Running a business is generally time-consuming and stress-inducing. There are a multitude of areas to manage, along with various aspects to become familiar with. One of those areas is labour costing, and it is crucial to become familiar with it for the long-term. It may seem challenging to enact, and daunting at first, but this is more superficial if anything.
No matter the size of your business, labour costing will always be a task that requires your full and undivided attention. Thankfully, many of the stages involved are not that difficult to conduct. Once you determine all applicable details, calcualting your labour costs can become a relatively easy task.
The main challenge of doing labour costing by yourself is simply acquiring the right information. Once this is done, you can divert your attention to other, more laborious areas of your company. As for what you need to know, here are the important guidelines on how to do labour costing:
1. Work with your employee on the labour costs
Running a business, generally speaking, will involve hiring a worker at some point. This is one of the first steps to conducting labour costing, if not one of the more obvious steps. The next part involves collecting various documentation from your employee. This usually starts with obtaining their Federal and Provincial TD1 Forms, which have been signed and filled out.
Other principal documentation ranges. This can include their mailing address, their SIN number, date of birth, and their bank account information for direct deposit purposes. Make sure to also clarify all employment details with your workers ahead of time, so that they know how compensation will inevitably work.
2. Use labour costing software to help
Many business owners of yesteryear have conducted labour costing in-house. This usually involves using a payroll deduction calculator, along with inputting data into a relevant spreadsheet for tracking purposes. If your payroll is relatively simple, then conducting this yourself should be no issue at all.
However, as your business grows with more hires, you may want to consider using labour costing software. Most of this specific software allows payroll deductions, along with various other areas such as direct deposit, to be done automatically. It really just comes down to your specific circumstances; however, software automates all menial aspects for you!
3. Understand the frequency of labour costs
The next step on how to do labour costing is becoming familiar with how frequently your workers will be paid. The frequency of labour costs is generally done in one of two ways; bi-weekly or semi-monthly. Like choosing between manual or automated payroll, this largely comes down to the type of business you run.
For the most part, a bi-weekly payroll frequency will usually be your best bet, which involves paying your employees every two weeks. A semi-monthly frequency pays your workers twice a month. Both have their pros and cons, so they should be weighed accordingly before deciding on which to implement.
4. Register your business
If you run a business, you probably already have a requisite business number that is registered to your operations. Once this done, the next step involves officially registering your payroll. This is done in accordance with the CRA, and is a fairly straightforward process. Typically, all you would have to do is contact the CRA, and request to open a payroll account.
5. Calculate the labour costing
Should you decide to go the route of labour costing software, this step will require you to run the actual program. Essentially, you will have to set up pay dates for each respective pay period. This will include the first and last days of each pay cycle, along with the actual pay dates where income is deposited into a worker’s bank account.
Hours will also have to be tracked once you are familiar with running labour costing software. This is critical, especially if your employees are paid hourly and are not salaried. Afterwards, the labour costing software will generally give you some time at the end to review all details. Be sure to always double check for errors!
By law, employers are required to deduct a certain amount of income from an employee’s pay, and remit it to the Canada Revenue Agency, or CRA. These deductions will generally include contributions from a Canada Pension Plan, or CPP, and Employee Insurance, or EI. In addition, income tax must also be withheld initially, before being remitted.
Remittance dates are some of the most crucial dates to keep in mind as a business owner. Failure to do so will result in penalties, the extent of which varies depending on the lateness itself. For your own benefit, be sure to check the Canada home website for all applicable remittance dates.
In some cases, doing your labour costing may be too much of a hassle as a business owner. If you find that you cannot allocate some time to do it yourself, it may be in your benefit to outsource labour costing to a third-party accountant. Their services will take care of all your labour costing needs, big or small!