Payroll compliance in the face of global employees
As employees play a crucial part in a company’s success, hiring the right talent is key. This may mean hiring an individual who will be working in a country that is not the employer’s base of operations, and this may occur more frequently with the rise of remote work.
Oftentimes, employers have processes in place for hiring local employees as this is the most common arrangement. But when an employer seeks to bring in someone from another country who will remain working for the employer in that other country, the employer may be exposed to another country’s regulations.
Beyond simply paying these employees as promised, employers must ensure that they are aware of the tax and payroll implications of hiring an individual in another country and ensure that they remain compliant to all countries’ payroll regulations.
International payroll in Canada
Having one employee in Canada may be sufficient to subject the employer to Canadian payroll reporting and withholding requirements. If the employee were in Quebec, Quebec has its own separate requirements that an employer would also need to comply with.
Some situations that an employer should pay attention to include, but are not limited to:
- A Canadian employer hiring an employee who will be working from home outside Canada;
- A Quebec employer sending an employee to a country outside Canada to work at the employer’s foreign office;
- A foreign employer hiring someone to set up and work from an office in Canada; or
- A foreign employer sending an employee to Quebec to work on a project site location.
Foreign employers sending employees to Canada or hiring an employee in Canada should especially be aware that the employer is subject to Canadian and Quebec payroll regulations as of Day 1 of the employee working in Canada or Quebec. In addition, employers should recognize that payroll reporting and taxation may differ from one country to the other, or special exemptions may apply if certain conditions are met.
It is important to note that simply paying an individual from a foreign payroll does not exempt the employer from Canadian payroll requirements. In these situations, a process called a shadow payroll often helps to ensure that an employer remains compliant with Canadian payroll requirements.
With the many technicalities in payroll regulations and separate Quebec guidelines, Canadian payroll can become rather complex, especially when an employer provides various benefits to the employee as part of the hiring package or assignment. Therefore, it is pertinent to be mindful of and be proactive with any situation where an employee is not working at the employer’s location of operations.
Costs of noncompliance
While an employer may be tempted to overlook the single employee that was or will only be in Canada for an extremely short amount of time, non-compliance may cost the employer far more in the future.
Penalties and interest may apply and compound over the years, and legal action may even be obtained from the courts against the employer. Directors at the time of the failure may be jointly and severally liable, along with the employer, to pay the amount due.
It is therefore crucial that an employer remains compliant in order to keep a good standing with the Canadian tax authorities and avoid any unnecessary penalties and consequences.
As well, hope is not lost if an employer realizes that they have been non-compliant previously. The Canada Revenue Agency and Revenu Quebec both offers programs for an employer to voluntarily disclose any non-compliance in exchange for potentially a reduced penalty.
Employers must be proactive on their payroll obligations in order to remain compliant. Regardless of any exemption that may apply, employers must actively maintain proper records and seek out guidance to ensure that obligations are currently or will later be met. This may include:
- Updating the location data on employees: Given recent rise in remote work, it would not be unusual for employees to consider moving to another country for their base of operations while they work remotely. Some may have done so unplanned and therefore have not informed their employers.
- Review any compensation items paid to employees: As taxation and reporting of employee compensation items may differ between countries, ensuring proper records of any amounts paid to the employee would be pertinent to determining the proper amount subject to a country’s payroll regulations.
- Review policies for new global employees: Going forward, having proper policies in place to facilitate any employee who will be hired outside of the company’s base of operations or who will be on assignment in another country would aid in ensuring ongoing payroll compliance.
With the rise of remote work, employers may find themselves with a larger talent pool and with employees who may wish to work in a country that is not the employer’s base of operations. This opens opportunities for the employer to hire exemplary talent and expand to new territories. Regardless, payroll obligations will follow with these opportunities, and compliance of all these obligations is key to ensure smooth sailing into new territory.