caregiver taxes

What do caregivers and domestic workers need to know about taxes?

by Gila Ossip, President and Owner of Livelihood Household Payroll Inc.

We have put together the top 4 things you need to know about taxes and payroll.

Congratulations!  You have found a great job working with a wonderful family.  Not only will you be improving your skill sets and developing new personal bonds, you will also be receiving a steady pay cheque!  The best way to ensure that you are being paid correctly is to understand a few payroll tips.  That is why we have put together the top 4 things you need to know about payroll.

1. Understanding the difference between gross vs net pay

When negotiating a salary with your employers, you need to make sure that you are both referring to the same thing when it comes to gross vs net pay.  Gross pay is BEFORE deductions and net pay is AFTER deductions.  Another way to think of net pay is what you will ‘take home’ every pay. 

If you negotiate a gross salary, a really helpful tool to determine your net (take home) pay is the CRA payroll calculator. In a situation where you negotiate a take home (net pay), your employer is required to cover your CRA (Canada Revenue Agency) remittances.  This includes employee CPP (Canada Pension plan), EI (Employment Insurance) and taxes.  With a net pay you should expect a lower hourly rate because employers will be covering all your remittances.  This means that their out-of-pocket cost is a lot more than what you will be receiving as a take home.  A general rule of thumb is that will be spending an additional 35-40%. 

An important thing to note is that if you are working multiple jobs, you need to let your employer know this ahead of time so that they are withholding the correct amount from your pay.  If you do not let them know there is a change you will be surprised with a large tax bill at the end of the year. 

2. Pay stubs are important and the law!

Families are legally required to provide you a paystub with each pay.  This is important because it explains what deductions have been made.  Families that use a payroll service may be able to provide you with an app on your phone that keeps track of your paystubs for you.  Paystubs are also extremely important when applying for credit (mortgages, new credit cards) or a new rental property. 

3. Record of Employments are required at the end of each job

Families must provide you with a Record of Employment (ROE) at the end of the job.  This is a document created by Service Canada which will be used if you need to apply for Employment Insurance (EI) now or in the future.  You should receive your ROE within 5 business days of your last pay paid. Your employer needs to file the ROE with Service Canada, so it is important to confirm with them that they have done so. 

4. What happens at year-end

Families must provide you with a T4 slip (Statement of Remuneration paid) no later than February 28 the next year.  For example, your 2021 T4 should be given to you by February 28, 2022.  T4’s are extremely important so that you can file your personal taxes.  Your employer is not required to file your personal taxes for you.  This is a common misunderstanding with first time jobs.  The employer provides you your T4 and then you should file your taxes on your own.  Deadline to file personal taxes in Canada are April 30 the following year.  This means that you need to file your 2021 personal tax return with CRA by April 30, 2022. 

Congratulations again on finding a new job!  Most people look forward to pay day but don’t really think about taxes and other remittances.  It Is important, though, to understand the payroll process and what you should expect from your employer so that there are no surprises down the road. 

Gila Ossip, CPA, CA, MBA is the President and Owner of Livelihood Household Payroll IncLivelihood Household Payroll Inc is a full-service payroll provider for families that hire household staff. It provides its clients with comprehensive tax calculations and reporting, as well as assurance that all registration requirements are fulfilled. A choice of a one-step solution for all your tax needs or individual services are available.  Included in all annual services are timely personalized updates from a CPA to keep you informed of any changes to tax laws, deadlines, or employment premiums. Livelihood Household Payroll Inc.’s services are available to clients throughout Canada.

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