Hiring a remote employee in Canada

Update (6/10/21): Proof has been working with Omnipresent for a year now, and it has been an outstanding experience. Additionally, Pilot recently reached out to let us know they now have an in-house Canadian offering, so we would imagine their all-in costs have come down. Finally, there is a third new entrant in the space, Deel, which also seems very promising. If we were doing a proper bakeoff from scratch today, these are the first 3 firms we would consider.

Update (7/28/20): After one year with Globalization Partners, we decided to evaluate potential new options. GP had been totally fine, but even after all the negotiation, they were still pretty expensive. We took a close look at two new entrants to the space: Omnipresent and Pilot. Both offered a more streamlined, tech-forward experience, with substantially better pricing than the incumbents. It turned out that Pilot was white-labeling a more established firm’s PEO offering in Canada, and there were some hidden fees on the backend, but they still seemed like an excellent choice.

Omnipresent, on the other hand, had already built out their own presence in Canada. There were no surprises, just a fantastic proposal from top to bottom, and we decided to make the switch (which meant stomaching several off-boarding fees from GP — yuck). It’s now been four months since we began using Omnipresent, and we couldn’t be happier!

One of our goals at Proof is to be a remote friendly company. Our headquarters will be in New York, but my family and I will soon be moving to San Diego, and I would of course prefer to remain just as productive wherever I am. My situation alone is probably not reason enough to take radical steps with the company’s organization, but nevertheless Allison and I are very intrigued by the distributed team model (1, 2). There are trade-offs of course, but some major benefits include:

• Access to a much broader pool of talent
• Better retention of institutional knowledge
• Easier to disseminate information company-wide
• Fewer interruptions to productivity
• Greater flexibility with time

For us, this will be an experiment that will evolve over time. We’re used to being at companies that look down upon remote work, where it’s stigmatized and mistrusted as a way to avoid accountability and slack off; where it’s been nearly impossible to be fully productive from home anyway, since participating in an in-person meeting over speakerphone is less than ideal. Our hope is that if we encourage remote work from the beginning and incorporate the right tools, that our experience at Proof will be much better. We are committed to fully embracing technologies like online collaboration software and video chat. We will also continue to document our meetings and decision making process to an almost excessive degree. We will share all of this information internally, and we will publish publicly as much as is reasonable as well.

One of the key benefits, broader access to talent, has already come into play in a major way. Our former colleague Han Dong, a brilliant designer/developer, recently left IEX and returned home to Toronto. We reached out to him about a month ago (with IEX’s blessing), and to our delight he expressed interest in joining Proof. That sent us down a winding journey exploring the various ways to hire a remote employee based in another country. We’re thrilled to announce that we were able to find a workable solution, and Han will be joining our team as our third co-founder effective this Friday!

Here’s what we did.

Research

We did extensive research on our own, we spoke with our attorney as well as counsel based in Canada, and we reached out to other people in our network for guidance.

Of note, we were introduced to the folks at GitLab, which has a fully distributed team across more than 50 countries, and their CEO Sid Sijbrandij offered to let me pick his brain so long as we live-streamed the conversation.

It quickly became apparent that this would be possible, and in fact there are at least a few different options for structuring an arrangement with a remote Canadian employee, and likely many of these options are applicable to individuals in other countries around the world.

Ways to hire a Canadian employee

Hire the employee directly into your U.S. corporation

This was probably the most surprising finding throughout this process. According to the Canadian attorney we spoke with, there is nothing preventing a U.S. corporation from directly hiring an employee in Canada who does not have the right to work in the U.S., so long as the employee is not conducting business in Canada. The employee would owe taxes in Canada (and not in the U.S.). The corporation needs to register with the Canadian Revenue Authority, which is possible as a foreign company, and remit payments directly to them (payroll withholding, pension contributions, etc.). In order to do this, the company needs a Canadian bank account that can make these payments, and it needs to be aware of and comply with all Canadian HR regulations.

Set up a Canadian subsidiary

If the employee was going to conduct business on the ground and we were comfortable handling all of the payroll/HR requirements, I think this would have been the way to go. This path seems very similar to the one above, except with the additional upfront overhead of establishing the legal entity.

Hire the individual through a Canadian PEO/EOR

We weren’t terribly excited about the prospect of managing all of that overhead, but fortunately there are plenty of companies out there happy to take these responsibilities off your plate for a fee. We also liked the prospect of giving Han additional benefits such as supplemental private health insurance, which a PEO firm can easily accommodate. Providing benefits ourselves would have been much trickier and more costly. This is the option we chose.

Have the individual establish themselves as an independent contractor

We didn’t explore this option in too much depth. We were encouraged to bring Han onboard as an employee because he will be working for us full-time and not taking on other engagements. It seems there may be potential issues hiring someone as a contractor who for all intents and purposes looks like an employee, although we didn’t get perfect clarity on what exactly those issues are.

Issuing equity

It’s also worth noting that it appears you can issue equity or options to the individual regardless of which path you go down. During our conversation, Sid from GitLab mentioned that even though they issue options to every single team member around the world, they’ve surprising never run into any legal headaches on this front.

Which firms we considered

• The Payroll Edge — this was the first firm we spoke with, fairly early in the process. I reached out to them because they’ve published several articles on remote hiring in Canada. The sales rep I talked to sounded uneasy about the prospect of us issuing equity to the employee. In retrospect, I think this may have just been a communication issue, as we’ll be the ones issuing the equity; the PEO firm doesn’t coordinate this part, so they might have actually been a viable option.
• Elements Global Services — this firm was a recommendation from Justworks, who IEX uses for U.S. PEO services. Elements seemed like a solid option, and the bulk of their expense is a flat monthly fee as opposed to the more common approach of charging a percentage of the employee’s pay. We liked the idea that the cost wouldn’t scale with salary increases and bonuses down the road.
• CXC Global — this is the contracting firm that GitLab uses in several countries including Canada. Their rep seemed extremely knowledgeable, but he said his firm only coordinates contractors, and he recommended that we go with a more full-service PEO that could handle HR and benefits for employees. He introduced us to a contact of his at Globalization Partners.
• Globalization Partners — this is the firm we wound up going with. They were the most polished and organized of the firms we spoke with, and although their original quote was very high, they came down quite a lot and wound up winning on price as well. The implementation process was pretty smooth, and we were able to go from our very first conversation to Han officially starting in just 1 week.

Conclusion

All in all, this onboarding process was a fair amount smoother than we expected. We’re definitely feeling good about the decision to use a PEO firm for the lower overhead, the greater peace of mind, and the ability to provide supplemental benefits. We probably could have been more aggressive in our negotiations with the PEO firms and squeezed them a little harder, but we’re satisfied with where we landed. Most of all, we’re just thrilled to have Han joining our team, and we can’t wait to see what amazing things he does at Proof!