1. Tax Compliance

THE RISK:

Every country has its own set of labour and employment laws. Here’s where it gets tricky: if your firm is paying a contractor directly, you’ll have to navigate reporting and withholding requirements in both home and host countries. If a candidate works even a single day in or from another country, it could create a major tax headache for both of you. Plus, your incorporated status in Canada might not allow you to remit the appropriate taxes in another jurisdiction.

Key considerations include:

• Classification: Classification varies between jurisdictions and depends on the nature of the job, rather than the employment contract. Misclassification occurs when employees are incorrectly categorized as Independent Contractors, whether that’s due to confusion, negligence, or even intentional tax avoidance. This can result in disputes over benefits, overtime pay, and employment rights, as well as legal claims, and damages. Additionally, both you and the candidate could be liable for paying back taxes and penalties.
• Permanent Establishment: A permanent establishment refers to a fixed place of business in another country. Exceeding certain thresholds in another jurisdiction, such as establishing a physical office or conducting regular business activities, can lead to a taxable presence and heightened reporting obligations for your firm.
• Tax Residency: Cross-border arrangements may trigger double taxation for the candidate, where the same income is taxed in both home and host countries. There may be an additional tax burden if the worker receives additional allowances or employer-provided benefits as part of their contract, like housing or office expenses. Tax treaties can help mitigate this risk, with provisions to eliminate double taxation, provide credit relief, or exempt specific types of income.
• Mismanagement: Failing to meet tax laws or provide accurate filings can lead to legal disputes, investigations, and fines from regulators. Directors, Officers, and other business leaders may be held personally liable for negligence or mismanagement, citing breach of fiduciary duty or harm to the company’s financial standing.

To learn more, click here.

THE SOLUTION:

Navigating tax laws can be complex, especially if you employ staff from multiple locations. Plus, most countries have both federal and regional components that aren’t always easy to understand without the help of an expert.

To ensure compliance with local regulations, all Staffing Firms should thoroughly research and work to understand the legal and tax requirements where contractors operate. Be sure to consult with professionals that specialize in international employment to optimize your employment agreements and tax arrangements. Depending on your hiring needs, you might even need to retain in-house counsel. An expert can help you:

• Properly remit and report all taxes when setting up payroll;
• Determine the correct classification for cross-border employees;
• Develop separate strategies to address employees who travel outside their home country and those who work remotely from a foreign location;
• Tailor protocols to address unique challenges in different jurisdictions, including federal and regional taxes, pension plans, and more;
• Establish clear contractual agreements that outline the rights, responsibilities, and legal obligations of all parties;
• Periodically review and update agreements as laws in home and host countries evolve;
• Make sure your payroll and accounting software adheres to requirements in all home and host countries.

Lastly, consider Directors & Officers Insurance to protect your senior leadership team. It’ll protect all past, present, and future business leaders if they’re sued for any actual or alleged wrongful acts in managing a company.

RELATED: 3 Management Risks Faced By Staffing Firms

2. Umbrella Companies

THE RISK:

When hiring internationally, it’s crucial to be aware of employment standards to avoid unintended violations of workers’ rights; working with umbrella companies can mitigate this risk. As an intermediary between your firm and Independent Contractors, umbrella companies take care of essential administrative tasks, like payroll, taxes, and employment contracts. Partnering with an umbrella company in a foreign location can provide valuable insights into local requirements, payroll obligations, Workers’ Compensation rules, and more. They’ll also help you classify workers, handle statutory deductions, and remit taxes in a timely manner. This way, you can confidently focus on your core business operations while maintaining full compliance with applicable laws.

However, there are some risks to consider. First and foremost, umbrella companies have to meet your local regulations the same way you meet theirs. Then, you’re got to find the right partner; working with an unreliable or unethical umbrella company can damage your firm’s image and client relationships through incorrect payments, non-compliance, or poor contractor management. Currency fluctuations, exchange rates, and delayed payments can lead to financial losses and disruptions in cash flow. Finally, your agreement may also come with extra administrative costs, necessitating a rate mark-up.

THE SOLUTION:

To guarantee a successful partnership, be sure to review a prospective umbrella company’s:

• Background: Evaluate their certifications, licences, compliance track record, and financial stability. Make sure that they operate in accordance with laws and regulations in home and host countries, including tax, labour, and workplace safety.
• Reputation: Look for testimonials, reviews, and client feedback to gauge their level of professionalism, responsiveness, and overall service quality.
• Operational Capabilities: Are they able to accommodate your firm’s unique needs? Can they handle varying contract lengths, manage different client relationships, and adapt to changing business demands?
• Contracts: Read through the contractual agreements between your Staffing Firm, the umbrella company, and the Independent Contractors to understand the terms and conditions, including service fees, termination clauses, and liability provisions.

Due diligence is crucial to ensure that the umbrella company follows legal and ethical practices, protects the interests of the contractor, and minimizes liability for all parties involved. To learn more, click here.

3. Work Permits

THE RISK:

Before placing a contractor, Staffing Firms must ensure they have the appropriate permits, visas, or authorizations to legally work for a Canadian company. However, navigating the world of work permits has its own set of challenges, including:

• Type of Work Permit: There are many different options for Canadian work permits, each with its own set of qualifications, like an educational or familial connection to Canada, a job offer from a Canadian employer. In many instances, employers must provide a Labour Market Impact Assessment (LMIA). For remote jobs where the candidate does not need to physically travel to Canada and can perform their work from outside the country, a work permit may not even be necessary.
• Conditions: Work permits and visas come with specific limitations and a validity period based on the type of permit the contractor qualifies for. Staffing Firms must be aware of these restrictions and make sure that permits remain valid throughout the duration of the assignment.
• Non-Compliance: Hiring candidates without the correct permit or overstaying the permit duration can have serious consequences. Contractors themselves may face deportation, travel and entry bans, and legal penalties. For Staffing Firms, that includes fines, reputational damage, and even challenges in obtaining work permits for future foreign workers. Immigration authorities may closely examine the agency’s compliance history, limiting their access to global talent and impacting their competitiveness in the market. Additionally, permit denials or cancellations could disrupt project timelines, hinder your ability to meet client demands, and cost you business opportunities.

THE SOLUTION:

To mitigate these risks:

• Carefully assess contractor eligibility to maintain the appropriate legal employment status. Conduct routine audits to double check.
• Confirm that the candidate has obtained the necessary work permits and/or travel visa depending on the length of time they will be working in Canada.
  Consult with an immigration lawyer or the relevant authorities to determine the specific requirements based on the individual’s circumstances and the nature of the work being performed.
• Stay updated on relevant immigration policies, which may include amendments to permit qualifications, visa application processes, or eligibility criteria.
• Maintain accurate records of work permits, visas, and other relevant documentation for each contractor.
• Create strong administrative processes to ensure you’re on top of critical dates, timelines, and reporting requirements.

To learn more, click here.

RELATED: Employment Practices Liability Insurance: What is it, What’s Covered, and What’s Not?

4. Insurance Coverage

THE RISK:

Don’t forget about the insurance factor; tapping into the global talent pool can have implications for your coverage that leave both you and your candidate unprotected. Consider:

• International Coverage: Your existing insurance policies may not adequately protect against the exposures associated with employing Independent Contractors from abroad. You might also need to obtain additional insurance or endorsements to cover the specific cross-border activities and issues, like General Liability, Workers’ Compensation, and Property Insurance.
• Workers’ Compensation Insurance: In Canada, Workers’ Compensation is mandatory for most employees. However, the coverage requirements for Independent Contractors can vary and may not extend to cover a foreign worker on a short-term assignment.
• Foreign Workers Surety Bonding: Some provinces, like British Columbia and Saskatchewan, have a provincial requirement for any companies, including Staffing Firms, that are engaging with foreign workers, to maintain a Foreign Workers Surety Bond, usually with a minimum limit of $20,000 or $25,000.

THE SOLUTION:

• Be mindful of your coverage territory. Check if your firm’s policy provides worldwide coverage (i.e. if the policy will defend you in the foreign jurisdiction where a legal action is brought against you). Make sure it extends to contractor or foreign worker-related activities.
• Verify that contractors have their own insurance coverage to protect their professional services, especially if travelling abroad. Review their certificates of insurance and confirm that it meets the necessary requirements.
• Similarly, ensure that any umbrella companies you partner with have adequate coverage for the purposes of your agreement.
• Be aware of what each province requires of you to engage with foreign workers.
• A contractors’ insurance coverage is typically issued by an insurance company in their home country. Both you and your client should take into account any applicable exchange rates when converting the limits of liability. For example, if your client’s contract requires a foreign worker to maintain Professional Liability Insurance with a limit of $2 million CAD, make sure that the coverage meets or exceeds this amount in the contractor’s local currency. Additionally, confirm that the contractor’s insurance will respond to a claim or legal action brought against them in Canada.
• If the candidate is travelling to North America to participate in the project, your firm and your client should:
  • Ensure they have the appropriate Travel, Health, and Disability Insurance in the event of an unexpected illness, injury, or death on assignment.
  • Ensure they have safe accommodations during their stay.
  • Determine employment status to ensure they are appropriately covered under Workers’ Compensation.
  • Establish clear contractual agreements to allocate liability for workers actions on assignment to clients, considering the limited oversight when they’re abroad.

Need guidance?

When it comes to cross-border recruitment, there are just as many risks as there are rewards. And if you don’t stick to the rules, you could do some serious damage to your reputation, impacting your ability to hire future candidates or foster trust with clients.

That’s why it’s critical to work with a risk advisor that specializes in the Staffing & Recruitment industry. With over 40 years of experience and over a decade of serving Staffing Firms, PROLINK understands the unique threats you face like no one else. We can share what steps others in your industry are taking and help you chart the road to organizational resilience. Our dedicated will help you:

• Navigate industry trends and identify exposures based on your needs and business operations;
• Adopt a proactive approach to risk management to control your costs long-term;
• Conduct a full analysis of your existing insurance policies to detect any coverage gaps; and
• Secure a specialized solution that aligns with your strategic objectives.

To learn more about your exposures—and how you can protect yourself—connect with PROLINK today!