A money service business (MSB) in Canada must consider various hiring needs after MSB registration. You may want to hire talent outside of the nation for specialized expertise, or choose a local independent contractor instead.
Canadian MSBs must navigate different tax and legal considerations when hiring foreign employees. You will also have to ensure you meet compliance standards set by FINTRAC, the Canada Revenue Agency (CRA), and more.
If you’re having a hard time deciding between contractor vs employee, look no further. We’re here to help you. The following blog considers different aspects of hiring independent contractors in Canada vs foreign employees.
What Is An Independent Contractor In Ontario?
According to the Canada Revenue Agency, an independent contractor is a self-employed individual. They can offer their services to various MSBs simultaneously because they work independently.
An independent contractor in Canada can be a:
- Freelancer
- Consultant
- Gig Worker
- Project-based contractor
Canadian MSBs prefer to hire independent contractors over foreign employees because of less legal risk and greater flexibility.
What Is A Foreign Employee For a Canadian MSB?
A foreign employee is a worker who resides outside of Canada but understands the country's laws. When hiring such individuals, an employer-employee relationship is established.
This means your MSB will have to deduct:
- Canada Pension Plan contributions from your worker’s pay
- Income tax
- EI premiums
Such legal requirements are only applicable when hiring foreign employees. An employer of record may also be required to address challenges.
Because of these complications, hiring foreign employees is a less preferable option for Canadian MSBs.
Contractor Vs Employee: The Key Differences
The contractor vs employee debate often causes MSBs to struggle with making an informed decision.Â
The hiring process for the latter may be a bit complex, but your MSB may benefit from a foreign employee over a contractor in some cases.
Let’s look at the key differences between contractor vs employee hiring to help you:
- Canadian Compliance Burden Is Low When Hiring An Independent Contractor
An independent contractor Ontario faces a lower Canadian compliance burden when managing things for an MSB. This is because of the self-employed status of the worker.
For example, as an employer, you must make deductions according to the Canada Pension Plan for your employee. However, you don’t have to do such things for an independent contractor.
The legal requirements state that a contractor:
- Must handle their independent contractor taxes Canada
- Should ensure they’re meeting Canadian compliance obligations
- Is not required to receive benefits such as employee insurance
These things reduce the paperwork and obligations a Canadian MSB must fulfill.
- Your MSB Can Enjoy High Flexibility With An Independent Contractor Ontario
A money service business usually hires independent contractors because of flexibility differences. Hiring a foreign employee is less flexible due to local laws such as:
- Your Canadian MSB must register as an employer in a foreign country
- As an MSB owner, you must remit local income taxes and deduct Canada Pension Plan contributions
- Canadian MSBs must offer social security, insurance, and other benefits according to local employment laws
These obligations are not applicable when hiring an independent contractor in Canada. Your MSB can enjoy greater flexibility.
You can also develop a project-based independent contractor agreement for short-term needs. Such options are not available when signing contractors with foreign employees.
- Independent Contractors Cost Less
If your MSB registration has been recently approved, you must focus on cost management. The financial landscape and trends change continuously in Canada.
You must make decisions that allow your MSB to enjoy stable profitability. Hiring an independent contractor may make this easier.
Since contractors are self-employed workers, their payment charges are lesser. Canadian MSBs can only pay them for the work they’re doing without additional insurance, social security, and other benefits.
If you hire a foreign employee you will have to offer:
- Fixed salary despite the workload
- Insurance benefits
- Social security contributions
Compliance costs may also add to the overall cost burden when hiring foreign employees. Always consider this significant difference between the contractor vs employee hiring process to make a wiser decision.
Legal Considerations When Hiring Independent Contractors In Canada
- Worker Classification
A significant risk most MSBs in Canada face when hiring foreign talent is worker misclassification. Your company may mention an employee as an independent contractor.
The consequences of such misclassification are grave and result in:
- Fines or penalties
- Legal disputes with the worker
- Reputational damage
Before hiring an independent contractor in Canada or foreign talent, always submit a CPT1 ruling request. The Canada Revenue Agency will review your request and offer you confirmation about your worker’s employment status.
If the worker qualifies for self-employment, you can hire them as an independent contractor. Otherwise, you’ll have to offer proper employee status to that individual with insurance and other benefits.
- Independent Contractor Agreement Requirements
An independent contractor agreement is a prerequisite to hiring a contractor for your MSB. The contract must be well-developed and meet Canadian law standards.
Hiring a fintech firm to develop an independent contractor agreement would help you significantly. They can help you with the terms you must cover for fulfilling compliance requirements.
- Provincial Variations Regarding Hiring Independent Contractors In Canada
When hiring independent contractors in Canada, you must consider provincial laws. The requirements for hiring self-employed workers in Ontario may differ from British Columbia’s regulations.
Again, meeting a fintech firm expert for legal support can help you understand provincial variations.
Hiring Independent Contractors In Canada
- Draft An Independent Contractor Agreement
The first step to hiring independent contractors in Canada is developing a contract. This is mainly called an independent contractor agreement, which must define:
- The services the contractor will cover for your Canadian MSB
- Compensation and payment frequency for the independent worker
- Intellectual property rights
- Confidentiality clauses to protect money service business information
- Termination clauses
A fintech law firm such as Renno & Co. Fintech can draft a personalized independent contractor agreement for your MSB.
- Ensure Canadian Compliance
Independent contractors have to handle income tax deductions themselves. They must also keep themselves updated with compliance laws when offering specific services.
However, it is still preferable for your MSB to verify local regulations yourself. Some provinces may have specific requirements that can affect your independent contractor agreement.
- Develop A Payment Setup For Your Independent Contractor In Ontario
Your MSB is not required to offer a fixed salary rate to an independent contractor in Ontario. Developing a decent payment setup is enough to meet legal standards.
Typically, Canadian MSBs can pay an independent contractor through:
- Wire transfers
- Payment platforms such as PayPal
- Cryptocurrency (if legally allowed in your province)
A reliable payment setup will ensure timely transactions and minimize conversion fees.
FAQs
Why Might An Employer Prefer To Hire An Individual As An Independent Contractor Rather Than As An Employee?
An employer prefers to hire independent contractors because of less legal risk, greater hiring flexibility, and lower financial burden.
What Are The Criteria For Distinguishing Between An Employee And An Independent Contractor?
The main criterion is determining the work being done by the said individual. An employee can only work for one client, while a contractor can work for many.Â
You can also get a ruling from the Canada Revenue Agency for a contractor vs employee distinguishment.
Is An Independent Contractor Self Employed?
Yes, an independent contractor is a self-employed individual. They can work for many clients simultaneously, don't qualify for social security benefits, and must calculate their own taxes.
Does An Independent Contractor Need A Business License In Canada?
A contractor doesn’t need a license if their revenue in the last four quarters of a year has been below $30,000.Â
Your MSB must keep this in mind and ask the contractor about it. This will prevent you from collaborating with someone who’s violating local laws by operating without a business license.
Connect With Renno Co. Fintech For Your Independent Contractor Vs Employee Hiring Needs
Expanding your MSB’s workforce beyond Canada can be a game-changer, but you must make wise hiring decisions. Otherwise, your money service business may face compliance and tax complications.
Renno & Co. Fintech can help you if you need assistance with:Â
- Drafting an independent contractor agreement
- Ensuring compliance with employment lawsÂ
- Navigating international hiring complexitiesÂ
Our fintech law firm specializes in helping Canadian MSBs structure their hiring strategies effectively while ensuring regulatory compliance. Contact us today to discuss how we can assist with your global hiring needs.
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