Your business is taking off and there is so much work that you can’t handle it all by yourself. It is time to hire some help, someone to ease the burden so you can concentrate on the big picture and grow your business. Are you fully aware of the requirements for taking on employees as a small business owner?
Hiring your employee
First things first, make sure that you and your new employee sign an employment agreement. This is a critical first step to help outline the requirements of the employee and to protect you, as an employer. Here are some key items to outline in an employment agreement:
- Set out the compensation level for the employee
- Set out the start date of the employee along with details on vacation time, sick days and work hours
- Provide a detailed description of the duties and responsibilities of the employee
- Set out the necessary restrictions to ensure that your company’s information, goodwill and customer information is protected
- Provide a non-compete clause, to ensure that the employee doesn’t compete against you directly when he or she leaves your organization
CRA filing and deductions
Now that you have your first employee working for you, it will soon be time to pay him. Let’s say that your new employee earns $20/hour and he worked 70 hours over the last two weeks. So his compensation would be $1,400. However, you wouldn’t cut him a cheque for the full $1,400.
As an employer, you are responsible for calculating the appropriate amount of federal and provincial tax deductions along with Employment Insurance (EI) and Canada Pension Plan (CPP) deductions. Let’s say that all the deductions added up to $400. You would then pay your employee the net amount of $1,000 and remit to the government the $400 you withheld on their behalf plus the employer portion of EI and CPP.
CRA has a great payroll calculator that makes it very easy to calculate the required deductions yourself. For most organizations, monthly remittances are required and you should pay the amount withheld from your employee plus the employer portion by the 15th of the following month. (For example, for wages paid in October, you would remit the amount by the 15th of November).
Other Items to Keep in Mind
CRA does require you to keep accurate records of all employee payments, cheque stubs and payroll calculations. In addition, a T4 summary return will need to be filed once a year to CRA which outlines the amounts you paid and withheld from all employees for the year.
There are other items that have to be kept in mind as well when paying employees. Employers are also responsible for paying vacation, any overtime and statutory holidays. Plus, when an employee leaves your organization a Record of Employment form must be filed.
To ensure you have all your requirements covered consult an accounting and tax professional to obtain proper guidance when hiring your first employee.
Image credit: by By Flazingo Photos, flickr.com.