The cost of hiring a new employee can be considerable. Not only do traditional hiring methods, such as using recruitment firms,  cost a big proportion of a new hire’s projected annual salary, process and onboarding can bring lots of hidden extra charges which can seriously bump up your hiring spend.

While the multiple will differ by industry, some experts calculate, that, all-in-all, cost for the the employer can be, and often is, up to 1.5 times the employee’s salary or wages. So, if you are paying someone $50,000 a year to work for your business, the total cost of that hire may end up around $75,000 once you factor in these obvious and not-so-obvious expenses.

Hiring costs

Your business will spend money or tap into existing resources to recruit, interview, hire and train each new employee. The accounting department will be required to set up and administer a payroll account for the new person, which incurs some additional bookkeeping expense. If you are a small business, consider consulting a local fixed-price accountant. Severance pay may also be considered a hiring cost.

Compulsory fees

Things change once you hire your first employee. As an employer, you will have to remit Canada Pension Plan (CPP) contributions, Employment Insurance (EI) premiums, and income tax deducted from your employee’s income, along with your share of CPP contributions and EI premiums. Learn more on the Canada Revenue Agency website.

  • CPP: You must contribute the same amount that you deduct from your employee’s remuneration. (For example, if the employee pays $50 for CPP, you must contribute another $50).
  • EI: You must pay 1.4 times the amount of the employee’s premiums. (For example, if the employee contributes $50 for Employment Insurance, you will contribute an additional $70.)

You may also be required to pay Workers’ Compensation insurance premiums.

Don’t forget WCB

Workers’ Compensation benefits are compensation paid in respect of an injury, disability, or death to a worker, under the law of Canada or a province or territory. Most businesses are required to have Workers’ Compensation insurance, and as an employer, you may be required to pay premiums just as you would for any other insurance.

If you have employees you will likely have to register your business with your provincial Workers’ Compensation Board (WCB) and pay Workers’ Compensation insurance premiums based on your industry classification.

Even if your business is exempt from the insurance requirement, it may be in your interest to purchase it voluntarily. If you’re a tradesperson, for example, you may find that customers prefer to deal with contractors who have their own Workers’ Compensation insurance.

Discretionary costs

There are additional costs associated with each hire. For example, you must cover vacation pay: a mandatory two weeks of vacation annually after the employee completes one year of employment. (After six consecutive years of employment, the entitlement increases to three weeks of annual vacation.) There are nine statutory holidays, such as Canada Day and New Year’s Day, also paid by the employer.

Other discretionary costs may include sick days, company pension plan, profit sharing, group benefit plan, bonuses, incentives, travel expenses and general downtime.

Your new employee will also require a computer, desk, chair, telephone, and office supplies. All of these items require workspace, so be sure to factor in the cost of additional office rent you may incur to house each new employee. Check your cash flow and considersetting up a credit facility to help fund these items.

Bringing on people is a sure sign of business growth. Becoming an employer is a positive move and a natural step in the evolution of your business. By looking into these costs and others, you can properly budget for a new position and avoid any unpleasant financial surprises.

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