How to Pay a Small Business Employee

Congratulations! Your start-up has now matured to the point of hiring in and paying employees! That payment sounds like a simple money-in-money-out transaction, but it actually comes with a lot of administration. If you decide to use a payroll system, the majority of the administrative burden is greatly reduced after the setup phase. If you choose to go manual, we advise caution as the risk of error is significant as there are multiple calculations to be made monthly and annually.

Here are some guidelines from our team of payroll system experts:

Guideline #1: Salary Level

The salary level versus value added by each employee is a difficult, high-impact business decision. In addition to fairness and retention, you also need to factor in the relevance of the skills offering versus your business needs. Lastly, ensure you are paying above the minimum wage. Also, decide on the bonus or incentive systems, if any.

Guideline #2: Employee Data

Your employee needs to supply their Social Insurance Number (SIN) (must match the SIN card details) within three days of being appointed. Within seven days, the employee must also fill in a Personal Tax Credits Return Form for federal and provincial tax deduction calculations. There is a $25/day penalty, min $100, for late completions.  A payroll system will guide you through all the data and track the deadlines, reducing your stress levels.

Guideline #3: Classification

Every employee contributes to Employment Insurance premiums and the Canada Pension Plan based on their classification. The CRA offers a list of classifying characteristics to assist you but do not hesitate to ask for our assistance as real life is seldom as simple as an online classification. 

Guideline #4: Pay Cycle

Next, you need to decide if you will pay the employee based on monthly, bi-weekly or weekly amounts. This should be guided by your business’s cash-flow cycles. It would be fair to consider what pay cycle suits your employees. In addition, a monthly pay cycle is not allowed in all provinces.

Guidelines #5: Compliance

Compliance with provincial employment legislation can become more complex as more employees are onboarded. Overtime and leave laws, holiday pay, sick leave, mental health leave, etc. ‒ a payroll system will automate policies and rules, so mistakes and penalties are avoided. 

Guideline 6: Payroll penalties

“I didn’t know” or “I made a mistake” is not acceptable in the eyes of the law, so errors in calculations, missed deadlines and any other errors to do with filing and paying taxes will attract penalties.

Contact us for help in setting up or checking calculations and deadline dates in your payroll system.

For more guidelines or a free first payroll system consultation, contact us today!