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How To Do Payroll for Nanny Share


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When you employ a nanny or caregiver for your household, your household becomes an employer, and you must take care of all the legal and financial matters that come along with hiring a nanny. If you live in Canada and are in a nanny share agreement, read on to learn the steps of payroll calculations and processes families must perform in a nanny share situation.

Payroll for just one nanny and family can be a challenge, but nanny share can be an even longer process. Here are the main steps highlighted below, but take it one step at a time - it can get overwhelming!

Although having an easy paycheck or payroll calculator would be nice, navigating the waters of nanny taxes and payroll can actually be extremely challenging.

Feel free to give HeartPayroll the opportunity to take care of your payroll calculations for you, so you can rest easy. The HeartPayroll team are experts who will take care of all things payroll with your nanny like direct deposits, remittances and paystubs.

Technically one family can handle all of the payroll and taxes for the nanny but it is much better for each family to individually do their own taxes and payroll. One family could be penalized by the CRA for not paying their nanny (even if they send money to the other family). It’s also beneficial for each family to be registered as employers so that they can claim what they pay for the nanny on their income taxes under the childcare tax credit.

Jump Ahead:

Registration

  • The Canadian Revenue Agency (CRA) recommends that each family should be registered as employers
  • This means that each family has their own CRA business number, pays the nanny from their own bank accounts and all paperwork is under both families’ names
  • Each family needs to request a business number by contacting the CRA

Payment Setup

  • By contacting a bank, both families need to set up direct deposit (the most common payment method) with the nanny
  • Alternatives to direct deposit include cheques or cash but direct deposit provides solid tracking and leaves no margin of error
  • Ask for your caregiver’s bank information
  • Each family needs to go to their respective bank and request that a specific amount be taken out each family's account at an agreed upon interval (weekly, bi-weekly, monthly, etc.)
  • If the number of hours your nanny works changes or you decide to give them a raise, both families need to go to the bank to make this update
  • The nanny should be filling out federal and provincial tax forms for both families and indicating on one copy that they have another employer so they are taxed accordingly.
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Calculate Source Deductions

  • This is the trickiest part to get right. Before you delve in, make sure to familiarize yourself with the terms gross pay vs net pay first
  • It is easiest if the nanny is paid in terms of gross pay, as net pay can really complicate things further
  • When a nanny indicates that they are working for two families, money from one employer will be taxed as “code 0” and the other as “code 1”
  • This means that for one employer, she is taxed with the basic personal exemption amount (code 1) and for the other employer, she is taxed without any exemption amount (code 0)
  • You’ll notice each family’s out of pocket cost is the same, and the difference lies in her deductions and net pay amount
  • Errors in nanny tax and payroll calculations can easily result in a fine from the CRA

Below is an example of what the Code 1 and Code 0 breakdowns look like between two families and a nanny. Remember tax rates from year to year and vary by province as well. Keep in mind that this is not the exact tax and payroll breakdown you should pay - this is only an example!

$1300 GROSS ONE FAMILY - CODE 1 ONE FAMILY - CODE 0 CODE 1 + CODE 0
GROSS PAY $1,300.00 $650.00 $650.00 $1,300.00
FED TAX $109.00 $18.00 $85.00 $103.00
PROV TAX $53.00 $4.00 $31.00 $35.00
EI $21.00 $11.00 $11.00 $22.00
TOTAL DEDS $241.00 $59.00 $153.00 $212.00
NET PAY $1,059.00 $591.00 $497.00 $1,088.00
ER CPP $58.00 $26.00 $26.00 $52.00
ER EI $30.00 $15.00 $15.00 $30.00
TOTAL COST $1,388.00 $691.00 $691.00 $1,382.00

Remit Source Deductions

  • Each month both families must remit their employer source deductions (CPP and EI) to the CRA no later than the 15th of the month for the previous month's deductions

Prepare and Provide Pay Stubs

  • Both families must provide the nanny with a pay stub every pay period (usually every two weeks)
  • This should include your caregiver's Gross and Net wages, as well as his or her federal and provincial income tax, CPP, and EI deductions.
    The pay stub should also include the pay period, wage rate, and any taxable benefits such as room and board, if applicable.

Pay WSIB/WCB premiums

  • In some provinces paying for WSIB is mandatory while in others it is completely optional
  • Every quarter or year (depending on the province) the families must calculate and pay the nanny’s WSIB/WCB. Here is a helpful guide on WSIB premiums

Prepare T4s

  • Come tax time, each family must prepare their caregiver’s T4 slip with the CRA. Each family should make three copies: one for the nanny, one for the CRA and one for record keeping.
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How to Split Up the Pay

The wage of the nanny can be split however the two families see fit, they can do a 50/50 split or if one family has two children, and the other one has one child, they may choose to do a 67/33 split. As long as all parties are familiar with the pay structure any split is appropriate for nanny sharing.

Conclusion

Does this process seem long and tedious? That’s because it definitely is - it’s easy to forget to file a remittance or make a mistake on your T4. Let our payroll experts take care of this problem for you so you can spend more time with your loved ones.

Our HeartPayroll team are experts at nanny taxes and amazing paycheck calculators. We are detail-oriented experts at HeartPayroll. Unlike My Home Pay, HeartPayroll has no registration fee and is a low-cost, all-inclusive service! Leave it to us. Future You will be happy you left payroll to the pros. Sign up today!

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