True Cost of Hiring an Employee in Canada: A Simple 4-Step Guide
Hiring is one of the biggest financial decisions a small business owner makes.
You feel the stretch. You’re at capacity, your team is busy, and you can see opportunities you can’t take on.
At the same time, committing to another salary feels like a serious risk.
Many owners get stuck here. They hesitate for months, then hire reactively when things feel urgent-without a clear view of what the numbers actually support.
You don’t need a complex model to make a better decision.
You need a simple way to answer three practical questions:
What will this role really cost?
How will this role create or protect value?
Can the business support the ramp-up period?
Let’s walk through this in plain language.
Step 1: Understand the Fully Loaded Cost of a New Hire
Most owners look at salary alone. In reality, the fully loaded employee cost is what matters when deciding whether your business can absorb a new role.
This typically includes:
Salary or hourly wages
Employer taxes and mandatory employment-related costs
Benefits
Tools and software
Equipment or workspace
Training and onboarding time
A simple starting point: add 15%–25% on top of salary for employer taxes and benefits, then layer in tools and training.
Example:
Base salary: $70,000
Employer costs at 20%: $14,000
Tools/software: $3,000
Onboarding & training: $3,000
Approximate first-year cost: $90,000
The goal isn’t perfection-it’s clarity. Shifting from “$70k” to “~$90k” is often the difference between an informed decision and an expensive surprise.
Step 2: Clarify How the Role Will Create or Protect Value
Every hire must have a clear financial role: either generating revenue, protecting margin, or increasing capacity.
Ask yourself:
If this person succeeds in 6–12 months, what will be true that isn’t true today?
What additional revenue, capacity, or savings is realistic?
What work will move off your plate? What is the value of that time?
For revenue-generating roles:
A salesperson generating $300,000/year at 40% gross margin = $120,000 gross profit
This comfortably covers a ~$90,000 fully loaded cost
For operations or support roles:
Sometimes the value is indirect.
If an operations manager frees 15 hours/week of your time-and that time is worth $200/hour in strategic or sales, that’s $3,000/week of potential value, if used well.
The math doesn’t need to be precise; the story needs to make sense.
Step 3: Check Profit, Cash, and Runway Before You Say Yes
Even if the role looks good on paper, your financial foundation needs to support it-especially through training and slow seasons.
Profit
What’s your average monthly net profit over the last 6–12 months?
Is profitability trending up, flat, or down?
If profit is inconsistent or fragile, fixing pricing or efficiency may be the priority before adding a fixed cost.
Cash
How much cash is currently available?
What major payments are coming up?
If cash feels tight now, the hire may strain the business before value is created.
Runway
Runway = Cash ÷ Monthly Operating Expenses
Example:
Monthly expenses: $80,000
Cash balance: $240,000
Runway: 3 months
After adding the role, recalculate. If the runway shrinks too far, the hire may be riskier than it appears.
Step 4: Respect Ramp-Up Time
Most roles take months-not weeks-to reach full productivity.
Typical ramp-up pattern:
Months 1–3: Net negative - learning, training, limited output
Months 4–6: Improving, but not fully contributing
Months 7–12: Should reach the expected level of impact
One of the most common hiring mistakes is assuming someone will “pay for themselves” in the first few months. When that doesn’t happen, owners panic-even though the role was still in the normal learning window.
Be realistic about your environment:
How long does it truly take to get someone effective?
Can your cash and profit support that period?
A Simple Decision Check Before You Hire
Before sending an offer, sanity-check these three questions:
1. Cost
Do we have a clear, fully loaded cost estimate for this role?
2. Value
Can I explain in one or two sentences how this hire will create or protect financial value?
3. Support
With our current profit, cash, and runway, can we support 6–12 months of ramp-up?
If you can’t answer these, the next step isn’t “no”-it’s pausing for clarity.
You Don’t Have to Make This Decision Alone
Hiring combines math, strategy, and risk tolerance. Feeling uncertain is normal.
At TwentySix Consulting, we help owners:
Understand what they can truly afford
Map out realistic hiring timelines
Test financial scenarios
Build hiring plans that match growth and cash flow
If you’re looking at a potential hire and want a clearer financial picture before deciding, we can walk through the numbers together.