Tapping into new markets allows companies to efficiently scale operations, increase revenue, and hire top talent from around the world, which can bring unique and innovative perspectives to an organization’s workforce.
Hiring globally can also yield significant productivity gains, and with the increasing presence of technology in the workforce, companies can now effectively communicate and collaborate with teams across borders and time zones.
Expanding into Canada is an excellent option for growing companies that want to access new markets. Currently, Canada boasts the world’s 10th-largest economy in terms of GDP, providing companies with a large and stable economy that offers ample growth opportunities. The country is also home to a well-educated workforce, business-friendly regulations, and proximity to other major markets, such as the United States.
But, what is right for your business when considering EOR vs. Entity Setup in Canada?
Organizations will need to decide on the right strategy for hiring individuals, as different methods carry different risks and benefits. This is where Employer of Record (EOR) platforms come into play. An EOR acts as the legal employer for new global hires and handles the administrative tasks on behalf of the company, allowing increased agility, flexibility, and speed when entering the market. However, there are drawbacks for companies that hire through an EOR, such as reduced control over certain practices.
Alternatively, companies can choose to set up a local entity in Canada. These companies are the full legal employer for each employee and carry all the associated risks and obligations, but maintain greater control over the company’s hiring, training, and onboarding processes.
This guide will define a Canada Employer of Record, a legal entity, and explore the pros and cons of each option to help you successfully navigate the intricacies of hiring top talent in Canada.
An Employer of Record is a third-party entity that serves as the legal employer of workers on behalf of another company. An EOR will take on liability for most employment-related tasks, which can include various legal obligations.
Common services that an EOR provides include:
When companies hire Canadian employees through an EOR, the organization outsources tedious and complicated HR-related tasks to trusted professionals, allowing companies to focus more on developing effective growth strategies.
Ultimately, partnering with an Employer of Record, like Borderless AI in Canada, can streamline the hiring process, while also reducing companies' legal and financial risks.
Hiring employees through an EOR platform can provide growing companies with several advantages. Partnering with an Employer of Record with a legal entity in Canada also grants companies greater agility.
For example, companies that leverage a quality EOR platform can quickly hire employees in different jurisdictions without being responsible for navigating administrative hurdles such as registering a business, administering benefits, and obtaining relevant documentation from local tax authorities.
In addition to connecting companies with top talent and providing an efficient way to build a qualified team, Employer of Record platforms allow companies to increase flexibility, reduce overhead costs, and remain compliant with ever-changing employment rules and regulations.
Utilizing EOR services provides companies with greater flexibility when building a global presence. This allows companies across industries to test new markets without the legal and financial risks associated with registering a local entity in Canada.
An EOR also gives companies a way to quickly hire new workers, providing a way to effectively scale operations without being liable for any employment-related issues that may arise.
This means international companies seeking top Canadian talent can begin to hire almost immediately without worrying about documentation or other legal requirements. Ultimately, this can afford companies a competitive edge when recruiting workers in Canada.
An Employer of Record will take on all administrative HR-related duties and costs associated with hiring an employee in Canada, meaning growing companies will not need to allocate resources to an in-house HR team. This can yield significant cost savings for organizations and provide a cost-effective way to hire and onboard top talent.
Partnering with an Employer of Record eliminates the financial obligations required to register a Canadian business. For example, the cost to incorporate a business can be as high as $300, while the average cost to hire in Canada can be up to 1.4 times higher than the employee’s base salary.
Another major benefit the companies receive when partnering with an EOR is guaranteed compliance throughout the hiring process.
Employer of Record platforms offer expertise regarding all relevant local labor laws in Canada and will ensure that all the rules and regulations are met at each stage, while also helping you navigate complicated payroll and tax laws.
This allows companies to hire top talent without worrying about the intricacies of changing legislation, meaning business leaders can spend more time and energy on managing their teams and facilitating a positive workplace culture.
Your EOR takes full legal liability for all the risks associated with hiring an employee in Canada, which eliminates the risk of noncompliance for organizations. Noncompliance penalties can have severe legal and financial implications on a growing business and can include fines, back pay for any benefits owed, reputational damage, and even criminal charges in severe cases.
An Employer of Record will ensure that all local statutory benefits are provided and that all legal and tax requirements are met. By engaging an EOR, and having your global talent classified as employees, companies can effectively mitigate the risk of worker misclassification.
Leveraging EOR services provides companies with an efficient way to conduct business, access new markets, and tap into global talent pools while remaining compliant with local labor laws.
However, companies should also understand some of the challenges associated with utilizing an EOR instead of traditional hiring methods. This can help growing companies make the right decision based on the business’s unique needs and circumstances.
While companies can save time by outsourcing important HR functions and still retain control over day-to-day operations, the organization also may have less control over certain administrative processes. For example, the company’s leadership team may feel it has less influence over hiring, onboarding, and training practices.
Companies that do not want to hire through an Employer of Record have other ways to legally hire Canadian employees. Going through the process for entity setup is a common way that businesses can effectively set up shop and build a presence within the country, and it offers several advantages and disadvantages compared to other methods of hiring.
A company can choose to set up its own legal entity in Canada. A legal entity refers to a business or group of individuals that carries legal rights, responsibilities, and obligations as set by local and federal laws.
In this case, the organization can own property, sign or enforce contracts, and either sue or be sued if an offense occurs. In contrast to sole proprietorships, legal entities are considered separate from the company’s owners or operators in terms of legal and financial liability.
Companies that choose to set up a local entity in Canada instead of hiring through an EOR have certain obligations that must be met. The company is responsible for all employment-related tasks, including processing payroll, remitting income tax, and acquiring documentation.
While an EOR takes full legal responsibility for partnering companies, organizations with a legal entity assume full liability for noncompliance with relevant employment policies.
Generally speaking, companies registering a business in Canada can choose different business structures depending on the organization’s goals:
Understanding the main differences between setting up a legal entity in Canada and hiring through an EOR can help you make the right decision for your business. Making informed decisions can help you make the right choices when planning your workforce in Canada and achieving sustained organizational success.
Some of the main differences include:
While utilizing an EOR platform can provide businesses with several advantages, other companies may find registering a business entity with Canadian authorities to be a better choice for achieving the organization’s long-term needs.
Companies that opt to set up a local entity in Canada can benefit from having greater control over organizational processes and practices. Leaders will have autonomy over how to run every aspect of the business, which includes hiring standards, training programs, and the onboarding procedure.
Business leaders also maintain greater control over managing employees and communicating with team members. This also allows companies to implement and promote various aspects of the company’s culture, values, or long-term strategy into the organization’s day-to-day workflow.
Some industries may also require a local entity to receive certain licenses or documentation, such as finance, insurance, and more.
Companies that want to rapidly enter or test new markets can find it beneficial to partner with an EOR. However, organizations that want to build a long-term presence in the Canadian market may find it more advantageous to register a business in the country.
While the initial cost to set up a business can be relatively high, businesses will not need to pay service fees or other financial obligations to a third-party organization. Organizations will also have greater freedom when offering benefits or supplemental benefits.
Setting up a local entity can also help individuals minimize financial risk because corporations function as separate legal entities from the business’s owners or management team.
Setting up a local entity in Canada can also provide businesses with the opportunity to access tax benefits, grants, or operational subsidies.
For example, Canadian companies can receive incentives for research and development, sustainable environmental practices, and more, along with access to local resources.
This can ultimately reduce a company’s tax burden, as the company is only required to file taxes on revenue generated in that jurisdiction.
Registered companies are free to carry out operational objectives without worrying about unforeseen taxation liabilities, such as paying taxes in two jurisdictions or the risk of permanent establishment.
Permanent establishment refers to when a company has a fixed place of business in Canada, which can trigger additional taxation requirements.
Setting up a local entity can provide companies the opportunity to build a permanent and visible presence in the Canadian market while maintaining full operational control over the business.
However, there are drawbacks to setting up a local entity that companies should consider before beginning the expansion process.
One of the most significant drawbacks of setting up a local entity in Canada is that it reduces how quickly companies can enter new markets. In this case, businesses cannot begin hiring almost immediately and must wait for all relevant documentation or information to be processed by the Canadian government. This can be a relatively lengthy process, meaning companies will need to wait before businesses can begin hiring, training, and carrying out operational objectives.
This is also the case for companies with a local entity that want to exit the Canadian market. Legally closing the business requires another process, along with potentially lengthy wait times.
Companies that want to establish a physical presence in the Canadian market can benefit by going through the entity setup process, but this can also be a significantly resource-intensive process in the short term. Ultimately, this could make hiring through an Employer of Record a more attractive option for companies that don’t have the financial resources to cover the necessary expenses.
Hiring globally can allow your company to access a wider pool of talent with unique skills and perspectives. However, on average it takes around $15,000 and $20,000 USD to fully register a local entity in a foreign country depending on the jurisdiction. This doesn’t even include hidden financial obligations such as legal fees, renting workspaces or purchasing equipment, ongoing administrative costs, and more.
Another significant drawback companies that choose to register a local entity can experience is the increased legal and financial risk when carrying out business operations. Without the help of experts in local labor law compliance, the company is solely responsible for ensuring that all rules and regulations are met, including payroll laws, tax requirements, and more. This can be particularly challenging for international organizations that may not have in-depth knowledge about Canadian tax, payroll, and employment legislation.
This also means it is the organization’s job to stay up to date with changing tax and employment regulations to successfully plan for the future and avoid financial damages. The business is also responsible for carrying out HR-related tasks, such as keeping records and handling termination procedures, which can also increase a company’s risk of noncompliance. For example, Canada does not recognize at-will employment, meaning companies require a valid reason to dismiss an employee and must follow certain protocols.
Borderless AI is an Employer of Record platform that can simplify the hiring process and streamline managing your global staff. We offer a comprehensive range of services, including accurate payroll processing for employees around the world, swift onboarding for new hires, calculating accurate taxes per Canadian regulations, and guaranteed compliance at all stages of the hiring process.
Borderless AI also drafts employment contracts and statements of work, allowing you to focus on finding the right people for the right positions.
Borderless AI will take full legal responsibility for all aspects of hiring Canadian employees, providing a seamless way to add top talent when growing in new markets.
Utilizing cutting-edge technology, Borderless AI also leverages the power of generative AI to automate and speed up the process of onboarding, managing, and paying international team members.
Alberni is your AI solution for global HR. In seconds, Alberni can answer questions about global labor laws and compliance and questions regarding the hiring costs for employees in over 170 countries, or generate compliant employment agreements for new hires and mitigate risks in new or existing employment contracts.
Borderless AI redefines global HR with no upfront costs, an unrivaled customer experience, and the first-ever AI agent for global HR. With Borderless AI, businesses can compliantly hire and manage talent worldwide without establishing a foreign entity.
Contact us today to see how we can help you compliantly navigate the complexities of hiring top Canadian talent.
Borderless does not provide legal services or legal advice to customers, contractors, employees, partners, or the general public. We are not lawyers or paralegals. Please read our full disclaimer here.