Almost every business will, at some point, hire employees, whether it’s when an existing employee hands in their notice or when the workload has increased to a point where existing team members cannot keep up. Whatever triggers the hiring process within your organization, have you stopped to consider the true cost of hiring a new employee and whether it’s a cost that can be avoided, or at least reduced?
New and growing businesses often hesitate to start hiring because of the costs involved. Before we dig into options other than hiring a full-time employee, let’s take a look at all the potential costs of hiring a new employee in Canada that must be taken into consideration.
Throughout this article we will use the example of an experienced bookkeeper in Canada that could demand an average annual salary of $46,000 a year to highlight the total costs that should be taken into account when making hiring decisions.
Direct Cost of Hiring a New Employee in Canada
Salaries range dramatically depending on the job at hand, experience required, industry, etc. For lower skill positions you will be paying, at the very least, minimum wage which varies from province to province. As of June 1, 2021, the highest minimum wage sits at $16/hr in Nunavut, and the lowest is $11.45/hr in Saskatchewan.
Canada Pension Plan (CPP) Premiums
Employers are required to match their employees’ CPP contributions. As of 2021, the employee and employer CPP contribution rate is 5.45% for earnings over $3,500 and up to $58,100.
A full-time bookkeeper at the average Canadian annual salary of $46,000 would cost the employer ($46,000 – $3,500)*0.0545 = $2,316.25 in 2021 CPP contributions.
Annual Salary + CPP = $48,316.25
Employment Insurance (EI) Premiums
Employment Insurance (EI) is a temporary income payable to workers in the event that they are unable to work. In 2021, the federal EI premium rate is 1.58% payable by the employee, with a maximum annual insurable earning of $56,300. Employers are required to pay 1.4x the amount of the employees premiums which is a cost of hiring a new employee that some employers neglect to take into account.
A full-time bookkeeper at the average Canadian annual salary of $46,000 would pay EI premiums of $46,000 x 1.58% = $726.80 and employer EI premium would be $726.80 x 1.4 = $1,017.52.
Annual salary + CPP + EI Premiums = $49,333.77
When hiring for skilled workers, businesses must provide potential employees with an attractive package which extends beyond annual salary. In Canada, employee benefit packages covering health insurance, vision care, dental care, and life insurance are, more often than not, a necessity to attract and retain the right employees. However, benefits packages can add considerably to the overall cost of hiring a new employee.
The costs of a benefit package could vary from $80 to $120 per month for a single employee, more for family coverage. Employers need to keep a handle on costs with a well thought out strategy and approach as there are so many coverage options. Consider options such as 80% coverage rather than 100%, include caps on coverage costs (e.g. capping dental coverage for each treatment), or implement combined maximum for expenses such as massage therapy, chiropractor visits, etc. However, do not reduce benefit coverage to the extent that it becomes ineffective as a perk.
When skilled workers are in high demand, employers need to think outside the box and offer more than just monetary benefits. Games rooms, stocked kitchens, wellness initiatives, etc. are becoming more commonplace as competition to hire the best of the best heats up.
All in all, it’s been estimated that payroll deductions and benefits can add up to 1.2 to 1.4 times the employee's salary.
A full-time bookkeeper at the average Canadian annual salary of $46,000 could cost employers up to $46,000 x 1.4 = $64,400!
Vacation and Sick Days
In Canada, employers must, by law, offer at a very minimum 2 weeks of vacation and 5 sick days per year for employees— one of the lowest paid time off amounts in the world. Offering more than the minimum is increasingly prevalent in today’s workforce, especially with the nuances that surround mental health and the need for employees to take paid time off to rest and recharge. In fact, paid time off is often a negotiation factor along with annual salary during the hiring process. According to a survey of 1,000 people by Rakutan.ca, given a choice between a pay increase or more paid vacation days, 57% of Canadians would opt for time off.
Also consider that if your employees don’t use up their vacation days, the employer must pay out any vacation pay owed to the employee for any prior completed “year of employment”. Employers can, however, mandate that vacation time be used rather than paid out.
In addition to the hard costs of hiring a full-time employee outlined above, there are the costs involved in making the hire to factor in from placing ads, to hiring a recruiter, to running background checks and more! According to a report by the Society for Human Resource Management (SHRM), it costs employers an average of $4,129 and takes an average of 42 days to fill an open position.
Onboarding, Training and Equipment
Finding and hiring the right person for the job is just the first step. Next comes their integration into the company, which comes at a cost of both time and money. According to a study by Training Magazine, companies spent an average of $1,286 a year on training per employee in 2019, and of course your new employee might require new equipment or additional software licensing fees to be able to do their job (unless they are replacing an existing employee who has left the company).
Time and Productivity
New hires can take 5-6 months to get fully up to speed, with the first 1-5 months focused on training, onboarding and orientation. The reduced productivity of not only the new hire, but also the team members showing the new hire the ropes must also be factored into the overall cost of hiring a new employee in Canada.
Turnover and Recruitment
Many businesses are not always lucky enough to find the perfect fit for the role in the first hire. In Canada, there is usually a 3-6 month probationary period, depending on the province or territory where employers have no termination obligations in terms of notice or pay in lieu thereof.
If a new hire ends up not being the right fit, there are more costs involved in rehiring.
Numbers vary depending on the source, however the general consensus is that when the actual costs of hiring are tallied up—including disruption to the business, training, reduced productivity etc.—it can cost anywhere from 40% to 200% of the position’s annual salary, depending on skills and experience required.
Accordingly, a full-time bookkeeper at the average Canadian annual salary of $46,000 could cost at least $18,400 to replace.
Alternative to Hiring an Employee: Outsourcing
Outsourcing certain roles within an organization is the next best alternative to hiring an in-house employee, and it can certainly end up costing significantly less! Tasks like Bookkeeping, Payroll and HR are increasingly outsourced as a way for business owners to reduce costs (as there is no need to pay for CPP, EI, or benefits for that role), solve capacity issues and focus on their core business. In addition, when you outsource certain aspects of the business:
- You no longer need to worry about hiring, employee turnover or retraining
- You have access to a higher level of skills and experience
- Your accounts will always be accurate and up to date
- There is usually a definitive start and end date, with no obligation to extend employment
Can you afford to waste time and expenses on hiring a full-time employee for a role that can easily be outsourced?
If you decide that outsourcing your bookkeeping is the answer to your hiring prayers, get in touch with Enkel. We can help support your business, streamline your operations and all but eliminate your recruiting costs — without adding another employee to your roster!