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SmallBiz Employee Benefits – Increase Salaries or Implement Benefits?

By September 2, 2020 No Comments

Mechanic at work

When looking at enhancing your SmallBiz employee’s compensation package, a common way to do it is to simply increase their salary.

In most cases, this makes sense but…before you decide how much you want to increase their salaries by, you may want to take one step back and ask yourself,

  1. “How much does it cost me?
  2. “How much does it cost my employee?
  3. Is this the most tax-effective way of rewarding my employees?”

Let’s take a look at an example…You are the owner of a local garage and John works as one of your Mechanics. He makes $38,000 a year and you want to give him a $1,000 raise. So, how much does this $1,000 raise cost?

  • You, the SmallBiz Owner, pay the $1,000 increase plus contributions for CPP, EI, WSIB, and the Employer Health Tax. = $1,113!
  • John, the Employee, gets $1,000, less deductions for CPP, EI, federal and provincial tax (based on 2005 rates) = $634! 

If you were to compare this to investing $1,000 into a SmallBiz Employee Benefits plan, then,

  • You, the Small Biz Owner, pay the $1,000 benefits premium plus 8% Retail Sales Tax = $1,080!
  • John, the Employee, gets $1,000 in health benefits, tax-free!

Of course, every Small Business Owner’s tax situation is different. So, you should consult your Accountant to make sure that it makes sense from the perspective of your company’s tax expert.

Located in Cambridge, ON Sharkey Group Insurance  provides independent Employee Benefits advice & counsel for Small Businesses across Ontario.