Hiring U.S. citizens eases hassles for Canadian firms heading south
When expanding operations into the United States, Canadian HR professionals and business owners should be equipped with a proper understanding of which American laws apply when employing workers in the U.S. in order to avoid employee issues, time-consuming problems and costly litigation.
Although the two countries share similar organizational cultures, there are significant differences when it comes to employment legislation. Negligence and misunderstanding of seemingly trivial legislative requirements (whether employing a U.S. citizen or a Canadian in the U.S.) have cost companies great pains in corrections and penalties.
Here’s just one example: A federal judge recently approved a US$4.2-million settlement between Standard Parking and its current and former workers in a wage and hour dispute in the U.S.
The areas of U.S. legislation that cause the most grief for employers are:
• wage and hour laws
• at-will employment
• discrimination and disability laws
• mandated leaves
• statutory taxes
• exempt or non-exempt classifications.
Similar to Canada, the U.S. has numerous employment related standards, laws and legislations. The following is a list of the governing federal laws and examples of what they oversee.
Wages and overtime: The Fair Labor Standards Act (FLSA) prescribes the standards for wage and overtime laws. It can be found on the Department of Labor’s website and contains convenient compliance assistance pages at www.dol.gov. However, it is quite common for U.S. states to have more stringent wage and hour requirements that pre-empt the federal minimums.
Employment at will: The employment-at-will doctrine provides the basis of employment for a majority of U.S. workers. It states employment is at-will (not guaranteed) so both an employer and employee have the ability to end employment at any time with or without cause and with or without notice.
Discrimination: Equal Employment Opportunity laws prohibit specific types of job discrimination, similar to Canada’s protected groups under human rights legislation.
Workers with disabilities: The Americans with Disabilities Act prohibits disability discrimination in the full range of employment and personnel practices, such as recruitment, hiring, rates of pay, promotions and selection for training.
Worker leave: The Family and Medical Leave Act requires covered employers to provide up to 12 weeks of unpaid leave for a birth or adoption, to care for a close family member with a serious health condition, for an employee’s own serious health condition or family military leave. There are various eligibility requirements that must be met and, in some situations, employees may be eligible for up to 26 weeks of job-protected leave. In addition, many U.S. states have enacted additional similar, but separate, leave protections.
Taxation: The Internal Revenue Service oversees employment taxation. These taxes include federal income tax; the Federal Insurance Contributions Act, which covers Social Security and Medicare taxes; the Federal Unemployment Tax Act; state disability insurance, which applies in some states; and state unemployment insurance. For workers’ compensation, the classification system is much more complex than in Canada and employers must check with state requirements and policies to ensure compliance.
Overtime: The Department of Labor wage and hour division administers and applies the regulations for exempt and non-exempt employment classifications for overtime under the FLSA. An employee who is paid on an hourly basis is usually considered to be non-exempt, regardless of the hourly rate paid. The FLSA exempts specific categories of white-collar jobs from minimum wage and overtime requirements if they meet certain tests regarding job duties and responsibilities and are paid a certain minimum salary. The FLSA also provides exemptions for outside sales personnel, certain specialized computer personnel, certain highly compensated employees, certain retail sales employees and employees covered by the Motor Carrier Act.
In addition to federal laws, HR professionals must also know state regulations and determine which ones apply to employees. Details of specific state laws can be found on the Department of Labor’s website at www.doleta.gov/regions and at www.at-homeworks.com/state_tax.htm.
Options for Canadian employers to consider
There are several options available to companies looking to employ workers in the U.S. First, a company should consider whether a Canadian is truly required to fulfil the business’ needs in the U.S. or if an American citizen could do the job. The easiest way to avoid tax hassles and immigration issues is to employ a person who lives in the country where the work is to be performed.
Canadian businesses that choose to employ American workers can do so by establishing the company in the U.S. This will enable the company to hire and process payroll for employees. This option is not a simple process and would require hiring a professional with U.S. expertise to assist with setup and to operate payroll. HR professionals located in Canada would still have to be knowledgeable of U.S. legislation.
Another option would be to hire an independent American contractor. However, the U.S., like Canada, has specific rules and tests to insure an individual is indeed independent and not actually an employee. If the IRS deems the independent contractor to be an employee, the business would be held liable for all the taxes and fines associated with the misclassification. The U.S. has recently begun auditing companies of all sizes to ensure there are no misclassified independent contractors.
A third option is to hire a U.S. citizen (or Canadian approved through immigration) by means of an HR outsourcing provider. The provider would employ the workers on behalf of the company, known as third-party employment. The total provider would administer all employment functions in accordance with U.S. legislation, such as tax remittances, year-end reporting, benefits, workers’ compensation and conflict resolution. This is a good option for companies that only require a few workers or are planning a larger expansion in the U.S. and have transitional employment requirements.
By doing due diligence and being prepared, a company can save thousands or, in extreme cases, millions of dollars in unnecessary litigation.
Stacy Glass is a Markham, Ont.-based HR consultant at HR Options, an HR outsourcing provider serving companies in Canada and the United States. For more information visit www.hroptions.ca.
