You started the day with a full to-do list and somewhere around 11 am, it doubled. You’ve answered six messages from customers, followed up on an invoice, covered a shift, and made a mental note to order more supplies before the weekend. Oh, and payroll is due Friday.
Sound familiar? For many small business owners, payroll is just another box to check. That’s a missed opportunity. Every pay run is telling you something about how to retain good people, budget confidently, and grow your business.
Here are three ways to start listening.
1. Make payday the reason your best people stay
Your team might not talk about payroll much. That’s actually a good sign — it means it’s working.
But the moment something goes wrong, you’ll hear about it fast. According to research by The Workforce Institute, it takes just one payroll error for employees to consider leaving. And if pay was regularly late or inaccurate, 64% of working Canadians said they would trust their employer less, while 59% would caution others against joining the company.
That’s a significant amount of goodwill to lose over something that’s entirely preventable.
Janice Rutledge, Payroll & Benefits Lead at Wagepoint, has spent more than 20 years working in payroll, and thinking about what employees want from the experience.
“Employees need to trust that they’re being paid and treated fairly. They were hired to do a certain job, and they work hard at it. The last thing that they need to worry about is their pay.”
— Janice Rutledge, Payroll & Benefits Lead at Wagepoint
Janine Bartels, co-owner of SUSO Skate Co., has seen the same thing play out across her seasonal pop-up skating locations. She’s kept staff coming back year after year and credits a lot of that to giving her team full visibility into their own pay. “I think full transparency around payment in every possible way for employees is very important. They know what to expect and have full control. I think that’s massive for a small business.”
A few habits that make the difference:
Pick a calculation method and stick with it
There are different ways of calculating things like vacation pay (as a percentage of earnings or as accrued hours) or stat holiday pay (as a flat rate or based on the employee’s regular daily wage). “Pick a method and stick with it,” says Janice. “Be transparent. Be willing to show the employee exactly how you came up with the amounts. Document those processes and stick with it. That way, everybody’s treated fairly. One employee wasn’t calculated in one way, and another in another way.”
Communicate changes before they happen
Whether it’s a salary increase, a new deduction, or a benefits adjustment, your employee should hear it from you first. Finding out through a paystub feels like an afterthought, even when the news is good.
Give employees access to their own information
Nothing builds payroll confidence faster than letting employees see their own numbers. When your team can log in to download their paystubs and T4s without having to ask, they feel informed and in control, and you spend a lot less time fielding questions.
Ask your team how payroll is working for them
When we surveyed Canadian small businesses, they all agreed that payroll affects employee retention and trust, yet only 30% said they ask their employees about their experience with it. A short, occasional check-in through a survey or feedback form can surface issues you’d never otherwise catch, and it signals that you care about paying your team accurately and on time.
Replacing a single employee costs an average of $30,674 and takes about five weeks to fill, so getting payroll right is one of the most cost-effective retention strategies a small business has.
2. Use payroll to budget (and benchmark) with confidence
Of all your business expenses, payroll is one of the most predictable.
Once you’ve been running payroll for a cycle or two, you start to get a sense of what it costs — your team’s wages, the taxes that come off the top, and any regular deductions. That predictability is actually one of your most valuable financial assets. When you know what payroll will cost you, you can plan everything else around it with confidence.
“It’s always important to know how much our payroll is going to cost us biweekly to make sure that we’re not ever investing too much in other areas of our business. Staff and rent are the two that you always need to budget for every month.”
— Janine Bartels, co-owner of SUSO Skate Co.
Michael Shafman, CPA, CA, Co-CEO at faascloud, uses a simple method to help his small business clients forecast their payroll costs. You can try it too.
Forecast your payroll costs
Start with your total annual salaries
This is your baseline, or what you’ve committed to paying your team over the course of the year. If you’re not sure of the exact number, add up each employee’s annual salary or their average weekly hours multiplied by their hourly rate, then multiply by 52.
Add your estimated payroll contributions
Layer in Canada Pension Plan (CPP), Employment Insurance (EI), and Workers’ Compensation. These are mandatory employer costs that get added on top of wages. If you’re using a payroll software, these will be automatically calculated.
Add expected bonuses and allowances
Add these separately so you can see them clearly as distinct costs, not buried in the overall payroll number.
That total gives you a picture of what payroll will cost you over a specific period. From there, compare it against what you actually spend each pay cycle. If the two numbers start to drift apart, you want to understand why. Is it a one-time thing — like a severance payment or a retroactive salary increase — or is something in the business genuinely shifting?
Want to skip the manual math? Book a demo to discover Wagepoint’s reporting capabilities.
How much of your revenue should go to payroll?
That’s a great question, because it can tell you whether what you’re spending on wages is within a healthy range for a business like yours.
There isn’t one right answer. A retail shop, a restaurant, and a professional services firm all have very different cost structures. That said, most small businesses spend somewhere between 15% and 30% of revenue on payroll, with some industries averaging well above 50%.
A useful rule of thumb: the more your business depends on people to deliver the service, the higher your payroll percentage will likely be.
To see how you compare to businesses in your specific industry, the Government of Canada’s Financial Performance Data is a good place to start. It draws on Statistics Canada data and lets you benchmark your financials across more than 1,000 industries.
Once those fixed costs are accounted for and benchmarked, you can see clearly what’s left, and make smarter decisions about where to put it.
Tips for accurate budgeting
Keep your process consistent
When your payroll runs the same way every cycle, your numbers are reliable. And reliable numbers make everything else, like budgeting and forecasting, a lot easier.
Check your payroll before you approve it every time
Before you hit “submit” on a pay run, take a few minutes to look it over. Does everyone’s pay look right? Did anything change this cycle, like a new hire, a salary adjustment, or a termination? Accurate payroll is the key to accurate budgeting and forecasting, and it helps you spot one-off costs before they throw off your numbers.
Do a bigger payroll check-in at least twice a year
Set aside time every six months to look at your payroll from a higher level. Are your total costs in line with what you budgeted? October is a particularly good time so that you can make any adjustments before the final payroll of the year.
3. Turn your payroll numbers into a plan
Many small businesses know what payroll costs them. Far fewer use that number to actually make decisions. According to our survey of Canadian small businesses, only 40% said they use payroll data to guide how they run their business. That’s a significant gap, especially because the data is already there, organised and ready, every time you run a pay cycle.
“Payroll is a very big driver of expenses and forecasting for every company. There’s just no way around it.”
— Michael Shafman, CPA, CA, Co-CEO at faascloud
Here are a few decisions that your payroll data can help you decide on:
Can you afford to grow your team — and will it actually grow your business?
Hiring is one of your biggest decisions as a business owner. But the question isn’t just whether you can afford a new hire; it’s whether that hire will generate enough return to justify the cost.
Payroll data helps you understand if the timing and budget are right. By looking at your payroll run rate — which is simply how much you spend on payroll in a given period — you can calculate exactly how much room you have to grow.
But affordability is only the starting point. If your current run rate is $15,000 biweekly and you’re considering a new hire at $3,000 biweekly, that’s a 20% increase in payroll cost. The more useful question is: what revenue does that role bring in? If the answer is clear and concrete, it’s likely a good hire. If it isn’t, it’s worth pausing.
Are you investing in the right areas of your business?
If your business has different departments — sales, operations, administration — tracking payroll costs by function shows you where your investment is going and whether it’s paying off. To do this, set up separate pay groups in your payroll software for each area of the business. Then, at the end of each period, compare what each group cost against what it produced.
Michael gives a clear example of why this matters: “If you’re generating $100,000 a month in sales, but your salespeople are costing you $75,000 and commissions are $50,000 a month, that doesn’t make a lot of sense.” Without that breakdown, those kinds of imbalances can hide in plain sight for months.
Can you finally pay yourself, if you aren’t already?
This one often gets skipped, but it shouldn’t. If your own salary isn’t built into your payroll forecast, your numbers will always be incomplete. “I do not like when business owners and founders do not pay themselves,” says Michael. “You need to live. You need to know that cost is part of the business too.” Treat your salary like any other key hire: essential and budgeted.
If the data side of payroll feels overwhelming, you don’t have to figure it out alone. A trusted accountant, bookkeeper, or fractional finance firm can help you read the numbers and connect them to the bigger picture. The goal is to ask better questions about your business, and let your payroll data help you answer them.
Payroll that helps your business grow
Payroll already touches some of the most important parts of your business: your cash flow, your team, and your plans for growth. When it’s organized, accurate, and easy to manage, it gives you better visibility into how your business is running and where you can go next.If you want to see how that looks in practice, book a free Wagepoint demo to explore how simple payroll can support your business as it grows.
