In the previous article (Part 1), we covered half of what you need to know about the real cost of hiring an employee in the province of Ontario, including salary, Canada Pension Plan, Employment Insurance, Workplace Safety and Insurance, Vacation Pay, Statutory Holidays and Technology.
There’s more to learn here in Part 2, including Maternity and Parental Benefits, Ontario Termination Pay versus Ontario Severance Pay, Health Spending Account and the Employer Health Tax.
Maternity and Parental Benefits
Ontario’s Employment Standards Act (ESA) provides eligible employees who are pregnant or are new parents with the right to take unpaid time off work.
Canadian working women who are having a baby or adopting a child are entitled to both parental and maternity leave from their jobs. Parents can receive up to a total of 50 weeks of paid pregnancy or parental benefits from Canada’s Employment Insurance (EI) plan.
EI offers paid maternity leave for 15 weeks. Maternity benefits can be claimed by only the mother. To qualify, a new mother must be an employee who has had EI deductions taken from her earnings and has worked for a minimum 600 hours in 52 weeks before giving birth, or since her last EI claim. EI also offers paid parental benefits up to 35 weeks for either parent while they are caring for the baby. These paid parental benefits can be used only by the mother or split between both parents. The benefit rate is 55% of average insured earnings, with a maximum of $562 per week.
In most cases, employees must be given back their old job at the end of their pregnancy or parental leave. Employers can’t penalize employees in any way because they are eligible for pregnancy or parental leave, or for taking or for planning and taking a pregnancy or parental leave. Labour laws require that you hold the position and hire temporary staff replacements.
The employee has no responsibility to advise you, the employer, if they are returning, and you can’t ask. If a parent decides not to return to work, they are must give the employer at least two weeks’ written notice of resignation.
Ontario Termination Pay
New employees start with a three months probation period, during which time you can test them out. If you don’t want to keep them, you can relieve them of their duties and say goodbye. After the three month period is over, if you are terminating an employee’s job, they generally qualify for written notice, termination pay instead of notice, or a combination of both.
The amount of notice or pay depends on how long the employee has been working for you and the number of employees being terminated in a four-week period. The ESA requires employers to provide termination notice which is calculated based on an employee’s length of service.
If you have to fire an employee without proper notice, or without termination pay, then it better be for a very good reason. Only very serious wrongdoing is considered just cause. For example, proof of theft, fraud, assault or sexual harassment, serious insubordination, excessive unexplained absences, or a conflict of interest.
Ontario Severance Pay
Severance pay is not the same thing as termination pay. An employee qualifies for Ontario severance pay if they have worked for the employer for five or more years and the employer’s payroll is at least $2.5 million. Severance is based on the number of years and months of service and may surpass termination pay considerably. The maximum amount of severance pay is equal to 26 weeks of pay, which is much more than the maximum amount of eight weeks termination pay.
Health Spending Account
A Health Spending Account (HSA) is the most affordable way for small business owners in Canada to minimize their medical expense costs. Also referred to as referred to as a Health Care Spending Account or a Private Health Services Plan, the HSA is cost-effective way to provide health and dental benefits to your employees. A major benefit of an HSA for small business is that the owner can budget and control costs. The health and dental benefits offered through this plan are fully tax deductible to your business and received 100% tax free by your employees. There are no hidden fees, premiums, deductibles, co-pay, or complex policies.
It’s fairly simple to understand and use. First, you (as the employer) fund the plan with a set monthly amount of your choice. Employees will pay for their medical expense personally and then afterward, make a claim on the medical expense and get reimbursed tax free, using funds from the funding account. The medical expenses are a tax deductible / business expense.
The HSA is perfect for incorporated individuals, not sole proprietors, unless they have employees. With an HSA you won’t get some insurances like critical care, but realistically, most small business owners simply can’t or don’t want to spend the big bucks. When your company grows larger, you can offer a broader package to increase morale.
Employer Health Tax
As an employer in Ontario, you will be entitled to a health tax exemption on the first $450,000 of your payroll. The exemption must be shared by any associated employers. The contribution rate is determined based on the total payroll before the exemption.
Watch out as you grow, though. As a small business owner, you don’t have to worry about this tax, until you do. For example, let’s say you own three small restaurants. Each individual business may not meet that $450,000 in remuneration, but altogether they do. You would have to pay the tax.
The Bottom Line
Hiring employees isn’t a decision that is taken lightly, as it’s not easy on the company budget. Although employing Canadians is expensive, they are an essential part of a growing business and to our economy If you are questioning whether you are really ready for the cost of hiring an employee, read our article Subcontractor vs Employee: What’s the Difference? It’s important to know what, in the eyes of the government, the differences are between employees and self-employed contractors.
If you do decide that hiring employees is the right decision for your growing business, The Business Development Bank of Canada (BDC) may be able to loan funds. BDC is the only bank in Canada to exclusively offer financing, venture capital, growth & transition capital and consulting services to entrepreneurs. Since it’s a Crown owned bank, it’s more flexible and will loan you the money you need to grow. BDC may charge 10% interest, but will still give you a loan. Before you apply, make sure that you have a solid business plan and proof of a mentor. Even though the investment may be a lot, the potential in return on a good employee will make the investment worthwhile.