The chance to work as a contractor in the United States is an exciting opportunity for Canadian workers to experience a foreign market, expand their skill set, and gain valuable insight into US business practices. Unfortunately, new opportunities for Canadians to work south of the border were disrupted by the pandemic thanks to closed international borders and strict travel guidelines.

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But thanks to the vaccines rolling out and fewer reported cases, borders beginning to reopen and countries returning to business as normal, the opportunity to work abroad has once again become a possibility. Canadian contractors are again considering working in the United States as a viable option. 

Labour laws and regulations in the U.S. differ from what Canadians may be used to, compensation, for instance, can be quite different. There are additional considerations to take into account when planning to work across the border. They should develop an understanding of employee and employer responsibilities in the US. This is particularly true for contract workers. 

As a Canadian citizen working in the United States for a US employer, knowing how to navigate two different legal systems can be confusing. To help make sense of it all, here are some of the things you should know when looking for opportunities to work in the US.

Non-Compete Agreements

There are some fairly significant differences between the US and Canada when it comes to labour laws, and in particular, non-compete agreements. While non-compete agreements exist in Canada, and Canadian employers do have the right to ask you to sign one, they have nowhere near the influence that they do in the US.

In Canada, while you may be asked to sign a non-compete agreement, they are rarely enforced, as the Canadian government has deemed them in violation of workers’ rights. This is not the case in the US, where non-compete agreements are enforceable and incredibly common. If you are a Canadian contracting for a US company and are asked to sign a non-compete agreement, it is important that you understand the implications of the agreement.

If you choose to enter into a non-compete agreement, among other things, you are barred from discussing trade secrets and are not allowed to find employment (within the US) in a similar field for the period of time designated in your contract. Failure to comply with this agreement can result in legal action. 

Misclassification

If you are going to work in the US, you must be properly classified and properly compensated by your US employer. Many employers deliberately misclassify their employees as contract workers, even though they are working the same hours and working under the same conditions as a full employee.

This benefits the employer because, as a contract worker, they are not obliged to provide you with any of the benefits that they would be legally required to extend to a regular employee, like paid holidays. If you are an independent contractor, you have certain rights that you should be allowed to exercise, including the ability to set your own hours or to subcontract your work out to others.

Employers who have taken you on to complete the job of a regular employee, but have classified you as an independent contract worker, are in serious violation of Canadian labour laws which are enforceable through the Canada Revenue Agency (CRA). If you have been misclassified, you are not being properly compensated, and are not receiving the full roster of benefits that you are entitled to.

Having the Right Paperwork

The USMCA agreement between the US, Canada, and Mexico replaced the NAFTA agreement in mid-2020. Among several other benefits, it means that Canadians who have obtained a contract or position in a qualifying profession can work in the US under a TN NAFTA non-immigrant status. If someone qualifies for TN NAFTA non-immigrant status, they do not have to apply for a TN visa at a US consulate, instead providing required documentation at certain CBP-designated US ports of entry. It is, however, recommended that the visa be obtained prior to arriving at the border to ensure no complications arise.   

TN non-immigrants are allowed to stay in the US for a period of up to three years, at which point they would need to request an extension from their employer or return to Canada to begin the process again. It is important to note, however, that if you are doing contract work in the US under the TN category, you are considered a Canadian citizen living temporarily outside of Canada, and are required to continue to pay both provincial and federal taxes.

For those who do not qualify for a TN visa, there is the H-1B visa for Canadian citizens with job offers or contracts in the United States. As with the TN visa, there are minimum requirements to qualify for an H-1B visa. Those with this visa can stay in the US for a period up to three years which may be extended but cannot surpass six years. 

Payroll Taxes and Exemptions

Canadian contractors employed by US companies are still required to report all income to the Canada Revenue Agency (CRA). Foreign income taxes will need to be included on line 10400 of your T1. The complexity of the payroll tax situation, however, will depend on how the contractor is classified. For full-time employees, US companies will automatically withhold payroll taxes at a tax rate of 30%. Thanks to the United States-Canada Income Tax Convention, Canadian contractors will have the ability to claim exemption from that withholding through the W-8BEN form. 

Canadian citizens should exercise caution, though. There are situations in which they may be considered a non-resident in terms of income tax. If they have lived outside of Canada for the entire tax year or stayed in Canada for less than 183 days during the tax year, they are not considered to have strong enough residential ties. 

In the United States, independent contractors are responsible for their own payroll taxes. This does simplify things for the Canadian contractor, but they will be solely responsible for tracking their income and reporting it to the CRA when they file their T1.

Health Benefits

Independent contractors are responsible for more than simply their payroll taxes in the United States. US companies are not obligated to offer employee benefits to contractors in the way they are their full-time counterparts—regardless of the length of the contract. If the Canadian contractor is classified as an independent contractor with the organization they are employed with, they will need to provide their own health benefits. 

For Canadian citizens, travel insurance can be purchased and used to cover any medical expenses while working across the border.

COVID Considerations

Although Canada and the US have relaxed the strict regulations on cross-border travel and work, the implications of COVID-19 will likely influence the considerations when working abroad for some time to come. Depending on how and when you hope to begin working in the US and your field of work, providing proof that you are fully vaccinated may be required. As of April 2022, those entering the US through a land port must verbally attest to vaccination status and potentially show proof of vaccination. 

You will also need to consider the requirements to reenter Canada once your contract is complete—or for any visits home during the contract. Anyone entering Canada, even Canadian citizens must use ArriveCAN prior to their arrival at the border via a land port or the boarding of their flight. Proof of vaccination is required. 

Although the pandemic has made working in the US as a Canadian more challenging than ever, it has also resulted in an explosion of remote work opportunities. Canadian contractors can work for American companies while remaining at home. 

Working from Canada requires some extra considerations from employers, however. They now must ensure that contractors working in Canada are paid legally and properly under Canadian tax and employment law. The easiest way to do this is to engage an employer of record (EOR) for payroll and compliance in Canada. This option is ideal for contractors looking to balance the current challenges of international work with the opportunities that come with working for a US company.