As Canadian enterprises set their sights on the vast expanse of the US market, a realm brimming with possibilities awaits. The possibility of increased revenue, brand recognition, and access to a diverse customer base propels these ambitions.

Yet, this journey unfolds against intricate legal landscapes, varied regulatory frameworks, and distinct business cultures that demand careful navigation. Canadian HR, payroll, and accounting professionals play a pivotal role in ensuring compliance, fostering seamless transitions, and maximizing the potential of the US market. Explore 7 critical elements for a US expansion!

1. Understand Legal and Regulatory Differences

Expanding to the US means entering a new legal landscape. Canadian companies must grasp critical differences in employment laws, taxation, and business regulations between the two countries. According to HR Law Canada, these are the most significant differences:

  • At-will employment

  • Severance pay

  • Minimum wage

  • Vacation time

  • Family and medical leave

  • Overtime pay

  • Human rights protections

  • Unionization

  • Non-compete agreements

  • Termination notice

“While this list is not exhaustive, it highlights some key differences between employment law in Canada and the United States. Employers who operate in both countries should be aware of these differences and seek legal advice when necessary to ensure compliance with the applicable laws,” claims HR Law Canada. Learn more about each of them here.

2. Employment Contracts and Compliance

Crafting compliant employment contracts is vital. For example, the at-will employment doctrine prevails in the US, allowing employers to terminate contracts without cause. This is why it's crucial to align employment agreements with the specific state laws where the business operates or will expand.

“At-will employment is a term used in the United States to describe the employment relationship between an employer and an employee, where either party can terminate the employment at any time, with or without cause, and with or without notice,” according to The Society for Human Resource Management (SHRM).

“This means that an employer can fire an employee for any reason or no reason at all, as long as it is not for an illegal reason, such as discrimination. Similarly, an employee can quit their job at any time without providing a reason or notice,” SHRM emphasizes.

3. Benefits and Compensation

The US benefits landscape differs significantly from Canada. Comprehensive health insurance, retirement plans, and other benefits are crucial in attracting and retaining talent. HR and payroll professionals should research industry benchmarks and analyze offerings to ensure competitive compensation and benefits packages.

“When looking at base pay changes from October 2022 to March 2023, the national average base pay increase was only 3.4%, while the median was at 2.8%,” found a recent survey by Mercer. Taking these factors into account will be crucial for a successful expansion plan.

4. Tax Implications and Payroll Management

Understanding US tax codes and payroll regulations is essential. Canada-US Tax Treaty provisions can impact tax withholding for cross-border employees. The American Payroll Association (APA) provides resources to navigate these complexities.

It’s also important that payroll systems are adapted to accommodate new tax rates and reporting requirements.

“Foreign companies can operate in the US either as a branch or subsidiary. Operating a branch office would subject the foreign parent company to US taxation on its entire corporate income and be a more visible target for lawsuits and claims in the US,” according to HSBC’s International Business Guide.

“Being a subsidiary, meanwhile, allows the foreign company to operate as a separate entity in the country – paying US federal and state income taxes on the subsidiary’s taxable income. Most subsidiaries are formed as limited liability companies or corporations, although setting up can be time-consuming and expensive,” continues HSBC’s guide.

For a more in-depth look, consult PwC’s 2023 US Tax Policy Outlook.

5. Compliance with Employee Leave and Benefits Laws

“Statutory benefits are full-time employee benefits required by law. Employee benefits fall into two categories: those required by law (statutory benefits) and those an employer voluntarily offers,” explains HCM expert company Paychex.

Federal statutory legal employee benefits for employers include:

6. Data Privacy and Cybersecurity

Transferring employee and customer data across borders requires compliance with data protection laws. For example, the California Consumer Privacy Act (CCPA) gives consumers more control over the personal information businesses collect about them. This is why examining the state’s regulations where the company will expand is crucial.

The International Association of Privacy Professionals (IAPP) is also a reliable resource for staying updated on data privacy regulations.

7. Liaise with Professionals and Consultants

Any time a company is expanding to a new market, it is wise to collaborate with local legal experts, tax consultants, and HR professionals, in this case, well-versed in US regulations. This collaborative approach ensures a comprehensive understanding of the legal and financial intricacies involved in the expansion.

In addition, the ‘Big Four Companies’ also offer free tax and law guides, such as EY’s Tax and Law guides.

To conclude, because regulations change state by state, it is crucial to carefully study local laws as the expansion process can vary considerably.

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