caregiver taxes

The most common questions asked from Canadian employers about household payroll

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

The payroll piece can be very time-consuming and overwhelming. We highlight some of the most common questions.

Most families that hire a caregiver or housekeeper are not payroll experts. As a result, the payroll piece can be very time-consuming and overwhelming. This article is here to highlight some of the most common questions we are asked by Canadian families.    

What is the difference between gross and net pay?

When negotiating a salary with your employee, 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 your employee will ‘take home’ every pay. 

If you negotiate a gross salary with your employee, a really helpful tool to determine their net (take home) pay and your required Canada Revenue Agency (CRA) deductions is the CRA payroll calculator.   In addition to your employee’s gross pay, your family will have some employer contributions.  These are employer CPP (Canada Pension Plan) and employer EI (Employment Insurance).  Make sure to include all taxable benefits into your calculations.  The most common benefits for domestic employees are transit passes, personal cell phones and ‘free’ room and board.

In a situation where you negotiate a take-home (net pay), you the employer will be required to cover yours and your employee’s CRA (Canada Revenue Agency) remittances.  This includes employee CPP, employer CPP, employee EI, employer EI and employee taxes (federal and provincial.   This means that your family’s out-of-pocket cost is a lot more than what your employee will be receiving as a take home.  A general rule of thumb is that your family will be spending an additional 35-40% above the negotiated net pay.  An important thing to note: if your employee is working multiple jobs, it is always best to negotiate a gross salary vs a net salary.

Do I have to get special payroll account numbers to employ someone working in my home?

As an employer in Canada, you are required to obtain a CRA payroll number. Most employers can complete an online application with CRA.  Alternatively, you can call CRA at 1-800-959-5525 to apply over the phone.  In both cases, make sure to indicate that you are hiring a ‘domestic employee’ so that your CRA payroll number is set up correctly.  The account number will be 9 digits and end in RP0001

 If you are an employer in Quebec, you will also need to obtain a Revenu Quebec employer identification number.  You can do this by either completing an online application or by calling 1-800-567-4692.

Many provinces in Canada also require you to register and pay premiums for Workman Safety. For example, in Ontario, if you employ a housekeeper, cook, gardener, or caregiver to help with children more than 24 hours a week, WSIB (Workman Safety Insurance Board) coverage is mandatory. Workman Safety provides coverage if your employee gets hurt on the job.  Please make sure you check with your province’s Workman Safety board to see if coverage is required or optional.

What happens when employment ends?

If you let your employee go without cause, you are required to provide them with either working notice or ‘pay in lieu of notice’.  The amount of pay/time is determined by each province’s Employment Standards Act. You will also need to pay out any accrued vacation.

Families must also provide their employee with a Record of Employment (ROE) at the end of the job.  This document lets Service Canada know that you are no longer employing an individual.  It will also be used by Service Canada to determine if your previous employee is eligible for Employment Insurance (EI) benefits.  You need to file the ROE with Service Canada and provide a copy to your employee within 5 business days of their last pay paid.

What happens at year-end, do I get a tax deduction?

Families that hire nannies may be eligible to claim a portion of their childcare expenses. CRA limits the amount to $8,000 per child per year under the age of 7 and $5,000 per child per year for children aged 7-16.  The limit for a disabled child is $11,000. In most cases, childcare must be deducted against the lower income earner in the family and can only be deducted against ‘earned income’.  More information can be found here. The childcare deduction is claimed on your personal tax return.

If the caregiver is hired to care for an elderly person, a portion of the expense may be eligible for the medical expense tax credit.  Prior to hiring the caregiver, make sure to discuss with the elder’s doctor and accountant to ensure eligibility.   

Families must provide their employees 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 your employee can file their personal taxes.  You are also required to file a copy of your employee T4 along with a T4 Summary to CRA on behalf of your business number. 

Wow – this payroll process is complicated… do I need to handle all this on my own? 

Payroll is complicated.  And families are busy!!! That is where a payroll company can really help. Especially a payroll company that focuses on domestic payroll. Tax4Nanny can make the payroll process effortless for your family. Please do not hesitate to reach out to see how we can help.  

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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