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moneysense.ca, 25/08/10
Payroll for Employers of Caregivers
If you hire a nanny or elder care provider, you become an employer and the CRA will require you to withhold employee share of CPP contributions, EI premiums and income tax deductions and remit the deductions every month. You are also required to keep records of regular hours, overtime hours and vacation hours. You could hire a payroll bureau to keep track of the paperwork for you but they don’t come cheap.
SmallPayroll.ca offers a web-based software that takes care of calculating, tracking and generating payroll reports. Sean, the engineer behind the project says that he first developed the tool for his own use and then decided to polish it up a bit and put it out there. Currently, SmallPayroll.ca handles time sheets, generating payroll, past paystubs and withholding summary for each month. Sean is planning to add more features to handle taxable deductions such as room and board for live-in caregivers. He also intends to update the software as tax rules change. If you’d like to check it out, there is an one-month free trial period. The software subscription costs $5 per month thereafter.
moneysense.ca, 25/08/10
Wouldn’t it be easier to call the nanny a contractor? I guess a lot of nanny’s expect to be on salary?
What an excellent service! If I ever become an employer I’ll look that up.
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My first response, like million dollar journey, is why not have the nanny on contract, not salary?
@MDJ, @Katy: Here’s one page that I found that specifies how to determine if a nanny is an employee or contractor. I couldn’t find this info on the CRA page:
http://www.nanniesoncall.com/blog/2010-05/is-your-nanny-an-employee-or-an-independent-contractor/
I suppose if you have a live-in nanny, there is no question: she is an employee. It appears that even part-time or full-time (live out) nannies fall under the employee category.
According to this
http://www.wsib.on.ca/wsib/wopm.nsf/Public/120414
If a domestic worker works 24 hours/week or more, they are an employee.
CRA’s take on the employee or self employed contractor is laid out here:
http://www.cra-arc.gc.ca/E/pub/tg/rc4110/rc4110-08e.pdf
In this document, it lays out factors used to determine which relationship exists, and the requirements as a result.
Most nannies are paid on what you could term as a ‘net’ basis. This means that they want to receive a flat amount, and not have it reduced by EI, CPP and taxes. So if a nanny demands say $400 per week, then the employer has to figure out what gross amount will be needed so that after CPP and EI and Tax is deducted, this net figure is reached. As an example only, the employer may be paying, say, $525, but has deducted and sent $125 to CRA leaving the nanny with a $400 even cheque.
Payroll tables usually are updated every January 1st and July 1st so your numbers need to be re-run after these dates to ensure you are remitting the correct amount.
All Payroll stuff for CRA can be found here: http://www.cra-arc.gc.ca/payroll/index.html
and you are required to get a Payroll Number (a business number ending with RP0001). They also have an online calculator to figure out what you need to remit here http://www.cra-arc.gc.ca/esrvc-srvce/tx/bsnss/pdoc-eng.html This is invaluable when you have to reiterate several numbers to get to an even ent amount.
Do NOT be late, even by a single day, with your remitance which is due by the 15th of the following month. Penalties are severe!
Also, at the end of the year, you need to complete a T4 for each employee, and a T4 SUMMARY calculating what should have been remitted vs what was remitted. Since CRA does not acknowlege the filing by way of an assessment or anything, this is best done online at the CRA website so you have proof of filing.
The T4 SUMMARY, becomes your receipt for child care claims or attendant care claims on your tax return.
@Rob: Thanks for your comments. It’s an useful tip not to be ever late on the remittance. Again useful to know payroll tables are updated every Jan and July. I’ll check with Sean that he updates the software twice a year in time for the updated tables.
The penalties are indeed severe for late payments. Per the CRA website:
We can assess a penalty of up to 20% of the amount you failed to remit when:
* you deduct the amounts, but do not remit them; or
* we receive the amounts you deducted after the due date.
If the remittance due date is a Saturday, Sunday, or public holiday, your remittance is due on the next business day.
The penalty is:
* 3% if the amount is one to three days late;
* 5% if it is four or five days late;
* 7% if it is six or seven days late; and
* 10% if it is more than seven days late or if no amount is remitted.
Thanks for the writeup, CC!
WRT the employee vs contractor question, the document that Rob posted is a great one. The CRA looks at things like the employee’s control of working hours, specialized skills, and degree of freedom over how the job is done to determine if it’s an employer/employee or employer/contractor relationship. I’ve only seen the 24 hour requirement relate to worker compensation board requirements, which are outside of CRA.
It’s important to get that part right, because an employee can later go back and have the CRA review the nature of the relationship. If it’s found to be wrong, then the employer can be liable for both portions of the CPP and EI payments. Remember a contractor has to pay both the employer and employee part of EI and CPP, so at the end of the year they’re hit with almost 15% right off the top.
I keep the payroll engine up to date as the CRA issues new TD1 claim codes, tax rates, EI/CPP changes, etc.
For T4s, the web application gives a report that you would take to the CRA’s web site to enter the T4s. I’ve been going through the processes to try and get direct access to the CRA so I can do it on behalf of my customers, but as you can imagine, it’s a pretty slow process.
I’d also love to hear what people think about the web site, as I’m always looking for ways to improve it.
Sean
[...] us a reminder to those who hire folks to work with their Kids or Elderly Parents you must have Payroll for Employers of Caregivers to keep track of the CPP you MUST deduct from those [...]