The hiring of the first or additional employee is a strong indication of business expansion. It’s all too common for small companies to underestimate the expense of employing a new employee and the payroll cost related.
You can appropriately budget for new roles and avoid financial setbacks by looking into the actual outlay.
If you want to hire in Ontario, this article will help to understand better the cost of hiring an employee and what do you need to know to do a payroll in Canada.
Let’s start!
1. SALARY
You should check the Salary Data & Career Research Center to discover about job wages for people in your sector. This website will give access to a large database of specific job descriptions, including demographic information, skills, and wage fluctuation.
2. VACATION PAID
Most people are entitled to two or three weeks of paid vacation each year under
Ontario’s Employment Standards Act. Working at the same company for a year allows an employee to earn vacation time. A person who has worked for an employer for fewer than five years is entitled to two weeks off. An employee who has worked for an employer for five years or longer is entitled to three weeks of vacation. Based on what they have agreed with their company, certain employees may be entitled to extra paid vacation time.
In most cases, an employer is required to pay a vacation to an employee prior to the beginning of the vacation. However, if the employee takes less than one week of vacation, the company can pay vacation compensation on a regular payday. Another alternative is for the company and employee to agree to add vacation money to earnings at the beginning of each pay period rather than just before the start of the vacation.
3. STATUTORY HOLIDAYS
We observe 11 statutory holidays.
- New Year’s Day, Good Friday, Canada Day, Labour Day, and Christmas Day are all statutory holidays in every province and territory.
Additionally, in Ontario we observe:
- Family Day in February
- Victoria Day in May
- Civic Holiday in August
- Thanksgiving in October
- Remembrance Day in November
- Boxing Day in December
Holiday pay in Ontario is 4% for those who haven’t worked for more than 5 years, and 6% for those who have worked for more than 5 years.
Employers are required to pay their employees on these public holidays:
- Public holiday remuneration plus premium pay for all hours worked on the public holiday and no substitute day off.
Or
- Be paid normal wages for all hours worked on the public holiday and be provided a replacement holiday for which they must be paid public holiday compensation.
For a statutory holiday, business owners are not compensated. The Ministry of Labour has a Public Holiday Pay Calculator that can provide you with a preliminary estimate depending on the information you provide. Keep in mind that additional variables that haven’t been taken into consideration may have an impact on your rights.
4. WORKPLACE SAFETY AND INSURANCE
Employers are required to contribute to a province-wide insurance fund. These insurance rates are determined by the employer’s payroll and the number of accidents that have occurred in their industry. Construction companies, for example, pay a higher fee than legal firms. The WSIB Ontario provides wage-loss benefits, medical coverage, and support to help people return to work after an injury or sickness on the job. They give financial aid to a surviving spouse, help to re-enter the employment, and support to arrange for the post-secondary education of dependent kids in the case of a fatality.
The WSIB also offers no-fault collective liability insurance and access to health and safety information specific to the sector. Everyone must register, and companies must pay if they employ even one person, even if it is themselves. All employees, including owners, are required to have health insurance. Unless they’re in a potentially risky field like construction or manufacturing, many small company owners don’t pay themselves. On average, WSIB costs around 10% of a salary, or $5,000 plus specifications if the salary is $50,000. Administrative expenses, CPP, payroll, onboarding, and healthcare spending accounts are all included.
PaymentEvolution Payroll software that calculates and remits Workers’ Compensation, is our favorite.
5. EMPLOYMENT INSURANCE
EI provides temporary financial support to those who have just lost their jobs. EI premiums are paid by both the employer and the employee, but the employer’s portion is 1.4 times higher, with a maximum that rises slightly each year. In 2019, the maximum insurable earnings are $53,100, so an insured worker must pay EI premiums on earnings up to that amount. Employees pay $1.62 per $100 in EI premiums. This rate, along with the maximum insurable wages, results in a maximum annual EI premium of $860.22 for covered employees. EI benefit rates are capped at $562 per week. As a result, a deduction of $1.62 is made for every $100 of pay earned until the year’s total of $53,100 is reached.
6. MATERNITY AND PARENTAL BENEFITS
Employees who are pregnant or new parents in Ontario are entitled to take unpaid time off under the Employment Standards Act (ESA).
Working women in Canada are eligible for both parental and maternity leave if they are expecting a child or adopting a kid. The Employment Insurance (EI) program in Canada allows parents to receive up to 50 weeks of paid pregnancy or parental benefits.
EI pays 15 weeks of maternity leave. Only the mother is entitled to maternity benefits. A new mother must be an employee who has had EI deductions taken from her pay and has worked for at least 600 hours in the 52 weeks before giving birth or since her last EI claim to be eligible. EI also pays up to 35 weeks of paid parental benefits to any parent who is caring for the infant. These parental benefits can be used by either the mother or both parents. Benefits are calculated at 55% of average insured wages, with a weekly maximum of $562 for the standard parental leave. For extended parental leave, benefits are calculated at 33% for 18 months.
Employers cannot penalize employees for becoming pregnant or taking parental leave.
They must hold the job position during the pregnancy or parental leave, and recruit temporary staff replacements to comply with labour regulations.
The employee has no obligation to notify whether is returning to work, and the employer doesn’t have the right to ask. If a parent decides not to return to work, they must give at least two weeks’ written notice to the employer.
7. CANADA PENSION PLAN
In the event of retirement, disability, or death, the CPP pays employees and their families with a partial wage replacement. You must match 100% of your new employee’s contribution unless they are exempt (over 65 or under 18). The Consumer Price Index is used to determine rate hikes every January.
8. ONTARIO TERMINATION PAY
New hires are given a three-month probationary period during which you can evaluate them. You can free them of their responsibilities and say farewell if you don’t wish to keep them. If you are terminating an employee’s position after the three-month period has passed, they are usually entitled to written notice, termination compensation instead of notice or a mix of the two.
The length of notice or pay is determined by the employee’s tenure with you and the number of employees fired in a four-week period. Employers are required by ESA to offer termination notice depending on an employee’s length of service.
It would better be for a very good cause if you had to terminate an employee without adequate notice or termination pay. Only the most serious conduct qualifies as reasonable cause. Proof of theft, fraud, assault or sexual harassment, insubordination, absences, for example.
9. ONTARIO SEVERANCE PAY
Termination pay is not the same as severance pay. If a person has worked for the company for five years or more and the payroll is at least $2.5 million, they are eligible for Ontario severance pay. Severance pay is calculated based on the number of years and months of service and can be significantly more than termination pay. The maximum severance pay is equal to 26 weeks of pay, which is much greater than the maximum termination pay of 8 weeks.
10. HEALTH SPENDING ACCOUNT
Small company owners in Canada may save money on medical expenses by using a Health Spending Account (HSA). The HSA is a cost-effective method to give health and dental benefits to your employees. It’s also known as a Health Care Spending Account or a Private Health Services Plan. The ability to manage and control expenditures is a significant benefit of an HSA for small businesses. This plan’s health and dental benefits are entirely tax-deductible for your company, and your workers enjoy them tax-free. There are no hidden costs, premiums, co-pays, or plans that are overly complicated.
It’s not difficult to understand and utilize. To begin, the employer finances the plan with a predetermined monthly amount of your choosing. Employees will pay for their medical expenses out of pocket and then file a claim with the funding account to be reimbursed tax-free. Medical costs are deductible as a business expense and are so tax-deductible.
The HSA is ideal for corporations, or even sole proprietors if they have staff. Some insurances, such as critical care, are not available via an HSA, but most small company owners simply cannot or do not want to spend the huge money. When your company expands in size, you may provide a more comprehensive package to boost morale.
11. EMPLOYER HEALTH TAX
You will be eligible for tax exemption on the first $450,000 of your payroll as an employer in Ontario. Any connected employers must share the exemption. The contribution rate is calculated using the entire payroll prior to the exemption.
Business owners don’t have to worry about this tax until you have to. Let’s make an example. You own three restaurants. Each of them don’t meet the $450,000 in compensation, but put them together they reach that amount. In this case, you have to pay the tax.
12. TECHNOLOGY
Another expense of recruiting an employee for a business is technology. You will be responsible for providing your staff with up-to-date computer gear as well as all software subscription licenses, for example, Office 365. However, this depends also on the type of business you are in.
Most software subscriptions are now cloud-based, as opposed to traditional software licensing. Subscription software is displacing conventional license suppliers in nearly every industry for a variety of reasons. First and foremost, costs are kept under control, because the price is fixed. Second, cloud security is considerably more stringent. A cyber assault on outdated legacy software hosted on internal servers is a serious possibility.
This is all you need to know when hiring a new employee.
We know that while managing a company all these information can be overwhelming, that’s why with our services we make our clients’ life easier.
Contact us now if you need help with your business payrolls.
