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Independent contractor vs PEO?

Hello,
I have a question regarding being an independent contractor for a US company working remotely from canada vs being employed by a Professional Employment Orgranization(PEO) that has a partnership with the US company. I am getting an offer with a US based startup and they are ok with either route as even they’re exploring options at the moment. Does anyone work remotely for US company? If so how do you get paid/handle taxes and what has your experience been?

I am on a PR and I just want to be cautious about tax/compliance stuff because I don’t want to run into issues in the future when I renew my PR.

PEO tends to be very expensive for the US employer if it is for one employee in a country.

Ask your employer to evaluate a few PEOs and see if they can get a few affordable options.

Ideal is to open a corporation and work as a contractor. It has a lot of tax benefits (but also challenges in terms of salary history for loans etc)

I’m doing it through my own corporation with a US client. It’s been working great. Find a good CPA who can explain different options and you can go for the one that works best for you. Fee free to DM if you have any specific questions.

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@kaykay I work for a US employer and they don’t have an office in Canada. My payroll and benefits are managed by a PEO here in Toronto. Your PEO will be your employer and you will pay taxes like you’re working for a Canadian employer.

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Do we have to pay PEO a certain % of the amount every month since they are going to handle payroll and all that Jazz?

Usually the employer/client pays the PEO.

PEOs tend to have costs that are often not ideal for a one off hire in a country. If the company hires a few people in the same country then PEO costs make more sense.

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Thank you. So for one employee, I think starting an incorporation is a viable option right? So, the US employer can pay the incorporation and the Canadian employee is required to pay taxes in Canada only (but not the US).

I think it’s more like, if the US company is looking to maintain a employer-employee relationship, then they’ll want to hire you through a PEO.

If they want to have less hassles / costs in hiring, not really intent of having you as an employee, they’d do so by paying you directly (you’ll not get to reduce your tax liability) or through your corporation (better liability protection and can reduce your tax burden etc).

Hey @ntn
I need your help in understanding working as a contractor. I have heard that if your corporation’s only client is one US company, and you are working full time, it will be considered an employer-employee position and they might get fined.
Do you work with multiple clients through your corporation? How to prove that you have multiple clients when you are working with only one? Would Uber delivery/ Extra jobs like that be considered as multiple sources?

Hi All,

Here is an article online that can be helpful in clarifying certain differences. Sole Proprietors vs. Agency Employees (Working Through a PEO Agency)

I am in the same situation and moving to Canada on Aug 2020.

@ntn Thanks for advising on this topic, very helpful to folks like me. I got couple of questions on this

  • I am the only employee who will be working from Canada so I am not sure how feasible it is for my employer to go with PEO route so exploring Independent contractor option
  • Can I set up my own Incorporation before activating my PR from USA? If not how log do I have to wait till this process to start if I want to work as soon as I can from Canada?
  • If you know someone, Could you suggest a good CPA for this process? I would like to get in touch with them and start the process as soon as I can
    Thank you

it will be considered an employer-employee position and they might get fined.

I’m not sure who is going to be deciding this. At least from the US perspective, IIRC, there are quite a few other things that’ll be taken into account like:

  • employer provides equipment (laptop and other stuff required for work)
  • getting paid holidays
  • tax withholding

And my understanding is that such classification may be considered when working as a direct contractor, and not when working through your own corp. (I may be wrong on this. Glad to be corrected)

I did have more than one clients, on and off. And even with one client, I had a few long breaks, all unpaid.

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I am the only employee who will be working from Canada so I am not sure how feasible it is for my employer to go with PEO route so exploring Independent contractor option

IC or corp are two options you have, so ideal would be to explore this with an accountant.

Can I set up my own Incorporation before activating my PR from USA? If not how log do I have to wait till this process to start if I want to work as soon as I can from Canada?

AFAIK, I don’t think this is possible. To incorporate, you’ll need your SIN and an address.

If you know someone, Could you suggest a good CPA for this process? I would like to get in touch with them and start the process as soon as I can

Sure, I’ll check with my CPA and DM you the info.

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@ntn Thanks for the advise. Appreciate your time on this

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Hi @ntn Good afternoon. Our family moved to Toronto as planned on Sep 1st. Everything went good as expected.
My vendor with whom I working in USA has a Toronto office so they said they can re-hire me in Canada which eliminates the possibility of going with PEO.

Now do I have to have an Incorporation to work with them OR
Can I work as an Independent contractor (W2 in USA or T4 in Canada) with them directly. Due to this COVID situation I could not apply for SIN number yet and waiting for 14 days(Quarantine) to do that.

Thanks,

Welcome to Canada :slight_smile:

I think this means once you get your SIN, you’ll be hire as a full time employee in Canada with benefits offered by your vendor’s Toronto office. Right? If so, you wont need to have a corp or work as an Independent contractor. Unless your vendor is giving you that option to work as a contractor instead of working as an employee.

Thank you @ntn
its a bit of grey area for me due to this re hiring process in Canada will not start until I get the SIN number and BG process done as they explained. Either Full time to vendor(Independent Contractor) OR they might come back and say we don’t hire Independent contractors directly, instead they can do Corp-Corp just like US since FTE involves other benefits that they need to provide.
For C2C do I need to open up an Incorporation? and does that require SIN number?