Small Business & HR Basics

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Posted by Sharon Perry on July 24, 2019 in Employee Benefits, Small Business, Tax Tips

Sharon Perry Small BusinessCongratulations – your business is moving along enough that you need to hire employees! Here are some tips to keep you sane as you navigate the human resources side of your business.

As an independent or small business owner, it may have been fairly simple to manage your human resource (HR) needs: meet your payroll, make sure taxes and commissions were paid, manage vacations and slow periods. 

Once you hit the threshold of five employees, did you know that you are required to have these items in place:

  • a health and safety policy
  • a related committee made up of both employees and management
  • regular joint health and safety reviews of your workplace and practices

The move to carrying multiple employees can be a significant advantage to helping you meet your customers’ needs, but it can also cause you a few headaches along the way.

Fortunately, there are plenty of free resources available to you. The federal government has a website devoted to helping small businesses succeed. Its Business and Industry website provides links to provincial resources as well.

FULL-TIME OR PART-TIME STAFF?

Depending on your business, both types of employee might be useful to you. If you have a service-based business, or one that has a technical proprietary product or business model, hiring employees rather than contractors is likely the best way to engage more people in your business. 

Customers expect consistency in both products and people in order to build trust with a business. You can best achieve this consistency with good training, coaching and oversight of your employees. This doesn’t mean you have to hire all full-time employees. Depending on the type of business, part-time might also be a good choice.

Employees are considered part-time if they work 30 or fewer hours per week. The benefit of having part-time employees is that you can schedule them to work hours that fit your peak work requirements and not have to worry about keeping them busy all the time. You can also give them flexible numbers of hours, which gives you potential to better control your overhead labour costs.

Making a differentiation between full time and part time staff also allows you to plan for future growth by providing things like benefits, different rates of pay, distinguishing pay-per-hour roles instead of salaried roles, and so on. Moving into the realm of hiring staff means that you should spend some time on some organizational planning – think about how you would like to see your organization operate in the future. 

You will also want to think about how you will keep track of all the information about your employees. It can be as simple as keeping a file on your computer for every employee with their employment contract and pertinent information (as long as it is very secure!) and manually calculating your payroll for submission. Or, you’ll more likely want to keep most of your employee data in an HR data management system. These systems can be very helpful, even to very small businesses.

EMPLOYEES OR CONTRACTORS?

Perhaps instead of the part-time/full-time prospect, you are considering hiring contractors to help you with your work? Many organizations choose to use contractors to supplement their existing workforce when there is a need to build short-term capacity or to cover existing shortages in staffing due to holidays or special projects. Organizations also consider the cost of hiring a contractor to be less than that of an employee, because it reduces the operating overhead needed to cover the employee. On the other hand, a contractor usually comes with a higher price-per-hour requirement than does an employee. 

To better understand some key factors, here’s what you need to consider from the perspective of overall cost. 

Employees

Your employee will cost you salary and whatever commission, promotion or taxable benefits you would expect to give them. (Taxable benefits are perks you give employees that cost money, but they don’t pay
for, such as parking or transit passes, reductions in tuition, or travel points on work-related travel). Your employee will also need physical assets and tools to work with, as well as space in which to work. You’ll need to factor in training, vacations, and additional time for regular labour code-mandated activities such as meal breaks, sick days (see more below), and statutory and/or overtime pay. Of course, you will also need to make employment insurance and CPP contributions.

Contractors

A contractor, on the other hand, generally brings their expertise and their own tools to conduct their work, and you do not necessarily need to give them a permanent space in your location, saving you overhead costs. Also, there is no expectation that you are going to pay taxes for this employee, as it is their responsibility to handle their own tax situation. You will be paying this person more money per hour, but if it does not exceed your total calculated benefits, salary, overtime, and operating costs, it may be worth considering a contract arrangement. 

There are other things to consider however – and this relates to business purpose. Additionally, you need to be sure your expectations of your contractor are not that of an employee. A contractor is usually contracted to do a specific activity or provide a specific service, within a certain time-frame. Expect to have negotiations for this work in terms of total work product, hourly or total compensation, and time-frame. 

Also, don’t expect that your contractor is going to exclusively work for you in your own field. Many employees have a “side hustle,” but most don’t do it in their own field or with competitors. This doesn’t hold true for contractors. They also have the ability to sub-contract work to others if they feel it is appropriate, or to substitute their own employees or associates where the need arises. If you require a consistent individual to be in place working on something that may be proprietary, confidential, or highly competitive, you may want to take on an employee instead.

Remember this as well, if you do not want a contractor to work for another organization, you really are hiring an employee, even temporarily, and you may hear from the CRA about it when it comes to tax season. It would be a good idea for you to review the CRA’s policies around contract vs. staff.

WORK, DISCIPLINE AND TERMINATION

While your employee is working with you, there are some very specific rules in the labour legislation, as well as within employment law, that you need to abide by. Examples of this include meal times, pay equity, overtime calculations, sick days, and employee discipline.

You are required to provide a meal break of 30 minutes for your employees, but you do not have to give other breaks. That said, most employers do. It is up to you to determine how you will work breaks into your employees’ working time. Regular breaks promote better attention paid to detail, so it is a good idea to consider how best to provide them.

Employees are also legally entitled to a certain number of unpaid leaves of absence in BC while other provinces may have mandatory sick days and/or other leaves. Keeping sick employees will reduce your overall productivity and may spread illness within your other staff – and have an even greater effect on your productivity so you may want to consider more than the minimum required by your provincial employment standards!

Vacations for employees are calculated based on their overall wages. Employees are entitled to 4% of their total salary as vacation, which can be calculated and paid with each pay cheque or can be accrued and paid to employees when they take equivalent time off. This is a consideration based on your business model and work. As the employer it is your decision, however vacations do help to increase employee satisfaction and loyalty.

The amount you pay your employees cannot be differentiated based on gender, orientation, marital status or age. Paying employees the same means that, if they literally have the same job (salesperson, dentist, manager, etc.), they must be paid the same in a way that is commensurate with their experience, responsibility in the workplace and activity. This is also true when it comes to similar but different types of work as well. 

There is also a requirement called pay equity (not equality), to pay people within similar “bands” of pay based on multiple factors including but not limited to: 

  • level of decision making
  • impact on business
  • customer contact
  • exposure to physical, mental or social situations that cause individual difficulty (this covers everything from dusty workplaces to noise exposure in nightclubs)

If you have individual employees doing different tasks, you might want to look into pay equity in order to help you make decisions on what to pay and why.

Provide Training When They Start

Not every employee works out. People quit, sure, but when it comes to disciplining or terminating an employee, you need to be careful to be fair and provide enough notice that there is no recourse to you through the courts. A clear job description and expectation of performance are a good start to making sure an employee can be confident in doing their work and in your satisfaction of work done. 

When an employee is new, it is important to coach and teach the employee to ensure the work is being done to your satisfaction. As the employee gains more experience, it is important to provide ongoing feedback as appropriate to make sure you are both calibrated to the success of the work. A monthly, quarterly or at least regular review of the work is important to ensure no one is surprised if work is slipping or not going well. You do this with your business numbers and sales, so do it with your people too; they are an asset to your business and need regular review. 

And Prepare In Case They Don’t Work Out 

Discipline may require you to write them about any issue and have them acknowledge that it is a serious matter needing attention. Treat this the same as with a supplier. If your supplier didn’t follow through with their contract, you would talk to them, then write them, then formally issue a “last chance” warning, then terminate the contract. Do the same with your employee (where appropriate) so that everyone is clear. 

It may be that you need to terminate with severance, pay out their vacation entitlement if you have been accruing it for them, or pay out an agreed-upon expense.

Expanding your business to better serve your customers and impact your business world is an exciting time and you can successfully get more help through either hiring employees or contractors. Be careful and thoughtful about your business intentions and goals – and your decisions around bringing on staff will be just as successful as you already are!

**This blog is for information only and not to be used as tax advice or planning without first seeking professional advice. Information is subject to change without notice. 

***This article was originally published in Volume 33, Issue 3 of Business Matters in June 2019. BUSINESS MATTERS deals with a number of complex issues in a concise manner; it is recommended that accounting, legal or other appropriate professional advice should be sought before acting upon any of the information contained therein. Although every reasonable effort has been made to ensure the accuracy of the information contained in this letter, no individual or organization involved in either the preparation or distribution of this letter accepts any contractual, tortious, or any other form of liability for its contents or for any consequences arising from its use. BUSINESS MATTERS is prepared bimonthly by the Chartered Professional Accountants of Canada for the clients of its members. Jennifer LePage, MAEd – Author.