ARTAX by Jack Moore, CA

The Costs of Having an Employee


Let's talk about the costs, other than salary or wages, of having an employee.

There are several tests which can be made to determine if the person doing work for you is an employee, but the ones that count most will determine the existence of a "master-servant" relationship.

The expression is very old but accurate and fairly simple: if the person performs tasks in the general order that you assign them, at the place that you designate, during hours that are similar from period to period, enjoys the fringe benefits available to other persons working there, does not perform similar services for anyone else on a regular basis and you control the time and activities during the work cycle, then you are the "master" and the person is the "servant".

By general government decree, employees are enroled in the various programs operated by the government and covered in union contracts or by employer policy, if applicable. They may include unemployment insurance, government and/or employer pension, injury compensation, several health and/or medication insurances, income protection insurance (short/medium/long term), life insurance, car allowances, performance bonuses, holiday pay, vacation pay and extra days off for specified occurrences. The list is limited to ones imagination.

The cost of these benefits can be very significant in the scheme of things and does not take into consideration the time, energy and expense of preparing the paper-work for the organisations (and government departments) to which information must be reported.

The bottom line may be from 10% to 35% of the base salary/wage and is usually considered by the employee to be part of the total package. The organisations have a vested interest in people being considered as employees for their existence depends upon the programs being large enough to be economically viable.

There is an alternative which is in common usage: contract labour.

There is less work available today than there was yesterday. The population mix and the computer have combined to reduce the amount of labour necessary to keep our economy going in the fashion to which we have become accustomed. It is more practical to have work performed when it is needed rather than keep employees constantly available but not necessarily working.

The contract method of remuneration does not attract the general fringe benefit package. Therefore it permits the employer to pay for labor when it is performed and to know precisely what it will cost, both directly as well as indirectly (those fringe benefits). It is desirable that the person work for others too.

In due course, governments will probably protect their self-interests by legislating inclusion of contract labour into their programs. It will be difficult for non-government operators to maintain past volumes and still protect against anti-selection. But that is a whole different problem.

In the meantime, business will continue to try to control its costs and better match them to the related revenue. It is essential that there be a bottom line that is black, not red. Otherwise, the business will close.

Let us hope that we can all work together and help each other during the next 50 years while this societal revolution is taking place. It is going to be difficult.

Sleep tight.