Why knowing the difference between Net, Gross, and out-of-pocket pay is important
When it comes to discussing and agreeing on pay for your household caregiver, whether you’ve hired a nanny, senior care provider, or live-in housekeeper, the difference between net, gross, and out-of-pocket pay matters.
Quick Definitions
Gross Pay = Total pay before any taxes are deducted
Net Pay = Pay that is left over after taxes have been deducted
Out of Pocket = The total expense paid by the employer. Which is net pay + total remittances (employers have their own CPP and EI contributions) + Worker’s compensation premiums if applicable
Net vs Gross: Managing Expectations
If you and your caregiver aren’t on the same page in terms of net vs gross pay, there will be a significant difference in how much the caregiver will expect to see on their pay check. Caregivers want to know what they will actually get to take home and will often talk about pay in terms of net. This is understandable, and families just need to be sure they are on the same page with the caregiver. When you hire a household worker you are considered an employer and are required to take on the financial responsibilities of an employer. The out-of-pocket amount you are required to pay will be higher than the net or gross amount you pay your caregiver.
Gross vs Out of Pocket: Accurate Budgeting
When it comes to budgeting, employers typically focus on the gross pay amount, but they should be concerned with the total out-of-pocket expense as well. You might think gross pay is the most an employer is responsible for, but after all taxes have been deducted (income tax, CPP, and EI) the employer is also required to pay their portion of CPP, EI, and possibly Worker’s compensation premiums, if applicable.
What’s the Difference between $700/week Net Pay vs $700/week Gross Pay in Ontario?
Here’s an example to highlight the differences between nanny take-home pay, employer out-of-pocket expense, and the nanny’s hourly wage based on gross pay of $700/week and net pay of $700/week in Ontario, including Worker’s compensation premiums (based on 2023 rates).
Gross Pay of $700/week
Nanny Take Home Pay: $573/week
Employer Out-of-Pocket Expense: $763/week
Nanny Gross Hourly Rate (40 hrs a week): $17.50/hr
Net Pay of $700/week
Nanny Take Home Pay: $700/week
Employer Out-of-Pocket Expense: $955/week
Nanny Gross Hourly Rate (40 hrs a week): $21.88/hr
The Payment Complications Can Be Sorted Out
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Hopefully you’ve found this short guide to navigating gross, net, and out-of-pocket pay for caregivers in Canada helpful. If you have further questions about caregiver payroll give one of our experienced and friendly payroll experts a call or email.