Answers
Important Terms
Employing a nanny or caregiver means learning a lot of new things. Your household is now an employer, and there are laws that govern all Canadian employers that you need to be aware of. And then there are things to know about employing nannies, particularly if you are sponsoring an overseas nanny.
If you've seen these terms thrown around, but have not really understood what they mean, here's your chance to get everything figured out.
Canadian Pension Plan (CPP)
All Canadians contribute to the Canada Pension Plan. Employers also match contributions to CPP. This is a benefit that you can collect as early as age 60, or as late as age 70.
Canadian Revenue Agency (CRA)
The CRA is a federal agency that regulates tax laws for the Canadian government and for most provinces and territories. All deductions that are withheld from an employee’s Gross pay, such as federal and provincial income tax, CPP contributions (except Quebec) and EI premiums, are sent to the CRA and then dispersed to the appropriate government department.
Canada Revenue Agency Business Number (CRA BN)
The Canada Revenue Agency Business Number is an employer’s “account number” that they are assigned when they register with the CRA as an employer. The source deductions (employee’s income tax, CPP and EI premiums plus the employer’s CPP and EI premiums) are sent to this account. A business number is attached to an individual’s name and Social Insurance Number (SIN) for life, as one may need it for multiple reasons over the years. An employer can use the same business number if they operate a sole proprietorship business and employ a domestic worker but have separate accounts as needed (RT0001 - GST/HST account, RP0001 - payroll account, etc).
Direct Deposit
Direct Deposit is a deposit of money by a payer directly into another's bank account. This is the most preferred option of payment for both employees and employers due to the quick and efficient manner in which funds can be accessed.
Employer Insurance (EI)
The Employment Insurance program provides employed Canadians assistance in the event that they experience an interruption of earnings. All employees pay EI premiums based on their Gross earnings. Employers also pay EI premiums based on their employee’s earnings. Employers pay $1.40 for every $1.00 that the employee pays.
Income Tax
Income tax is a tax applied at both a federal and provincial level towards an employee’s income. Income tax makes up the majority of the annual revenues for the Government of Canada and for the governments of the provinces of Canada.
LMIA
LMIA stands for Labour Market Impact Assessment. Employers need to acquire a positive assessment before hiring a foreign worker as a household employee. The assessment is done by the Employment and Social Development Canada (ESDC) and there is a $1,000 application non-refundable fee.
It can take several months. The exact length of time depends on whether the caregiver is in Canada already, and if not which country they are located in.
Net vs. Gross
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 + WCB (if applicable) + source deductions which is the sum of employee deductions and employer CPP and EI (employers have their own CPP and EI contributions)
Pay Stub
A pay stub is a document an employee receives either on or before their pay day that summarizes their payroll earnings for a specific pay period. It is mandatory that an employee receive a pay stub each pay period either in writing or electronically.
This document shows:
Gross salary (before deductions)
Net pay (the actual take-home amount)
Hourly or salary rate
Number of hours worked in the pay period
All employee deductions
Plus any other applicable deductions (ie. taxable benefits, room and board)
Holiday pay (statutory pay)
Vacation pay (either each pay period or accrued)
Quebec Pension Plan (QPP)
Quebec has their own version of the Canada Pension Plan that employees and employers contribute to. The QPP can be collected as early as age 60 or as late as age 65.
Remittance
A remittance is an amount of money sent to the Canada Revenue Agency for the employee’s deductions (federal and provincial income tax, CPP and EI premiums) and the employer’s CPP and EI premiums. This remittance is due by the 15th of the month for the previous calendar month if classified as a monthly remitter or by the 15th of the month in April, July, October and January if classified as a quarterly remitter. We automatically remit each month regardless of classification.
Record of Employment (ROE)
A Record of Employment (ROE) is an official form used by an employee in establishing a claim for Employment Insurance (EI) benefits. An ROE provides information on employment history, such as length of employment and earnings. Regardless of whether an employee intends to file for EI benefits, an employer is required to file the Record of Employment, either electronically or on paper.
Social Insurance Number (SIN)
A Social Insurance Number (SIN) is an identifying number issued to administer various government programs. SINs are issued by Human Resources and Skills Development Canada. Employees must have a valid SIN to work in Canada. The first number of the SIN indicates the province in which it was registered. SINs that begin with the number “9” are issued to temporary residents who are not Canadian citizens or permanent residents. Often, these individuals must have a work permit in order to work in Canada. SINs beginning with a “9” are different from SINs assigned to citizens and permanent residents, as they have an expiry date (which usually coincides with the expiration of the holder’s work permit)
Source Deductions
Source deductions are the sum of the deductions taken off an employee's pay cheque from the employer, plus the employer's requirement of CPP contributions and EI premiums.
T4
A T4 is a document that provides important information needed for an employee to file his or her income tax returns for a full calendar year. A T4 indicates what an employee was paid before deductions, as well as all applicable deductions (CPP, EI and income tax. If in Quebec, it also includes QPP, QPIP).
T4 Summary
A T4 Summary is a summary of remuneration paid. This document is a summary of all amounts an employer has paid to his or her employee(s) as well as the employer CPP and EI in the calendar year.
Vacation accrual
Vacation accrual is the amount of vacation time that an employee has earned, but which has not yet been used or paid. A vacation accrual percentage can vary based on province and number of years employed. Commonly, an employee is entitled to two weeks of vacation per year which is equal to an accrual rate of 4% of the gross earnings. When an employee takes vacation time and is paid vacation pay, the accrual amount will lessen.
