Expert: Shirley McAllister, CPP, PHR - 1/25/2012

Question
My wife is a U.S. Citizen living in Ontario as a Canadian Resident. She has an offer to work for a U.S. company working from home in Canada.  She would be the only employee they have in Canada.  The company does not want to go through the 'trouble' of using a payroll company such as ADP to to pay her.  Their suggestion is to hire her as an independent contractor.

We have 2 questions;

1.  What would it cost the U.S. company to use ADP to pay her and how much 'trouble' is it for them?  What does the U.S. company need to do to use ADP to pay her.  We have been tasked with convincing the company that it is not too much 'trouble'.

2.  Which scenario do you think is most beneficial financially for my wife?  Being hired as a contractor (will have to set up a sole proprietorship or even incorporate) or try to get them to hire her as an employee and outsource her payroll?

Thank you so much!

Answer
It is more trouble for the company. They have to set up a Canadian bank account, they would have to set up a business account in Canada and payroll tax accounts. It is a hug undertaking, I know, I set it all up when I started at my current business. At the time I had 6 Canadian employees.  They have to know the Canadian HR rules on vacation, holidays, paid time off etc. They have to pay employees mandatory vacation time and stat holidays. It is not as easy as just outsourcing the payroll to ADP they also have to know the HR rules and regulations which are huge.

For the company an independent contractor status would be the best way to go. Your wife needs to figure any taxes she would have to pay as a result of the employment into her amount she bills to the company for her contract labor. She would receive a 1099 at the end of the year and would pay taxes based on income earned. It would be a lot easier for your wife to be an independent contractor than the trouble it would be for the company to set up a whole structure for Canadian Payroll.

For your wife, if she charges the right amount for her time she can come out good either way. I think that she will have a hard time convincing the company to set up a whole payroll system in canada to pay 1 person.

Shirley