Wages are just the base cost of hiring an employee. As an employer, you also have to make Canada Pension Plan (CPP) contributions, Employment Insurance premiums, and other expenses. Some analysts estimate that you should account for 1.2 to 1.4 times your employee’s salary when estimating their true cost. However, the numbers vary based on your individual situation. To help you create an estimate, here are some key factors to take into account.
Canada Pension Plan Premiums
In most cases, you must withhold CPP premiums from employee cheques and match these payments. Premiums change annually, and as of 2016, you must remit 4.95% of earnings over $3,500 and up to $55,300. For example, if your employee earns $25,000 per year, you contribute $21,500 * .0495 or $1,064.25 in 2016.
Employment Insurance Premiums
You also must withhold Employment Insurance (EI) premiums from paycheques. However, rather than matching these premiums, you contribute 1.4 times the employee contribution. For example, if the employee contribution is $100, you contribute $140.
Adjusted annually, the EI premium rate for employees is 1.63% of of 2017. To estimate your annual contribution when hiring a new employee, multiple their salary by 0.0163 and multiple the result by 1.4. Note that you only pay EI premiums on earnings less than $51,300. If you pay your employee more than this amount, your maximum annual contribution is $1,170.76.
After your employees have been with you for 30 days, they are entitled to general holidays off with pay. If they work these days, they must receive time and a half plus holiday pay. If you have a part-time employee, they are eligible for paid holidays proportional to how many hours they work. For example, an employee who works an average of 20 hours per week, should receive half a paid day at every holiday.
There are nine general holidays, and there are a few different ways to account for these days when assessing how much it costs to hire an employee. If you like, you can plan to be without help for these days and just include the holidays in the employee’s salary.
Alternatively, you may figure out what your employee earns in a day, multiply that amount by 1.5, and then by 9. For example, if your employee earns $200 per day, assume each holiday will cost you $300, and in total, the nine holidays cost $2,700. When you add this figure to your employee’s salary, you can see how much it would cost to have your employee (or a temp) work these days.
In most cases, you have to provide employees with two weeks paid vacation per year. Based on provincial laws, this number increases as employees stay with the company. If you can get by without your employee’s help for two weeks per year, you don’t have to account for any additional funds to accommodate vacations. You simply have to keep the employee’s annual salary in mind. However, if you cannot get by without help, you need to account for the cost of hiring a temp or paying other workers during this time period.