How do I hire an employee? That's the "big picture" question.
After consulting with many small business owners, we have created a list of the top 3 questions they ask about hiring an employee.
After consulting with many small business owners, we have created a list of the top 3 questions they ask about hiring an employee.
AN INDEPENDENT CONTRACTOR OR AN EMPLOYEE?
The key here is to determine the classification. Often times using an Independent Contractor (IC) for project work is a great way to support your business. However, be sure that the working relationship is not that of an employee. Often times the relationship starts out one way, but evolves into something else.
There are many criteria that a court or the Canadian Revenue Agency will consider when determining the actual relationship. Here are 3 questions to ask yourself:
Who controls the work (e.g. hours, location, how work is done)?
The key here is to determine the classification. Often times using an Independent Contractor (IC) for project work is a great way to support your business. However, be sure that the working relationship is not that of an employee. Often times the relationship starts out one way, but evolves into something else.
There are many criteria that a court or the Canadian Revenue Agency will consider when determining the actual relationship. Here are 3 questions to ask yourself:
Who controls the work (e.g. hours, location, how work is done)?
- The best case scenario is when the worker has their own registered business. If they do not, be sure that you do not control the work. The IC should be able to do the work when they want to, where they want to and how they want to. As long as the end result is finished by your deadline, the control should be up to them However, if you give them an office, tell them when to come in and start micro-managing them, they are an employee and should be treated as such.
Does the employee use their own “tools” (e.g. computer, car, phone)?
- Much like the above question, the IC should be free to use their own tools… you should insist that they do. If you start supplying them with your tools to use, the relationship has changed.
- This is an important one. In a true IC relationship, the IC has more than you as a client. If they are working solely for you, they may be considered an employee. Now, keep in mind, business may be slow for an IC and they may only have you as a client…that’s different…that’s OK.
The cost of mis-classification can include paying the employer AND employee back taxes from start date to end of employment......
The employee could also sue for benefits if they were offered to other internal employees and not them.
The worker mis-classification can be discovered by and audit from the CRA, or a former worker filing a complaint.
IS THERE A DIFFERENCE BETWEEN A PART-TIME AND FULL-TIME EMPLOYEE?
There is no legal distinction between full and part-time employees. We use the saying “An employee, is an employee, is an employee.” The Ontario Employment Standards apply to both with regards to 4% vacation pay entitlement, statutory holidays and termination pay/notice.
Be cautious about using “volunteers” or unpaid “interns”. Minimum wage would apply to anyone doing work for a private sector company. Only non-profit and charitable organizations can legally use volunteers without pay. Even structured programs such as co-op or vocational school programs are at risk when not paying workers.
WHAT SHOULD I KNOW ABOUT HIRING A FAMILY MEMBER?
Bottom line: treat the employment just as you would hire someone “from the street”. He/she must do the work for which they are paid. You should have even a simple employment agreement with a job description. They must be paid fairly as you would if you hired a stranger.
Always…always…pay them by cheque or direct deposit at least once per month – NO CASH!! All the paperwork must be signed; Income Tax forms, Employment Contract, etc. You must ensure to remit all statutory employer costs (e.g. Federal & Provincial income tax, EI, CPP) and tax withholding is required.
Tax withholding is required. The rule of thumb, as it is in accounting terms, is to keep an “arms length” relationship. If you don’t, the employee (family) will not qualify for Employment Insurance.
The worker mis-classification can be discovered by and audit from the CRA, or a former worker filing a complaint.
IS THERE A DIFFERENCE BETWEEN A PART-TIME AND FULL-TIME EMPLOYEE?
There is no legal distinction between full and part-time employees. We use the saying “An employee, is an employee, is an employee.” The Ontario Employment Standards apply to both with regards to 4% vacation pay entitlement, statutory holidays and termination pay/notice.
Be cautious about using “volunteers” or unpaid “interns”. Minimum wage would apply to anyone doing work for a private sector company. Only non-profit and charitable organizations can legally use volunteers without pay. Even structured programs such as co-op or vocational school programs are at risk when not paying workers.
WHAT SHOULD I KNOW ABOUT HIRING A FAMILY MEMBER?
Bottom line: treat the employment just as you would hire someone “from the street”. He/she must do the work for which they are paid. You should have even a simple employment agreement with a job description. They must be paid fairly as you would if you hired a stranger.
Always…always…pay them by cheque or direct deposit at least once per month – NO CASH!! All the paperwork must be signed; Income Tax forms, Employment Contract, etc. You must ensure to remit all statutory employer costs (e.g. Federal & Provincial income tax, EI, CPP) and tax withholding is required.
Tax withholding is required. The rule of thumb, as it is in accounting terms, is to keep an “arms length” relationship. If you don’t, the employee (family) will not qualify for Employment Insurance.
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