Is a PEO the only legitimate option for remote Canadian workers of US firms?

[JS96]

Lengthy post, but I thought I would go into detail so that someone in the future can get good use out of this post as well.

I am a Canadian citizen who will be working remotely from Canada for a small firm in California. I have spent a few days researching the legal, immigration and tax complications that arise due to this setup. From what I have gathered, the only viable options in my situation are:

1) Go through a PEO that will act as the employer of record (EOR) and contract me out to the firm in California. I will be paid Canadian wages by a Canadian company who recovers the wages and social burden + a significant fee for service (anywhere from $10-25K annual), all charged to my employer. My employer will take on the FX burden. This setup will fully comply with laws in both countries. I will not require a TN visa and I will technically be a contractor, not an employee.

2) If the firm wants to hire me as an employee, I must convince my employer to register a non-resident business number with the CRA for Canadian payroll purposes. I would be paid Canadian wages by the US company with Canadian payroll set up. My role will be a research role, so they may be able to avoid triggering Canadian permanent establishment (unsure about this). The issue here is that the firm likely does not want to risk having a Canadian presence because it may open them up to corporate tax filings, additional license requirements, high legal/accounting costs, etc. This setup will also fully comply with laws in both countries, and I will not require a TN visa. The key issue is the burden and risk it exposes the firm to now that they have a Canadian presence. If it is not that complicated, please advise.

3) Work as an independent contractor and invoice the company directly. I could do this as a SP or incorporate. Again, no visa required and paying Canadian taxes. Additional paperwork such as HST registration (0% charged) for me and W-8BEN/W-8BEN-E to them. I would have to pay into CPP, EI, etc. myself, and set up a Canadian USD bank account to get paid. Have to save up for taxes. The drafted contract has to give me the flexibility afforded to an independent contractor and the nature of the relationship must change to demonstrate a contractor relationship as well. The two big issues here are that (a) CRA may still consider me an employee and impose penalties on me/the firm if it does (b) California requires non-resident sole proprietors contracting with firms receiving the benefit in California to pay state taxes on the income. I am not sure if (b) is still an issue if I incorporate. Please advise if anyone is familiar with this law.

4) Cross the border to obtain the TN visa and return to Canada shortly after. I may have to spend 2-3 weeks in the US to obtain a SSN. I would be an American employee (W-2 form) filing both American and Canadian taxes. The US taxes would be claimed as a credit on my Canadian tax return. I would be paid into a USD bank account directly by the employer. The key issue here is that I will be working out of Canada, so the employer would not be paying the Canadian payroll taxes that they are required to pay (which requires the setup mentioned in #3) and they would be paying the American payroll taxes they are not required to pay. To fix this, they would need to do #3, so the TN visa changes nothing.

5) I would have to obtain a TN visa and relocate south of the border to avoid all the complications. I could do this in a nearby state, but even then, I am not sure if a TN visa worker sponsored by a company in one state is allowed to work remotely for them in another state. Is this possible?

Alright - so clearly, a PEO/EOR with a presence in Canada is the only foolproof method to work remotely, unless the firm is willing to set up Canadian payroll (which most small firms won't). Is my conclusion correct or have I been listening to too many PEO sales calls? What I find fascinating about this predicament is that most accountants and lawyers I talk to continue to suggest that #3 (independent contracting) is perfectly fine. Several have told me that they have clients who have done this for many years without any issues.

[expat61]

I think you answered your own question in the last two sentences of your post.

[Bubba Gums]

1) Employer says, "pound sand."
2) Employer says, "pound sand."
3) Employer says, "pound sand."
4) Employer says, "see you at 9:00 am," you agree.
5) You say, "pound sand."



"Where, by virtue of this Article, a person would be subject to the laws of Canada but coverage is not effected under those laws, the person shall be subject to United States laws."

Is coverage under the laws of Canada "effected" by the situation in #4? Does Canada's "requirement" have any extraterritorial effect on a US employer with no nexus to Canada?

[nelsona]

Yes, as explained in the COVID-19 directive.

[Bubba Gums]

"If you are an employer who does not have a place of business in Canada, you can apply to have employment that you provide in Canada (for resident or non-resident employees) covered under the CPP. This coverage is optional."

https://www.canada.ca/en/revenue-agency ... oyers.html

[nelsona]

Not what I was referring to:

https://www.canada.ca/en/revenue-agency ... ssues.html

[Bubba Gums]

I was focused on payroll taxes and totalization. I think the link you sent refers to income tax and withholding.

[nelsona]

You were askinbg id CRA regs applied to foreign firm with Cdn employees, They do. including withholding and payroll taxes, with thexception of the conditions mentioned in the COVID explanations.