Hiring your first employee is an exciting milestone. It usually means business is growing, your workload is increasing, or you’ve finally accepted that doing absolutely everything yourself isn’t a sustainable business strategy.
But before you post that job ad, there’s an important question to answer:
Can your business actually afford to hire someone?
If you’re planning to pay an employee $60,000 a year, it’s tempting to plug $60,000 into your budget and call it a day. Unfortunately, your new employee’s salary is only a portion of what they will cost you business.
Here’s what B.C. business owners should consider when crunching the numbers….
Let’s say you’re thinking of hiring someone at an annual salary of $60,000.
Your first step is straightforward: determine the employee’s gross pay. But as an employer, you’ll also have payroll-related costs to cover.
These can include:
● Employer CPP contributions
● Employer EI premiums
● Vacation pay or paid vacation
● WorkSafeBC premiums, where applicable
● Employer Health Tax, if your total B.C. payroll reaches the applicable threshold
● Extended health, dental or other benefits you choose to offer
Not every expense will apply to every business or employee, but together they can make the true cost of hiring noticeably higher than the number on the job offer.
Then there are the expenses that don't show up on a paycheque.
Will your new employee need a laptop? A phone? Software subscriptions? A desk or other equipment? Will they work from an office that requires additional space?
There may also be costs associated with recruitment, background checks, training, and onboarding.
Individually, some of these expenses might seem relatively small. Together, they can make a significant difference, particularly during an employee's first year.
Employees in B.C. are entitled to minimum vacation and vacation pay under provincial employment standards. Eligible employees may also be entitled to statutory holiday pay.
This is important when you're thinking about the cost of an employee because you're not simply paying for the hours someone spends actively working.
Sick days and other job-protected leaves may also factor into your staffing and cash-flow planning.
Paid time off isn’t a "hidden cost." It's simply part of the cost of having employees and something worth including in your budget from the beginning rather than discovering later on.
Hiring an employee doesn't just add another person to your team. It adds some new responsibilities to your to-do list.
Employers generally need to open a CRA payroll program account, calculate and withhold the appropriate income tax, CPP and EI amounts from employee pay, contribute the employer portions, and remit those amounts to the CRA on time.
You'll also need to maintain appropriate payroll records and issue T4 slips.
Payroll mistakes can become expensive, so this is one area where having good systems in place from day one can make life considerably easier!
Some businesses consider hiring a contractor instead because it seems simpler.
And sometimes a contractor really is the right choice.
But you can't necessarily make someone an independent contractor simply by putting the word contractor in their agreement.
The CRA looks at the actual working relationship when determining whether someone is an employee or self-employed. Factors can include how much control the worker has over their work, who provides the tools and equipment, whether the worker can subcontract, and their opportunity for profit or risk of loss.
If you accidentally classify an employee as a contractor, your business could be responsible for payroll deductions and other amounts later.
If you're unsure which category applies, it's well worth getting advice before making the hire.
There isn't one magic percentage you can add to every salary. The cost will depend on the employee's compensation, your total payroll, industry, benefits, equipment requirements, and other factors.
Instead, create a simple all-in hiring budget before committing to the position:
● Base salary or hourly wages
● Employer payroll contributions
● Vacation and other required pay
● WorkSafeBC and other applicable employer costs
● Benefits
● Equipment and software
● Recruitment and onboarding
● Training and ongoing expenses
All-in, this equals a much more realistic cost of hiring. However, it's also worth thinking beyond the annual total.
Ask yourself: Can my cash flow comfortably support this cost every month, even during a slower period?
That's particularly important for seasonal businesses or companies whose customers sometimes take their sweet time paying invoices.
Looking at the full cost of an employee can make hiring sound daunting, but that's only half of the equation. A good hire should also create value.
Maybe adding an employee allows you to take on more clients. Perhaps they free you from administrative work so you can concentrate on sales. They might bring expertise you don't have, or simply give a thinner team some much-needed capacity.
So don't just ask: "What will this person cost?"
Also ask: "What will this person make possible?"
That second question can help you evaluate hiring as an investment rather than simply another expense.
Your first employee can be an important step in growing your business. The key is making sure the business is financially ready for that step!
Run the numbers based on the whole cost of the position, build some breathing room into your budget, and get your payroll systems organized before that first payday rolls around.
Then you can spend more time welcoming your new employee and less time wondering why payroll suddenly costs more than you expected.
Thinking about growing your team? Numberra can help you understand the numbers, set up the right accounting and payroll systems, and make sure your business is financially prepared for its next stage.
Recognizing when it's time to improve your financial processes can save countless hours and headaches down the road.
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