Canadian business expansion to the U.S. and Buffalo Niagara typically includes hiring a U.S.-based employee. Perhaps this will be an operations person, charged with getting the U.S. site going, or perhaps it will be a sales employee tasked with growing the U.S. customer base. Either way, consider these items before you find your perfect candidate. Don’t lose your top choice U.S.-based employee because of a delay in the logistics of becoming a U.S. employer!
- Get an EIN. You won’t get very far without a Federal Employer Identification Number (an “EIN” or “FEIN”). This is a nine-digit number that the Internal Revenue Service (the “IRS”) assigns to sole proprietors, corporations, partnerships, estates, trusts, and other entities for tax filing and reporting purposes. An EIN is for use only in connection with a taxpayer's business activities. Application for an EIN can be done through the IRS website at https://sa.www4.irs.gov/modiein/individual/index.jsp.
- Engage a payroll provider. Processing payroll for your U.S.-based employee can be complicated; most U.S. companies do not do it themselves. A competent payroll company can make sure the correct taxes and withholdings are remitted to the appropriate federal, state and local authorities at the correct rates. They may also help you register with the various state agencies as required.
- Get Workers’ Compensation insurance. Most states, including New York, require employers with one or more employees to obtain workers’ compensation insurance, which provides no-fault coverage for work-related injuries and illnesses. It provides employees with partial income replacement and medical benefits for qualifying injuries and illnesses, as well as protection for employers from employee lawsuits resulting from workplace injuries.
- Understand wage rules for your U.S.-based employee. Wage payment rules, including minimum wage, overtime, and pay frequency, vary by state and sometimes local area. Make sure your pay practices align with applicable requirements. For example, minimum wage differs throughout New York State, and manual laborers must be paid weekly.
- Decide about benefits. For your first U.S.-based employee hires, you are not required to provide employer-sponsored health insurance, a retirement savings plan, or other benefits that large employers typically offer, but your candidate might expect it. Your options here will depend on your growth plans and budget, so do some research before you put together an offer or recruit a candidate. Note that New York State now requires employers with 10 or more employees who have been in business for at least 2 years to set up a payroll deposit retirement savings arrangement, and automatically enroll each employee who does not opt out of the program.
- Prepare an Offer Letter. You don’t need a complicated contract, but be ready to put down in writing the basic terms and conditions of the employment you are offering your U.S.-based employee. The “at-will” employment context, the default in New York State and most other states, is quite different than the minimum labor standards applicable in most other countries, so don’t just use your usual Canadian or European templates.
- Register with the state. Most states require new businesses and employers to be registered with the unemployment insurance division or other agencies like the tax department. These registrations can be done online, but don’t forget to do them.
- Obtain required employee notices. Most states, including New York, require employers to provide employees with notice regarding certain rights and policies. Examples include paid sick leave, non-discrimination, and anti-harassment. Required posters can be downloaded for free from state and federal websites. New York State also requires employers to provide all new hires with specific information about the employing entity, the employee’s wage and payday (the “Wage Theft Prevention Act” forms). There can be monetary penalties for failure to provide required notices.
- Think twice about using the independent contractor status for your U.S.-based employee. An independent contractor is not an employee. Calling a worker an independent contractor does not make it so. While there is no single test used to conclusively define an employer-employee relationship, many factors are reviewed to determine the degree of supervision, direction and control exercised over the services. Generally, to be an independent contractor, the worker must be free from the direction and control of the hiring entity. There can be steep consequences – including civil and criminal penalties – and administrative difficulty resulting from misclassifying a worker as an independent contractor rather than an employee.
The foregoing article does not constitute legal advice. For more information on this topic, please contact Lura Becthel, Partner at Hodgson Russ LLP. at email@example.com.