It's easy to believe that payroll taxes are a set and forget scenario, but they can be pretty complicated. In this blog post, we will discuss the myths surrounding payroll taxes for employers of domestic employees and how you can avoid common mistakes. Here are some things to keep in mind:
Myth #1: If your nanny or caregiver is only part-time, you don't have to process payroll.
Even if you only employ your nanny or caregiver once a week, the CRA requires you to calculate their payroll and pay taxes. The CRA's Employment Guide (T4001(E)) states:
"If you hire a caregiver, baby-sitter, or domestic worker, you may be considered to be the employer of that person. As an employer, you have responsibilities in the employment relationship between you and the person. You are considered to be an employer when all of the following apply to you: hire a person, establish regular working hours (for example, 9 a.m.to 5 p.m.), and assign and supervise the tasks performed."
Myth #2: Caregivers Or Nannies Are Self-Employed Individuals!
According to the CRA, nannies and caregivers are not considered independent contractors. Claiming them as contractors will only result in you getting fined by the CRA in the future.
Myth #3: Nannies Or Caregivers Don't Need Workers Compensation Insurance
In many jurisdictions, the WCB coverage requirement differs. Your employee is covered for wage replacement and rehabilitation care should they get hurt on the job if they have WCB insurance. You may also inquire about workers' compensation coverage with your homeowner's insurance to discover what kind of protection it offers for someone who works at home.
Myth #4: Running Domestic Payroll Taxes Through an Incorporated Company
If you run an incorporated firm, you may believe you can combine your domestic employee's pay into the company's. This is a dangerous misconception! According to the CRA, domestic workers are not considered direct contributors to a business. The caregiver's payroll must be kept separate as they are not regarded as direct contributors to a business enterprise.
Myth #5: Nannies Or Caregivers Don't Require Paystubs
You are legally required to provide a pay stub to your domestic employee. Specific information must be included on the pay stubs and given to domestic employees depending on the province.
Myth #6: It makes no difference if I pay my nanny or caregiver in cash.
It is extremely significant. Not only are you safeguarding yourself by paying your caregiver properly, but you are also ensuring that if you must lay him or her off, he or she will be eligible for employment insurance benefits. If you and your caregiver do not pay into his or her EI account and do not submit an ROE, your nanny or caregiver will not be eligible for EI.
Myth #7: If my caregiver consents to it, I don't have to pay overtime.
Not true. Household employees are usually entitled to time and a half for anything over the maximum hour threshold, which is determined by the province. Contrary to popular belief, this is true whether your caregiver is paid on a monthly or hourly basis. You can always include overtime into the calculation if your caregiver is paid on a salary.
Myth #8: The distinction between Net and Gross Pay is irrelevant.
There is a significant difference. When it comes to Net and Gross Pay, families and caregivers frequently misinterpret one another. The amount paid before taxes is known as Gross Pay, while the amount taken home after taxes have been deducted is known as Net Pay. A caregiver and family frequently agree on a wage without clarifying whether it's 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.
Myth #9: If I'm taking on a Nanny Share, I don't have to worry about payroll and taxes.
Incorrect. For several reasons, many families choose to split the costs of a caregiver. There are, of course, legal ramifications. A Nanny Share is a shared cost arrangement in which two families hire the same caregiver to care for their children as a group. Legally, each family is treated as a distinct household employer, even if all care is given in only one house. This implies that each family would be considered as a separate employer by the CRA, and each would generate and submit the caregiver's pay. The caregiver's pay may be divided however the family sees fit.
Payroll taxes can be complicated, and it's easy to make mistakes. Knowing the myths surrounding domestic employee payroll can avoid making costly errors. For more information on how to correctly process your nanny or caregiver's payroll, give us a call, and we'll process your caregiver's payroll and tax from start to finish.