What’s the cost of hiring an employee in Ontario? Probably more than you think.
Bringing on your first employee is a clear sign of business growth. Unfortunately, it’s easy for small businesses to underestimate the cost of hiring an employee. Once you factor in the not-so-obvious expenses, the cost adds up. By looking into the real outlay, you can properly budget for new positions and avoid a financial setback.
If you plan to hire in the province of Ontario, here’s what you need to know about the real cost of hiring an employee:
To learn about job salaries for employees in your industry, check out the Salary Data & Career Research Center, an extensive database of detailed job descriptions with information on demographics, common skills and how pay varies over time and between locations.
Canada Pension Plan
The CPP provides workers and their families with partial replacement of earnings in the case of retirement, disability or death. Unless your new employee is exempt (over 65 or under 18), you will have to match 100% of your new employees’ contributions. Every January, rate increases are calculated using the Consumer Price Index.
EI allows people who recently lost a job to receive temporary financial assistance. Both the employer and employee pay EI premiums, but the employer’s portion is 1.4 times higher, to a maximum that increases slightly each year. As of 2019, the maximum insurable earnings are $53,100, so an insured worker pays EI premiums on insured earnings up to $53,100. The employee EI premium rate is $1.62 per $100. This rate plus the maximum insurable earnings means that insured workers pay a maximum annual EI premium of $860.22. The maximum weekly EI benefit rate is $562 per week. So, a deduction of $1.62 is made for every $100 of salary until the $53,100 for the year has been reached.
Workplace Safety and Insurance
Employers must contribute to a province-wide insurance fund. These insurance premiums are based on the employer’s payroll and the accident experience in their industry. Construction companies, for example, pay more than a law office. When an injury or illness happens on the job, the WSIB Ontario provides wage-loss benefits, medical coverage and support to help people get back to work. In the event of a fatality, they provide financial help to a surviving spouse, assistance re-entering the workforce, and support to provide for the post-secondary education of dependent offspring.
The WSIB also provides no-fault collective liability insurance and access to industry-specific health and safety information. Everyone must register, and businesses must pay if you have even one employee, even if that one employee is yourself. The mandatory coverage for all employees—even owners— is based on salary. Many small business owners don’t pay on themselves, generally, unless they’re in a potentially dangerous industry like construction or manufacturing. WSIB costs about 10 per cent on average of a salary, so about $5,000 + specifics if the salary is $50,000. This includes administrative costs, CPP, payroll, on-boarding, and healthcare spending accounts.
We’re fond of the payroll software WagePoint, which calculates and remits Workers’ Compensation. The only thing you would have to do is submit the Workers’ Compensation reports using the details in your payroll reports.
Ontario’s Employment Standards Act gives most people two or three weeks of paid vacation a year. An individual earns their vacation time by working 12 months for the same employer. If someone has worked less than five years for an employer, they get two weeks of vacation. If they’ve worked five years or more for an employer, they get three weeks of vacation. Some workers may get more paid vacation time, based on what they have negotiated with their employer.
Generally, an employer has to pay an employee vacation pay before the vacation starts. But the employer can pay vacation pay on a regular pay day if they pay by direct deposit or the employee takes less than one week of vacation. Another option is that the employer and employee can agree to add vacation pay to wages each pay period, instead of right before vacation time.
Canadian stat holidays can be confusing because of differences in the federal and provincial regulations, as it’s up to provinces and territories to adapt federal statutory holidays and to create their own holidays.
The statutory holidays that are celebrated in every province and territory are New Year’s Day, Good Friday, Canada Day, Labour Day, and Christmas Day. In Ontario, we include Family Day in February, Victoria Day in May, Civic Holiday in August, Thanksgiving in October, Remembrance Day in November and Boxing Day in December. Altogether, we honour 11stat holidays.
to all the related payroll taxes, pensionable like other earnings. Ontario’s provincial holiday pay rates are 4% for less than 5 years, then 6% after 5 years. Alternatively, an employee can agree by
Employers must pay wages to their employees for these public holidays, which are subject email or in writing to work on the holiday and be paid:
- public holiday pay plus premium pay for all hours worked on the public holiday and not receive another “substitute” day off;
- be paid their regular wages for all hours worked on the public holiday and receive another substitute holiday for which they must be paid public holiday pay.
Business owners are not paid for statutory holidays. The Ministry of Labour offers a Public Holiday Pay Calculator, for a rough estimate, based on the information you enter. Remember, other factors not accounted for may affect what you’re entitled to. Please talk to an accountant, if you have any questions.
As an employer, another cost of hiring an employee is technology. You will be responsible for purchasing up-to-date computer hardware and all software subscription licenses, such as Office 365, for your employees. Compared to traditional software licenses, most software subscriptions are now cloud-based. In almost every sector, subscription software is replacing legacy license providers because of a couple of reasons. First, the costs are controlled. With a subscription, you know what you are paying every month. It is fixed. Second, security is much tighter in the cloud. Outdated legacy software managed on internal servers has a real risk of falling victim to a cyber attack. To learn more about how Cloud software can save your business valuable time and money, check out our article on cloud accounting.
Read The Cost of Hiring an Employee in Ontario Part 2 to learn more about what you need to know before you hire.