Hiring Your First Employee
As discussed in previous newsletters business owners have a hard time. You are required to have a working knowledge of a variety of functions to run your businesses in addition to core work of creating and refining your product and/or service. As you grow you might find that you to start to feel overwhelmed and your work life balance is non existent. It is at this point that you realize you need help.
This is easier said than done as it can be difficult to relinquish control and change the mindset that tells you that no one else can do the job as well or in the same way as you do (which I am certainly guilty of). Of course, this is not true and there is a good chance that an employee will actually do the job better as they might have more expertise and a narrower focus.
When deciding to get help, you might decide to hire a freelancer/independent contractor to take on specific tasks. It is common to outsource marketing, social media management, IT, bookkeeping etc. This is beneficial when your need is occasional and an employee would be overkill. Note that, all things being equal, you will likely pay a subcontractor more on an hourly basis than an employee. There are also specific tax rules that you want to make sure that you don’t run afoul of where a subcontractor might actually be considered to be an employee.
At a certain point, however, you might need someone who is more dedicated to your business, and you realize that have enough work for a full time position. At this stage, it is important to assess your finances to ensure that you can afford to take on an employee. Often this is a cost benefit calculation as it means giving up money to free up your time to focus on higher value work or simply to avoid burnout which can creep up insidiously.
Hiring an employee might seem intimidating to some but it is actually quite straightforward, at least from a regulatory perspective. First you need to be registered with CRA (and RQ in Quebec). It should be noted that the process of registering for, paying and reporting payroll, in Canada is almost exactly the same whether you are a sole proprietorship or a corporation. My blog post this week goes over the steps that you need to follow to start processing your payroll.
Once registered, I generally recommend getting a third party service to process your payroll, complete the remittance forms and prepare the year end tax slips as they can be fairly inexpensive (I myself use a third party service). Additionally, the penalties of being late with your payroll filings are severe so you want to avoid this by streamlining the process.
As an aside, if you are planning to hire a family member or a relation, I also recommend having a thorough job description detailing their responsibilities where the rate that they are being paid is comparable to market rates.
Other factors to keep in mind (in addition to the tax aspects) include
Ensuring that you have a good job description to help you define their roles and responsibilities.
How much to pay them initially and whether there will be a pay raise in the near term or after a specified period.
How you are going to train them? It is generally a good idea to map this out in advance .
Vacation time and is this at set times of the year or do they have flexibility?
Will you offer them any benefits such as health insurance?
How do you plan to evaluate them?
Creating an employment contract that outlines all of the above. Templates are available online which you can then modify to the specifics of your situation.
Once you have this structure in place, hiring employees in the future becomes much easier and less intimidating. More importantly, taking on employees can be a great indicator that your business is growing and an investment in its future.
Related Resources
A couple of older blog posts about payroll
Guidance on Registering for Payroll and Remitting Source Deductions
There comes a time for many small business owners when they decide that they need to hire employees. This is usually an excellent sign as it means a) the business is growing and b) the small busines
Employee vs. Self Employed: Criteria and Considerations
For the majority of income earners, employment status is pretty evident. If you are going to the same place every day, have an assigned cubicle with a computer and a corporate stapler, and you have
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