Helping you avoid common and expensive payroll mistakes
Many people don't realise this, but when your family hires a nanny or caregiver, your household becomes an employer, and must abide the same rules as businesses. There are a lot of laws (and conventions) that govern employment in our country, including accounting rules, vacation accrual, overtime pay, and so on. It is quite easy to make honest mistakes, even for experienced employers.
Here are the most common mistakes families encounter when hiring a caregiver.
I don't need to do payroll if my caregiver is part-time
False. Typically the CRA does not differentiate between part-time and full-time employment. If you don't process your part-time caregiver's payroll and taxes, you won't be able to claim his or her pay towards your childcare tax credit. In this instance, your caregiver also won't be able to claim the income on his or her taxes, since there wouldn't be T4 slip produced.I can run my caregiver's payroll through my incorporated business
Incorrect. This is a common mistake, given the complication and nuances of household employment law. Legally you must manage your caregiver's payroll separately from that of your company's. The CRA does not view household caregivers as direct contributors to a business enterprise, which is why it is illegal to file a household employee's wages on a business' tax return.My caregiver is an independent contractor, so I'm not technically an employer
Not so. Families often take this route in an attempt to avoid having to handle their caregiver's payroll and taxes. However, 99% of the time most caregivers are not considered independent contractors and shouldn't be treated as such. Registering your caregiver in the wrong category will lead to expensive fines from the CRA down the road.I don't have to pay overtime if my caregiver agrees to it
Not true. Household employees are generally entitled to time and a half for anything over the maximum hour threshold, which varies by province. Contrary to popular belief, this is true whether your caregiver is paid on salary or on an hourly basis. If your caregiver is on salary, you can always include overtime in the salary calculation.I don't need to provide my caregiver with workers' compensation insurance
While this is not a legal requirement, it is definitely in the best interest of your family and your caregiver to have workers' compensation insurance. This insurance will protect you as the employer from legal liability and provide financial assistance in the event that your caregiver becomes injured or ill while in your home. Having insurance is important; imagine your caregiver experiences a workplace injury. You are generally liable for the amount of his or her lost wages and medical expenses. Requirements, pricing, and coverage varies by province, so just give us a call and we'll help you navigate getting set up.The difference between Net and Gross Pay doesn't matter
There is a big difference. It's very common for families and caregivers to misunderstand each other when it comes to Net and Gross Pay. Gross Pay is the amount paid before taxes, and Net Pay is the amount the caregiver actually takes home after taxes have been deducted. The common mistake that's made is a caregiver and family agree on a wage, but don't clarify whether it is Net or Gross, often leaving expectations misaligned. To avoid confict with your caregiver, ensure you clarify whether the wage is Net or Gross before your caregiver confirms his or her offer.
Untrue. Sharing the cost of a caregiver is a common method for families to ensure they can afford the help. There are, of course, legal implications. A Nanny Share is when two families share the expense of a caregiver to care for their dependents as a group. The defining factor of a Nanny Share is that the dependents are cared for by one nanny. Legally, each family is viewed as a separate household employer, even if all of the care is provided in only one home. This means that each family must register separately as an employer with the CRA, and each must calculate and submit the caregiver's payroll and taxes separately. Families can split the caregiver's wages as they see fit.