When you think of a small business a certain picture probably comes to mind. Maybe it’s a home office, or a close-knit group of employees who view one another as family. You may not have pictured a family hiring one employee (for child care, senior care, pet care, a housekeepers etc.) as a small business with an employee.
The reality is if you hire an individual for your home you are legally their employer- making it very important to account for the proper salary deductions and correctly filing taxes. If you don’t follow the correct nanny/caregiver payroll procedures or worse yet, pay them “under the table” it can result in back taxes, penalties and interest, even criminal charges.
As per CRA, “as an employer, trustee, or payer, you are responsible for deducting Canada Pension Plan (CPP) contributions, Employment Insurance (EI) premiums and income tax from remuneration or other types of income you pay, remitting them to us and reporting them on the applicable slips.”
Make sure you are aware of the different government requirement for hiring a full-time or part-time worker. Take the example of nanny payroll:
Live in Nanny /Care-giver or Other Worker
As per Canadian Government Tax Rules for a Live in Nanny you must:
Part-time Nanny / Worker (less than 40 hours a week)
Don’t be fooled into thinking a part-time worker in the home doesn’t need to comply with CRA regulations. Your responsibilities as an employer include deducting and remitting federal and provincial taxes, pension and employment insurance payments from your nanny’s wages. Employment legislation requires you to provide paid sick leave and a minimum two-week paid annual vacation. (The Nanny Guide). In general, a part-time nanny hourly salary is higher than the full time one.
There are strict payroll and tax responsibilities that must be considered when hiring a nanny. Remember no business is too small for help with payroll or taxes, especially when the DIY mentality can be complicated and cost more than it’s worth in the long run.