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Caregiver Payroll

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 removed.
Net Pay = Pay that is left over after taxes have been de ducted.
Out of Pocket = The total expense paid by the employer. Which is net + worker comp (a requirement in most provinces) + total remittances (employers have their own CPP and EI contributions)

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 paycheck. 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 workplace safety insurance benefits (WSIB, WCB, WorksafeBC).

What’s the Difference between $500/week Net Pay vs $500/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 $500/week and net pay of $500/week in Ontario.

Gross Pay of $500/week

  • Nanny Take Home Pay: $417/week
  • Employer Out of Pocket Expense: $547/week
  • Nanny Wage (35 hrs week): $14.29/hr
Net Pay of $500/week
  • Nanny Take Home Pay: $500/week
  • Employer Out of Pocket Expense: $668/week
  • Nanny Wage (35 hrs week): $17.45/hr

$500/week Gross Pay Example for a Nanny in Toronto

If you live in Toronto, Ontario and have agreed to pay your nanny a gross amount of $500 per week with the additional CPP and EI premiums and workplace safety insurance benefits (WSIB), this would actually cost you closer to $550 per week and your nanny would take home $417.28.

Here’s the breakdown when starting with gross pay

Gross Pay $500.15/week ($14.29/hour x 35 hours)

  • $33.63 Federal Tax
  • $19.66 Provincial Tax
  • $21.43 CPP
  • $8.15 EI
= Net Pay $417.28
  • $11.41 EI
  • $21.43 CPP
  • $14.05 WSIB
= Additional Remittance Cost $46.89

Out of Pocket Expense Gross Pay + Remittance = $547.04

Total Out of Pocket Expense for a Nanny in Toronto with a gross salary of $500/week would be $547.04/week for the hiring family.

$500/week Net Pay Example for a Nanny in Toronto

If you agreed to pay your Toronto nanny a net amount of $500 per week you would have to work backwards to calculate the total gross pay, which with Income tax, CPP, & EI, would be over $600/week. Then add workplace safety insurance benefits and the employer's portion of CPP and EI, which brings the total out of pocket expense for the hiring family to $668.75/week.

Here is the breakdown when starting with net pay

Net Pay $500/week ($17.45/hour x 35 hours)

  • + $49.12 Federal Tax
  • + $24.87 Provincial Tax
  • + $26.90 CPP
  • + $9.96 EI
= Gross Pay $610.75/week
  • + $26.90 Employer Portion of CPP
  • + $13.94 Employer Portion of EI
  • + $17.16 WSIB
= Additional Remittance Cost $58 Total Out of Pocket Cost

Gross Pay + Remittance = $668.75/week

Total Out of Pocket Expense for a Nanny in Toronto with take home pay of $500/week would be $688.75/week for the hiring family.

The Payment Complications Can Be Sorted Out

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 is a caregiver and family agreeing on a wage, but not clarifying whether it is net or gross, often leaving expectations misaligned. To avoid conflict with your caregiver, ensure you clarify whether the wage is net or gross before your caregiver confirms his or her offer.

Additionally, when it comes to budgeting for a caregiver, many families are often caught off guard by looking at the gross amount and don’t consider total out of pocket cost.

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 and taxes browse the answers section of our site or give one of our experienced and friendly payroll experts a call or email.

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