How to Hire and Manage Employees (Paperwork)
As your business grows and becomes more successful, you may discover that you need to bring in staff to assist with the growth of the company (employee management). Hiring of employees creates a number of paperwork requirements that must be met in order to fulfill government regulations.
Once you have hired an employee, the first item of business is to have them complete both a TD1 and a TD1-ON. These documents are the federal and provincial forms used to determine an employee's personal deduction code. This code is used as part of the formula to calculate the amount of Income Tax to be deducted from an employee's pay. An employee is not required to complete a new TD1 or TD1-ON each year. Employees should only complete a new form if there is a change in the amount of their personal credits and must be done within seven days of this change.
You should now consider having your new employee sign three key agreements (or one agreement with the following three components) prior to commencing work. These are:
- A Confidentiality Agreement
- A Non-Competition Agreement
- An Intellectual Property Agreement
Each of these documents is key to protecting your rights as an employer.
The Confidentiality Agreement or Non-Disclosure Agreement is a legal contract that encourages employees not to divulge important classified information regarding your company to unauthorized individuals or companies. This information may be in the form of client lists, supplier lists, processes and procedures, financial information or any other sensitive information. While this agreement cannot prevent employees from divulging sensitive company information, it does provide for legal recourse if this occurs as well as grounds for termination with cause.
A Non-Competition Agreement is meant to prevent an employee from using acquired knowledge concerning clients, suppliers, pricing or any other company data against the employer by opening a competing business or leaving to work for a competitor within the industry. These Non-Competition Agreements must be very carefully structured or they will not hold up to enforcement by the courts. You must be careful to avoid having the agreement be deemed to be "restrictive of trade" in such a way as to prevent the employee from earning a living within their chosen field. Thus, the time and physical area in which an employee may not compete with the employer, following the termination of employment, must be reasonable.
An Intellectual Property Agreement is a critical document that should not be overlooked during the hiring process. This agreement spells out who will be the owner of any creations of the employee during their employment with the company. While it may seem obvious, the legal ownership of intellectual property created by employees during the course of their employment is not a simple matter, if left to the courts. Without a valid agreement in place, copyright applicable works are generally regarded as the property of the employer. Patent eligible items, in the absence of an agreement, are generally regarded as the property of the inventing individual. Most other intellectual works developed by an employee in the course of their employment fall in a gray area between these two, leaving the employer exposed to the potential loss of the use of the work. The need for an Intellectual Property Agreement is magnified dramatically if the individuals are retained as independent contractors.
The maintenance of payroll records (Payroll accounting) will be an ongoing necessity for any business-hiring employees. You will need to carefully record what is paid to and deducted from each employee each pay period. Amounts must be calculated for Employment Insurance (EI), Canada Pension Plan (CPP) and Income Tax, each payroll. Employer contributions must also be calculated for CPP and EI. Before the fifteenth of each month, a form, either electronic or paper, provided by the Canada Revenue Agency will need to be completed and filed along with the amounts withheld from the employees as well as the employer contributions. These filings are completed under your Federal Payroll Number and failure to submit by the deadline will usually result in a fine equivalent to 10% of your total submission.
You will also, depending on your industry, periodically receive Employee Health Tax (EHT) and Workers Safety Insurance Board (WSIB Ontario) forms to complete. These submissions are also based on the amounts paid out for payroll. In the case of WSIB, the total owing is also a factor of the industry and accident history of your company. As always, careful record keeping and timely submission is important to avoid unnecessary penalties.
Each year prior to the end of February, every company with employees or contractors must prepare T4 slips, submit summaries of these slips to the Federal Government and issue the individual T4's to the employees and contractors. T4 slips are a summary of all monies paid to the employee/contractor as well as all deductions withheld by the employer. It is advisable, if an employee leaves during the year, to complete and issue a T4 along with the Record of Employment, keeping a copy of the T4 for submission the following February.
The final piece of paperwork the must be completed for an employee is the Record of Employment (ROE). This document must be prepared and issued to the employee within five days of the individual leaving the service of the employer. The employer must keep a copy of each ROE for a minimum period of five years from the date of issue.
As is probably obvious at this point, maintenance of employee records and timely submission of employee related payments to the appropriate government agency is critical to avoid accruing significant penalties. The time-consuming nature of these processes can detract from the time available to accomplish the business of your company. Business Development Centre can assist you by taking care of these paperwork issues effectively giving you more time to devote to growing your company.