What a US Business Owes When It Hires Workers in Canada or Mexico

What to take away

Step one: employee or contractor

In Canada the CRA says that although a contract might say a person is self-employed, it cannot treat the person as self-employed if there is evidence of an employer-employee relationship (see its payroll registration page). The CRA guide RC4110 lists the factors outside Quebec:

In Quebec the factors differ because the contract is read under the Civil Code. The CRA lists carrying out the work, remuneration and a relationship of subordination. Either the worker or the payer can ask the CRA for a CPP/EI ruling, no later than June 29 of the year after the year the question relates to.

An employer that fails to deduct CPP contributions or EI premiums owes both the employer and employee share, plus penalties and interest (RC4110).

Mexico regulates the supply of personnel separately, covered below. Editorial suggestion: write down who sets hours and methods, whose tools are used and whether the person works for others, and keep that file whichever country you hire in.

Canada: payroll account and remittances

The CRA generally considers you an employer if you pay salaries, wages, bonuses, vacation pay or tips, or provide certain taxable benefits. A Canadian resident business registers with Business Registration Online. A non-resident business uses the CRA's non-resident business registration service (How to register).

Your remitter type, based on your average monthly withholding amount, sets the dates (CRA, When to remit):

The CRA assigns the first quarterly row to new small employers, based on their monthly withholding amount. Confirm your assigned remitter type with the CRA.

Penalties: the CRA charges 3% for 1 to 3 days late, 5% for 4 or 5 days, 7% for 6 or 7 days, and 10% if more than 7 days late or nothing is remitted. A 20% penalty applies on a repeat in the same year when the failure was knowing or grossly negligent. Interest is compounded daily.

Quebec employers should also ask Revenu Québec which registrations apply. Its pages could not be loaded for this check, so no Quebec payroll dates are given.

Federal or provincial standards

Part III of the Canada Labour Code sets federal standards on hours, wages, leaves, vacation and holidays. The government says these apply to employees in federally regulated businesses. That page does not describe other employers. Editorial suggestion: if your Canadian hire is not in a federally regulated business, check the labour standards of the province or territory where the employee works, including notice, pay and leave, before an offer goes out.

Mexico: IMSS, benefits and REPSE

The labour defence office PROFEDET summarizes worker rights in plain terms. For an employer they turn into these duties.

IMSS. PROFEDET says it is the employer's obligation to register the worker with the Seguro Social. The registered wage must be the wage actually received, and the worker is protected from the first day of work. A private insurance policy does not replace registration.

Vacation. PROFEDET's table:

Vacation must be granted within six months after the year of service and cannot be swapped for cash. PROFEDET's vacation premium page adds a 25% payment on top of the salary paid during vacation.

Aguinaldo. At least 15 days of salary for a full year, prorated for less, paid before December 20 (PROFEDET).

PTU. PROFEDET says workers must be informed within 10 days after the employer files its annual tax return. Companies must pay by May 30 and individual employers by June 29, based on the previous fiscal year. The 2021 labour reform (below) added a cap to article 127 of the Federal Labour Law: the amount is limited to three months of the worker's salary or the average PTU received over the last three years, whichever is more favourable to the worker.

REPSE and the 2021 subcontracting reform

The registry comes from a decree published in the Diario Oficial de la Federación on April 23, 2021, reading in its title "en materia de Subcontratación Laboral". The official text amended the Federal Labour Law, the Social Security Law and several tax laws. Under the articles it set:

The STPS REPSE platform is where contractors apply, and it publishes the registry. Article 15A of the Social Security Law, as amended by the decree, also requires specialized contractors to provide contract information every four months, by the 17th of January, May and September. Missing it is fined at 500 to 2,000 times the UMA (articles 304 A and 304 B of that law). The decree gave existing contractors 90 calendar days to register, counted from the publication of STPS's implementing rules (third transitory provision).

For a US firm, the practical point is this. If a local provider will place staff with you, check that the provider appears in the registry and that the services are not your core activity. Whether you need a Mexican entity to employ staff directly was not verified here. Ask a Mexican adviser.

Two-country comparison

Where to go next

For US-side filings, see starting a US business from Canada and the guide to SAM registration and FAR rules if you also sell to the federal government. Put the dates above in a compliance calendar.

Mexican figures here follow PROFEDET and the 2021 decree. The current consolidated Federal Labour Law was not available for this check, so confirm any later amendment before relying on a number.

Sources