-being. If you hire someone in Canada, you’ll be expected to give them a minimum amount of vacation pay for the year. The specific numbers will vary based on the province, but most companies will award ten paid days annually with increases for time spent working for the company.
While no business owner likes to think about letting an employee go, the stakes might be much higher if you’re hiring an employee in Canada. If you choose to fire an employee, you must either give them proper notice or pay them in place of the notice you should have given them. The specific terms regarding how much notice you’re required to give will vary based on the employee’s age, location, and length of service.
The United States makes it easier to terminate an employee, and it’s a much less expensive option, as well. This is something to consider if you’re only thinking about hiring an employee to help you complete a specific project or on a short-term basis.
Hire Professionals To Help
Navigating the differences between the United States and Canadian payroll can be quite time-consuming and confusing. If you are thinking about hiring across the border, then it may be time to employ the help of a Winnipeg CPA.
Compass Accounting is here and ready to answer any of your questions about what it means to run payroll in the two countries, no matter the province or the state. Give us a call today to learn more about how we can help you grow your business the right way!