A business is as good as its employees. Finding good employees who can add value to your business and stay with you on the journey to the top is not easy, especially for startups. With a tight budget, limited experience, and a brand reputation yet to be built, hiring for your startup presents many challenges indeed.

However, even before you take up the herculean task of finding that first kindred employee, there are several things you, as a first-time employer, have to think of, plan for, and put into action. Hiring your first employee brings a regular financial commitment towards payroll and adhering to the labour laws of your province. Hence, it is necessary to first understand what factors to keep in mind before taking on any employees. So, let’s begin.

Key Financial Considerations Before Hiring Your First Employee

How much does it cost to hire an employee? As much as the salary you’ll be paying them, right? Wrong! Hiring costs go beyond just the wages or salaries paid. They involve:

Recruiting cost: Advertising for new employees, agency fees (if you use an employment agency), and interviewing costs

Background Checks: Educational verification, criminal background check, credit report check, social media screening, etc.

Onboarding costs: Training, orientation sessions, equipment and software licenses, office space, uniforms, etc.

Then there is the employee benefits package (health insurance, pensions, leave entitlement, etc.), workers’ compensation premium, income tax, Canada Pension Plan (CPP), Employment Insurance (EI), and more. All this begins as soon as you hire your first employee!

What to Check Before You Hire Your First Employee

With so many things to manage, it is important to first understand your startup’s financial position and how much it can afford to spend on hiring. There are a few things that need to be checked for this:

• Business Cash Flow: Whether you’re an established corporation or a startup, it is important to assess whether your business’s cash flow is sufficient to cover the hiring costs mentioned above. Maintaining a 20% margin over your hiring costs to cover unexpected contingencies is also a wise strategy. But what if you don’t yet have the luxury of consistent cash flow and still need people in your business? Then hiring part-time employees or independent contractors instead of full-time employees, or even outsourcing specific tasks, could prove more affordable.
• Assess Your Workload and Business Needs: There is nothing more exciting for an entrepreneur than opening the doors of their business and getting started on the high volume of business they expect to come in. It is this very expectation that often leads first-time employers to hire a couple of people in a rush and begin delegating many tasks to them. But what happens if optimism wanes and business begins to ebb for some unforeseen reason? On the one hand, your employees will be left with little work to do; on the other, you will be forced to comply with the employment terms you promised them, which will put your fledgling startup under financial stress.

However, the solution to this does not lie in hiring a single employee to handle every task. Expecting one person to handle responsibilities that require different skill sets can, in fact, prove to be even more costly. It’s important to make a realistic estimate of how much work you have and whether it will be enough to keep your first hire interested and invested in the business.

A business consultant can help gauge these factors, understand how your demand fluctuates or how business cycles work, and accordingly set hiring requirements. They can also assist you in finding an entry-level employee who can handle simple tasks, such as scheduling and routine administrative work, at a reasonable salary, freeing you to focus on more important business decisions and planning. Thus, hiring small is hiring smart, and measurable outcomes can help you calculate your true hiring requirements.

• Define Responsibilities: Having identified your hiring needs, you need to draft a concise job description outlining daily responsibilities, along with information about the company, educational qualifications, skill set, and experience. This will help you streamline your employee search.
• Settle on Compensation Rates: Even before the placement ads go out, you must be clear about the compensation you can offer the employee, including benefits and other perks. A business consultant can use salary benchmarking and compensation management tools to make you aware of the industry standards for the same position. An accountant can analyze your financial data to develop a feasible salary and benefits structure.
• Define Your Budget for Employee Payroll and Benefits: The true cost of an employee is 25-40% higher than the salary you offer. These additional costs, such as a generous benefits package, insurance coverage, and other perks, are important for attracting and retaining the right talent. However, as a startup still finding its footing in the industry, you must also keep your budgetary limitations in sight. With the help of your accountant and business consultant, define a clear budget for such payroll and employee benefits.
• Find the Right Candidate: With all your homework and budgetary decisions made, you are now ready to make your first hire. To ensure you make the right choice, it is essential to thoroughly screen each potential candidate. From double-checking educational qualifications and skills to cross-checking past references and criminal backgrounds, take your time to do research. Only when you are completely convinced that the person is perfect for the job should you proceed to make a job offer and put them on the payroll.

How To Prepare Your Startup for Hiring Employees

Paying your employees is a complete system by itself, known as payroll. From getting a business number for yourself as an employer and registering a payroll account with the Canada Revenue Agency (CRA), to calculating salaries, subtracting taxes and deductions, and remitting those deductions to the CRA, you need a well-structured and accurate payroll system. All relevant documentation, including performance evaluations, compliance forms, and timesheets, must be recorded, and pay stubs and T4 slips must be carefully issued.

Contact Ford Keast LLP in London to Help You Build a Hiring and Compensation Strategy for your Business

Building your startup team is an exciting milestone, but navigating CRA compliance, payroll deductions, and T4 preparation can quickly become overwhelming. You do not have to handle the financial complexities of your first hire alone. Our team of expert small business accountants is here to help you design a sustainable salary structure, open your CRA payroll account, and manage your monthly remittances seamlessly. To ensure your business remains fully compliant while you grow, contact the team at Ford Keast LLP in London for business advisory and HR consulting support. Reach out to us online or call us at 519-679-9330.