Small companies account for more than 98% of all businesses in Canada, and are distinguished from large companies by the number of people they employ. Large businesses boast 500 employees or more. But if you employ fewer than 100 people, you’re a small business owner with an enormous responsibility for paying employees correctly, on time, and in compliance with employment standards and legislation.
As most businesses grow, they might seek to increase their employee count. But most growing businesses are unable to afford a human resources team.
To meet their payroll responsibility, some business owners will elect to either pay their staff and manage payroll deductions themselves or assign these payroll tasks to a relative.
Even though payroll might seem like a straight forward task, you should still have someone that is familiar with the payroll legislations to handle your payroll. If you assign someone unfamiliar with the payroll legislations to do your payroll, you are increasing your risk of fines and penalties.
If you’re a BC-based small business owner with new employees - and you’ve decided to handle payroll yourself - this article will help you understand what you need to do for payroll and how to get started doing it.
Payroll for Small Business Owners:
When and How to Pay Your Employees
Paying your employees accurately and on time is the foundation of a compliant payroll practice. Payment amounts and timeframes should be determined by consulting both the federal and provincial employment standards. Those standards will also need to be reflected in any employee contracts you enter into.
Government legislation is in place to ensure employees are paid fairly. So, it’s important that you stay up to date and conform to all employment standards, including those for:
- Minimum wage,
- Vacation and termination pay,
- Statutory holiday pay, and
- Pay structures for standard, overtime, and emergency work hours
Here are some examples of the employment agreements you may need to consider when establishing your payroll system. Some of these documents will be driven by the nature of your business - others are set out by unions.
While the Canada Revenue Agency (CRA) doesn’t require signed employee agreements, your business may find them valuable for formalizing the exact terms of an employee’s:
- Salary, hourly wage, or commission,
- Work hours and job duties,
- Probationary period, and
- Employee benefits
Employee agreements can help you avoid payment misunderstandings down the road. But it’s essential that they adhere to federal and provincial employment laws.
In some businesses, an averaging agreement is signed by employer and employee that permits the number of hours worked over one, two, three, or four weeks to be averaged out. This does away with the need to calculate and pay overtime for hours covered by the agreement when you’re processing payroll.
Employee Benefits Agreements
According to the CRA, employee benefits include anything personal in nature that you pay for or provide to an employee or their family member. Benefits can include allowances, reimbursements, or the use of goods, services, or property your business owns.
Examples of employee benefits include:
- Cell phones,
- Company vehicles, transit passes, or parking permits
- Group insurance premiums,
- Childcare expenses, and
- Recreational memberships
It’s important that you understand which employee benefits will result in a tax filing, and which are considered non-taxable.
If your employees are unionized, they may have a collective agreement that includes additional standards of employment. And in many cases, unionized employees will request that you deduct and remit part of their wages to a third party as union dues.
Employment Standards Overview
Every employee you hire will need to be offered at least the minimum work standards legislated by the federal and provincial governments.
In addition to the standards set out for things like minimum wage, overtime, and vacation pay, employment laws also dictate the requirements surrounding employee termination and the timing of payments.
For example, as an employer, you must run payroll at least twice a month by choosing either a bi-weekly or semi-monthly pay period frequency. In either case, employee pay periods cannot be longer than 16 days.
At the same time, all the money your employees earn – whether it includes standard pay, overtime, or statutory holiday pay – must be paid within 8 days following the end of the pay period. If your business banks annual vacation pay or wages on behalf of employees, those amounts do not need to be paid within the pay period.
You should also be aware that if you employ hourly staff that work more than 8 hours a day, BC employment standards for overtime state that you must pay each extra hour of work at 1.5 times an employee’s regular rate.
For hours worked over 12 hours a day, employees are paid double time. A weekly overtime rate of 1.5 times the regular rate also applies to employees who work more than 40 hours in a week. Only the first 8 hours worked in a day count toward weekly overtime.
Choosing the Right Payroll System or Service
The most efficient way to pay employees is with the help of an online payroll system or service. The complexity of your payroll process will determine the payroll system you need. Here's what you should consider when it comes to choosing the right payroll system:
- The number of employees you have,
- Your mix of hourly wages and salaries,
- Whether you work with contractors or commission-based employees, and
- How frequently you deal with employee expense claims, allowances, or overtime
Accounting software designed for small business payroll is fully capable of calculating employee pay and payroll deductions. Many systems will even complete the appropriate payroll tax forms.
But whether you choose a payroll application like QuickBooks Online, Ceridian, Wagepoint, Payworks, or Rise, you’ll typically need to make payments yourself. You should also note that all of these platforms are cloud-based. Cloud payroll solutions reduce manual data entry and are the best way to streamline your payroll process.
If you’re not comfortable with the idea of using accounting software, or you’re too busy running your business to learn how, you might want to consider outsourcing your payroll. Third-party payroll providers like Enkel offer end-to-end payroll service, taking payroll tasks off your hands.
What to Expect from Your Payroll System
Taking advantage of an automated payroll system will ensure your employee payments are made accurately and on time. The right payroll software, in fact, can help you:
- Calculate and remit most payroll deductions, including Canada Pension Plan (CPP) contributions, Employment Insurance (EI) payments, and income tax deductions,
- Generate T4s at the end of the year and ensure employees receive them on time,
- Fulfil employee termination requirements by generating and filing Records of Employment (ROEs) with Service Canada
Many small business owners also opt for the convenience of direct deposit payroll instead of processing paper cheques themselves. With direct deposit, your employees simply provide their banking information and you use a system like QuickBooks payroll to electronically transfer their pay to their personal bank accounts.
Setting up employee payroll, and staying abreast of what small business owners need to do throughout the year, can be an ongoing challenge. If you’re not planning to hire an in-house accountant or bookkeeper, outsourcing to a full-service payroll management expert like Enkel may be well worth considering.