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.
Blog Post
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
Finance Stuff:
Grocery chains to cut food prices? Difficult to not be skeptical about this. Fingers crossed that we get some relief soon.
Positive Business Sentiment: Apparently “88% of respondents to a new poll by KPMG in Canada feel confident in their business growing in the next three years.” as they have taken action to prepare for a possible recession.
8 Business Black Friday Email Campaigns: It’s coming up quickly - for those of you who send out mailings and newsletter, Shopify has some ideas.
Tax Stuff:
The Weight of Payroll Taxes: This report by the CFIB details how “business owners presently find themselves navigating an economic landscape riddled with challenges, including reduced revenues, mounting debt, inflationary pressures, persistent labour shortages, and higher overall costs of doing business” in a post pandemic environment.
Should Canada’s tax rates be reduced? An editorial in the Financial Post believes that they should as it will go a long way to help improving productivity.
QuickBooks Tip: Payroll
I’m not a big fan of QuickBooks Online payroll as I have found it be a bit glitchy and inflexible (although it may have improved). QBO payroll will do the calculations for you and prepare reports, however you have to remit the deductions to CRA along with the T4s at the end of the year.
If you are using a third party service, they will often integrate with QBO so that you can directly import the details. Alternatively, you can simply allocate the total amount paid through your bank to salaries expense and use reports from the payroll provider to see the details.
Books and Resources:
Coming Soon! Small Business and Your Payroll: I apologize for the delay on this. I have been working on other projects. I do intend to get this done by the end of the year (in time for tax season) along with some other resources that might be useful.
If there are any questions that you have about payroll that you want included in the book, please send me an email at ronika@montrealfinancial.ca.
Small Business Tax Facts(Sole Proprietorships/Registered Businesses/Self Employed Workers)
This book helps you take control of your finances by giving you a better understanding of tax (brackets, tax rates, deductions etc), how it applies to your unincorporated small businesses and how to do your own tax return (or at least understand what your accountant does). It also includes a comprehensive breakdown of deductible expenses, by category with special sections on more complex deductions such as home office, vehicle and capital cost allowance.
FastStart Your Corporation(Corporations)
A step by step guide to starting your small business corporation, including what you need to know about incorporation, setting up your accounting and tax considerations.
QuickStart your QuickBooks(Sole Proprietorships and Corporations)
A comprehensive guide that takes you through the many features of QBO and gives you step by step instructions on how to setup and work with QBO day to day. It is ideal for beginners who have never used QBO before and also for those who are currently using it, but have questions or need guidance.
FastStart Your Business (Sole Proprietorships)
A step by step guide for anyone who is planning to start a Canadian business or become self employed (and does not want to incorporate) and wants to know what they need to do or simply has questions.
Small Business and Your Dividends (Corporations)
For incorporated small business owners who want to know more about small business dividends, the differences between salary vs dividends and which is better and step by step instructions on how to file your own dividend declarations (T5s).
Use discount code “special” to save 20% on any (or all) book(s) when you purchase from the website.
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If you prefer a print version, all books are also available at Amazon . Note that print versions purchased on Amazon include a complimentary PDF - you just need to email me and include proof of purchase.
Free Resources
Business 2023 Tax Deadline Calendar
Starting A Corporation Checklist
Start Your Business Checklist
Dividend Declarations Checklist
Small Business Tax Return Checklist
QBO Set Up Checklist.
Small Business Calculators
Previous newsletters
Consultations
I also provide consultation services where I can answer your specific questions relating to your small business and/or finances, provide clarity and give you guidance. Additional details can be found here and here. Note that I no longer provide ongoing accounting or tax preparation services.
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Wishing everyone a lovely, leafy weekend!
Ronika