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What should HR be aware of to comply with U.S. and Canadian employment laws for Canadian employees who wish to telecommute from their homes located in Canada?

Typically, an employer is obligated to observe local employment laws and pay foreign taxes when it hires employees in another country, even if employees are telecommuting from their home country and the foreign employer does not have a business in that country. When a U.S. employer allows an employee to telecommute from Canada, the employer will need to consider Canadian laws.

The Canada Revenue Agency (CRA) requires employers hiring employees in Canada to apply for a business number and consequently make payroll deductions as per local tax code. Additional guidance can be found in the CRA guide Income tax information for non-resident corporations.

If an employee will be required to travel for work within the United States, it is possible he or she could also incur income tax obligations at the state and federal level, depending on certain conditions, such as the number of such work days over the course of a year and the employee's country of residence. The U.S.-Mexico-Canada Trade Agreement (USMCA) (which replaced the North American Free Trade Agreement on July 1, 2020) offers certain benefits regarding taxation of visiting Mexican and Canadian workers within the U.S. in that it reduces the income tax burdens of eligible workers by avoiding dual taxation. 

The worker may also need a visa, such as a TN visa, to travel legally across the border for work purposes, including business meetings. The complete options for visas available to individuals entering the United States from Canada are described on the Department of State website under Visas for Canadian and Mexican NAFTA Professional Workers.

Some employers may wish to avoid the complexities of local tax law, employment law and business operating requirements by hiring workers in Canada as independent contractors. However, similar to U.S. laws on classifications for independent contractors, the CRA may disagree with a foreign employer's classification and impose tax penalties accordingly. Detailed guidance on these classifications under Canadian law is located in the publication titled RC4110 Employee or Self-employed?

Employment laws in the U.S. largely apply only to workers performing services for employers within the U.S. and its territories. See Do U.S. employment laws apply to U.S. citizens working abroad?

Foreign employers will need to navigate local-country employment laws and applicability for compliance. A comprehensive guide is provided through SHRM's partnership with Aperian Global, where members may access a country guide on Canadian employment laws. From the SHRM Global HR webpage, click on "Country Guides" and choose "Canada" under "The Americas" locale. A link to employment law can be found in the A-Z index under "Employment Law."

Lastly, employers should not forget Canada consists of 10 provinces, some of which have their own local tax and employment law standards. It is important to research the provincial laws in locations where the employee will work for the possibility of more stringent or differing business and employment-related requirements.




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