Five crucial questions to ask before hiring your first employee
Some of the details (i.e. payroll forms and deductions) in this article are specific to Canadian businesses. If you’re based outside of Canada, be sure to check with your federal, state, and/or regional government agencies for more details.
Hiring your first employee is a major milestone for any small business. After months of going it alone, you’ll be able to double your work capacity and reach your business goals faster and more consistently than you ever could have alone.
On the flip side, hiring your first employee comes with a set of responsibilities that can be costly to ignore.
To help you stay compliant and focused on what matters most, here are 5 crucial questions to ask before you hire your first employee.
1. Should you hire an independent contractor or employee?
Outsourcing part of your workload to a contractor can be a smart and cost-efficient way to manage your small business’ growth. This could be an avenue to consider if you're looking to reduce cost-for-hire for your business. Contractors are often more flexible than employees, and employers generally aren’t responsible for covering their employment insurance, vacation pay or taxes.
But before hiring your first employee, make sure you’re very clear what kind of hire this is: an independent contractor or employee.
The distinction can be difficult due to complex legal rules, but it’s an important one to make. Employee misclassification is one of the most common issues in employment law and failure to comply comes with hefty legal fines that can stop your small business’ growth in its tracks.
If you’re unsure, consult with an employment law professional to avoid major headaches down the road.
2. Do you have the right new hire paperwork?
New hire paperwork is especially important for small businesses to get right. Any ambiguity related to roles, salaries, or intellectual property can cost you up to tens of thousands of dollars in legal fees.
To protect your business, you’ll need a solid job offer letter and employment contract sent in the right format at the right time. What’s the difference?
A job offer is a brief invitation from an employer to a potential employee to begin employment at their organization. Job offers often take the form of letters, but they can also be made over the phone, in person, or via email.
An employment contract is a far more detailed contract that includes terms and conditions of compensation, probationary periods, benefits, vacation, termination, and restrictive clauses such as non-competition and confidentiality agreements.
Whether you are hiring your first employee or your fiftieth, it’s just as important to get your new hire paperwork right.
3. Are you keeping compliant payroll and employee records?
Employee record keeping may not be the most interesting part of being a business owner. But it is an extremely important step when it comes to running payroll for your business. There are a number of legal requirements you need to be aware of to protect your business, especially when it comes to payroll and compensation records.
The employee records you are required to keep include, but are not limited to:
- Start and end dates
- Employee personal information (name, address, SIN, classification, sex, and age)
- Rate, salary, or wages
- Daily hours worked
- Written contracts and agreements
- Vacation and leave records
- Amounts withheld for CPP, EI, and taxes
- TD1 and other tax forms
In addition, employee records must be:
- Federally and provincially compliant (which records you need to keep for for how long differs from region to region)
- Securely stored to ensure privacy of sensitive information
- Readily accessible
- Accurate and up-to-date
Remember that keeping these records isn’t just a formality. They can provide important evidence in case of lawsuits, payroll audits, or ministry of labour inspections.
Before you hire your first employee, choose a secure employee record system. To make your life even easier, opt for a small business payroll system that automates records and forms, which means less data entry and paperwork for you.
4. What kind of employee benefits will you offer?
Employee benefits are equally important for employee recruitment and retention. Happy, healthy employees are the cornerstone of a happy and healthy business.
While traditional group benefits may not be within your budget if you’re just starting out, there are many other types of low-cost yet meaningful employee perks you can offer to your small business team.
Low-cost workplace wellness programs include extended vacation policies and healthy catered meals.
Alternatively, you can offer a healthcare spending account, such as an HSA or an FSA. Employee spending accounts let employers set aside a fixed dollar amount for their employees to spend on approved expenses, some of which are tax-free. HSAs and FSAs are a flexible and cost-controlled way to show your employees you care.
5. Do you know who to ask for help?
Until now, you’ve been running a tight ship, managing customer relations, marketing, bookkeeping, and practically every aspect of your business alone. As you enter this new phase in your business’ growth, however, it’s important to know when to ask for help.
A trusted human resources consultant or service can provide invaluable employer advice, from how to conduct reference checks to managing training, compensation, employee relations, and more.
Best of all, knowing that you have support when you need it will allow you to focus on what matters most. Happy hiring.
The information and tips shared on this blog are meant to be used as learning and personal development tools as you launch, run and grow your business. While a good place to start, these articles should not take the place of personalized advice from professionals. As our lawyers would say: “All content on Wave’s blog is intended for informational purposes only. It should not be considered legal or financial advice.” Additionally, Wave is the legal copyright holder of all materials on the blog, and others cannot re-use or publish it without our written consent.