A look at the risks for Canadian remote workers in the U.S.

In the wake of the pandemic’s rise in remote work and prolonged labour shortages, many Canadian companies have offered the option to “work from anywhere” and similar flexibilities.

However, they are assuming risk in doing so, according to Ioana Pantis, employment lawyer at Toronto firm McMillan, especially if employees are heading to locales that don’t have visa programs to accommodate them.

“We've gotten this question a lot from clients,” she says. “We do see some employers wanting to offer flexibility to employees to work from anywhere, and they have these work from anywhere policies … they're taking the risk, but we don't know down the road whether the risk will materialize.”

Canadian digital nomads could be working illegally

In response to the popularity of “digital nomad” culture that began during the pandemic when large swaths of employees were shifted online and appreciated the benefits of that freedom, many countries have begun offering specific digital nomad’s visas.

There are now over 60 countries that offer a digital nomad visa (DNV), according to the United Nations World Tourism Organization’s latest Visa Openness Report 2023. Canada is among them, offering the shortest stay for digital nomads at only 30 days, compared to 10 years in Thailand.

But what about countries that don’t have DNV options, such as directly south of the border in the U.S., where the country is already contending with a millions-deep backlog of immigration applications?

No U.S. immigration designations for remote workers

Canadian HR Reporter spoke with two American lawyers to find out what the laws are around Canadian employees travelling to the States to work remotely.

Jennifer Behm, immigration lawyer at Berardi Immigration Law in Buffalo, N.Y., explained that there is no grey area in the States as far as remote work goes.

“People have gotten a taste of freedom and flexibility, with that work-life balance, and so there's this push for digital nomad visas. The U.S. does not have a digital nomad visa category,” she said.

“Technically, if they are here as a B-2 visitor for pleasure, or even a B-1 business visitor, that is a violation of U.S. immigration law, because in the U.S.m the government's litmus test of whether work is authorized or not is ‘Do you have permission to be physically on U.S. soil to do productive work and be paid for it?’ They don't care if that payment is coming from a Canadian employer or any other company outside of the United States.”

U.S. visa categories not updated

Unfortunately, work visa laws in the States have not been updated for many years and have not caught up with labour trends, says Behm, meaning there is no work visa available that would provide for someone working remotely for a foreign country.

Even those who arrive in the U.S. on H-4 visas, accompanying a spouse who has skilled worker status under the H-1b visa, cannot work remote legally for their Canadian employer.

“We've got this whole host of alphanumeric designations and visa categories … just a really small handful of those allow someone to work in the United States. So we're always trying to fit a circle into a square, and oftentimes there is no real option for them to continue working for an employer abroad,” she says.

“Immigration regulations haven't been updated in millions of years. They do not reflect our business world, the virtual digital world we live in today. These regulations were created when people were going into an office nine-to-five, before computers and email and Blackberries were prominent in the workspace. So this concept of remote work wasn't even a blip on their radar.”

Tax laws for Canadians working in U.S.

David Lever, CPA with Tronconi Segarra and Associates in Williamsville, N.Y., says that much like the immigration laws, U.S. tax laws have also not yet been updated to reflect the reality of remote workers.

Therefore, sourcing income or wages for tax purposes is based on an individual’s physical location.

“Generally where the wages are being earned is usually the country that has the first right to tax, either the company or potentially the individual doing the work,” he says, explaining that the tax treaty between the U.S. and Canada, established to facilitate fairness in cross-border work and trade, has certain rules to establish if a Canadian worker in the U.S. is considered a “permanent establishment”.

That is if the employees are informing their employers of their whereabouts in the first place, Lever says, because if they aren’t, it introduces a whole host of other problems.

Potential tax penalties for remote Canadian employers

“A lot of companies aren't aware of this. We've seen that throughout COVID, that employees are mobile and may be moving to the U.S. for various reasons, and they may or may not be identifying to their employers that they're doing so,” Lever said.

“So sometimes there comes a bit of a surprise to both the employer and the employee, that there really are some U.S. tax considerations that should be taken into account … eventually when it comes out, it's a lot more difficult to navigate for the business and the employee, about what to do to make things right in terms of payroll taxes and things like that.”

Not only that, in the U.S., the federal and state tax systems are not harmonized, meaning each state has its own laws around remote workers in addition to the federal rules, and most states do not instate the tax treaty.

“We often say that doing business in the U.S. is like doing business in 51 different countries,” Lever said.

“We spend a lot of time educating Canadian businesses that are doing business in the U.S., just because the mode of doing business is a lot different than what they're used to.”

Policies on remote work clear up grey areas

The biggest pitfall for employers, Lever says, is not communicating with employees regularly about where they are working, and not having clear policies around remote work. Ironically, things can get more complicated for a single remote worker as opposed to a team in a larger organization.

“If it's just the one-off, it just becomes a lot more difficult,” he says. “I think communication is the key for employers; it's best to get good legal and professional advice with regards to this, because you want to try to avoid surprises … there could be unintended consequences for the business. It's probably best to have some type of written policy in place with regards to remote employees.”

Pantis added that the longer a remote employee is in a certain location, the greater the risk will be, and it’s not only about immigration or tax laws — there can also be local human rights, health and safety, or employment standards to consider.

She also reminded employers that they are under no obligation to allow remote work options for employees; if they do, she agrees that a strong policy around expectations is crucial.  

“Similar to a domestic remote work policy, for an international one, it’s important to underscore various employee obligations, like safeguarding confidential and proprietary information, having secure internet access, expected core working hours, employee productivity expectations and being free of distractions and safe working practices.”