Honestly, I am all for being direct with him and telling him you aren't interested in him in that way. However, I understand it's tricky because you work there and because you genuinely like him, just not in the way he seems to like you. I get that it seems easier to just spare feelings. I think your boss is right, though; you should let him know you aren't into him, especially because his advances seem to be escalating.

If you're hesitant to be direct you could try to continue hinting that you are only there in a professional capacity, but that may not work, especially given his recent behavior. If you do choose to be direct I would say something like, "hey, I feel like you are flirting with me and while I am flattered (only say that if it's true, though), I am just not interested in being more than friends. I like you, but all I am open to is friendship. I realize this is hard and I hope you can understand and we remain friends." This way you are direct (saying "friends" multiple times) but you spare his feelings someone.

Good luck, and feel free to PM me if you need anything. I'm here for you.