Ontario offers a comprehensive set of employment laws that all businesses – big or small – must follow. To create safe and productive environments for SMEs and employees alike, strict rules are set in place and helpful resources are offered. Listed below are some of the most critically important employment law considerations Ontario small businesses must be mindful of as they operate. Learn about Ontario employment laws for compensating employees, deduction conditions, and record keeping.
Contractors vs. Employees – What’s the Difference?
Compensating employees in accordance with Ontario laws is a crucial part of the operations of any SME. It is important, first and foremost, to understand the difference between the two roles of contractors and employees who work for you.
An employee is registered on a company payroll (see our 7 Step Payroll Guide), and is entitled to workplace and employer benefits such as vacation hours and employment insurance. The minimum wage in Ontario varies for students and general employees. A list of minimum wage rates can be found on the provincial government’s website. .
A contractor, on the other hand, is not a long-term worker, and does not have the same perks. Rather, they work with companies on a project-by-project basis. They are still held to the same expectations as employees, though they do not face some of the constraints an employee might. For example, contractors are typically free to work projects for multiple companies simultaneously, and more often than not can choose the medium and timeframe of their work.
Another major difference between the two types of worker is the idea of compensation. Employees are required to be paid in a structured way, and in regular intervals as laid out by Ontario employment laws. Contractors, on the other hand, have a far more flexible and case-by-case payment model, though they are most commonly paid upon completion of their work. The conditions can be negotiated; really, what’s most important is that a payment plan is agreed upon by both parties, and that it gets formalized in writing. You can obtain a free contractor agreement template, making it easy to hire contractors and protect your company by having them sign a legally reviewed agreement.
To determine if you should go ahead with hiring employees or contractors, the process can be quite difficult. Nobody wants to make the wrong choices with their hires, after all, the risks are far too great! To help make this decision, consulting guides to understand all the differences between employees and independent contractors will help you make the right decision for your business right off the bat.
In Ontario, companies are obligated by law to have an established structure to their payments of employee wages. This structure depends on two factors: the regularity of payments, and the medium by which they are made.
Wages must be paid in consistent intervals (ex. Biweekly, weekly, monthly, etc.) that have been agreed upon by both the employer and employee. Payments are not to be skipped (unless written agreements have been issued between both parties), and are to be made regularly. You don’t want to face the wrath of unpaid employees, or the consequences of breaking the law.
Moreover, payments must be made through one of three ways: cash, cheque, or direct deposit. Payments are to be recorded by the company. To have a comfortable time navigating your payroll records, we would definitely recommend the ReInvestWealth software to automate the payroll process. ReInvestWealth offers direct deposit payments with online access to payslips and T4s making payroll super easy.
But, what if you were unable to pay your employee on time? The infraction here can be grounds for legal action from the employee, actually. Since the law is well established and so important, if an employer were to break it, an employee can get into contact with the Ministry of Labour, who may carry out disciplinary action against the company. Our advice? Make sure you have the funds to, and do, pay your employees on time.
Ontario Employment Laws On Termination
In the case of termination or firing an employee, severance payments must typically be made. The specific amount varies from individual to individual, although Ontario law requires the payment to be made at the later of two dates: what would have been the next pay day for the employee, or a week after the employee contract has been terminated. Trying to cheat employees out of basic rights such as severance or even their regular wages has more often than not proven to be the most expensive option, which large gym chain businesses in Ontario found out the hard way.
To find the right severance amount for an employee who has been removed from their job, the calculation will typically be unique to their employment history at the company. To calculate severance follow these steps:
Calculate the wages owed for a regular work week (hourly wage * hours worked a day * days worked a week)
Use your records to find how many complete years the employee has worked for your company
Find the residual time outside of a full year (in months) that the employee has worked, and divide by 12
Add steps 2 and 3 together, and multiply by step 1
To view further examples about severance calculation for a small business in Ontario, consult the Ontario government’s website.
Notice for Absences
Absences can take various forms, including, but not limited to, vacation, half days, and sick days. Protocol regarding paid vacation and half days requires advance notice and approval from the workplace with no changes to the wage rules. Sick days can typically be taken by the employee on a per-requirement basis, and do not require the same well-in-advance notice. They can be further separated into sick leave (unpaid), and emergency leave (paid or unpaid). More information about employee rights, medical proof, etc. can be found on the Ontario government’s website.
The number of vacation days accrued by each employee depends on how long they have remained employed by a company, and starts at a minimum of two weeks. This number increases with the number of years of employment. Wages are determined using vacation pay, which is a percentage metric of a minimum 4%. The Ontario govenment’s website can be consulted for case-specific examples.
Deductions According to Ontario Employment Law
In Ontario, there are three main classes of acceptable deductions: statutory, court ordered, and written authorization.
Statutory deductions refer to the deductions that must be made legally. They are not optional for either of the two parties. Examples include pension plan deductions and income tax withholdings. They are typically deducted from every paycheque.
Court ordered deductions refer to authorized deductions on account of court decisions pertaining to a specific employee. They are typically a result of an outstanding balance an employee may owe to some source, which can include the company they work for itself. An example would be child support; a written, court-sanctioned document requires that the employee has an outstanding balance to be paid every month, which is owed for child support purposes. The employer should be recording this as a deduction.
Written authorization deductions are an exceptional case and refer to any individual agreements employees may have with their companies that gives them permission to make deductions from their salaries for any disclosed reason. These must be recognized by both parties, and formalized through a written contract.
Resources can be found online to navigate deductions. Online calculators, BDC pages, and government tools are available for further educating Ontario small business owners.
Record Keeping Requirements
In Ontario, databases must be maintained by small businesses that contain some basic information about all of their employees. We recommend using payroll software to simplify record keeping. Records must at the very minimum include the following details:
Day that their employment became effective
Hours spent working (daily and weekly basis), which may be subject to overtime payment rules, or even the three-hour rule (if an employee, who is typically scheduled for over 3 hours of work, ends up working for less than three hours, they get paid their hourly wage for three hours)
The hourly rate of payment, and currency
Vacation time an employee is entitled to, and how much is used
Any types of leaves, absences, or alternative work conditions (ex. Remote work)
Recording and Maintaining Payroll: The Why And How
The most common practice is to use accounting softwares to auto-calculate compensation for employees (and to save for updated records). Accounting softwares, like ours at ReInvestWealth, are also used to consider other facets of the business; bookkeeping, optimized operational activity, required financial statements for CRA purposes, etc.
Cloud accounting services are also offered for a more personalized tracking experience of all financial resources. It is an alternative to traditional practices where no actual hardware is required to store the information; instead, all of the accounting information is saved within the cloud. This is a natural complement to online accounting, which saves businesses the trouble of saving physical copies of items. Services pertaining to online accounting can be found here at ReInvestWealth, including, but not limited to, payroll for hired employees.
Resources to Help Hire Employees and Contractors
In order to obtain financing for basic operational activities such as hiring employees or contractors, many grants and loans are available for businesses to apply to. A company’s ability to qualify may vary from grant to grant, and as such, it is important to make thorough note of application criteria. Below are some useful resources that may offer financial support to businesses:
Free Funding And Hiring Resources
A brief list of government resources that offer grants is as follows:
In addition, non-government resources can also be accessed for extra financing opportunities, and banking options that suit your business may also be helpful. Non-profit resources such as Venture for Canada are useful in finding interns, and may fund the internship on behalf of the company.
Legal services may also be useful tools when preparing documentation and contracts for employees and contractors alike. Further readings regarding the nature of employee relationships and law services are also available. Lawyers are extremely helpful in ensuring that all employment is lawful and labour laws are respected.
Small businesses may apply for a series of different loans and grants as funded by the government, or government bodies, such as the Business Development Bank of Canada (BDC). It is typically the first resource Canadian small business owners approach for support.
Loans and grants can be used to help finance everyday business practices, clear outstanding accounts, maintain sufficient working capital, etc. An Ontario SME may qualify for a small business loan based on how long they have been in operation; less than 12 months, 12-24 months, or 24-plus months. Moreover, additional factors may influence the nature of the loan they can receive (ex. supply chain, business purchases/ transfers, etc.).
To obtain funding aid from the BDC, applications can be filled out online. Moreover, additional financing aid may also be offered to black or indigenous business owners, who can apply using the same website.
In order to familiarize yourself with all facets of Ontario employment laws, the following websites are excellent resources:
The process of navigating Ontario employment and labour laws can be overwhelming and complicated. However, there is plenty of help and support available for Ontario small businesses to operate to the best of their ability. Employment lawyers, government websites, and accounting software, like our ReInvestWealth payroll software, simplify and walk you through following Ontario employment laws.
Written by: Akriti Kaul
ReInvestWealth Founder and CEO: Behdad Karimi Dermeni