There can be a lot of confusion between a nanny and a family when it comes to negotiating what the pay will be when talking in terms of gross pay or net pay. You want to be sure you are on the same page as it can make a big difference to both parties. Your nanny could end up with less than they expected or the family could end up spending more than they had budgeted for when hiring a nanny. I would encourage both parties to negotiate using the gross pay figures to minimize any confusion. Ensure that the employment contract clearly states whether the wage that was successfully negotiated is in gross or net terms.
You may be thinking at this point, what is the difference and why is it so important. Let’s start by defining gross pay and net pay. Gross pay is the entire pay, before anything is taken off, such as taxes. The net pay is after all deductions, such as federal income tax, provincial income tax, Canada Pension Plan (CPP) and Employment Insurance (EI) premiums. If you have a live-in caregiver, you may also have room and board deductions to factor in as well.
Here’s an example, if you were to pay your nanny $1000 bi-weekly (every 2 weeks), this is the gross amount. The net amount, after deductions would be closer to $800, which is what your nanny would actually receive on pay day.
In Canada, when you hire a nanny, you are considered an employer and they are considered an employee. You have some financial responsibilities that come along with that. As an employer, you are required to deduct income tax, CPP and EI premiums from your nanny’s gross pay and remitting those to the Canada Revenue Agency (CRA) each month. You are also required to pay CPP and EI premiums as an employer and remit those to the CRA as well. So when you are thinking of the gross pay amount of $1000 bi-weekly, you will be responsible for closer to $1100.
What some parents find difficult is when a nanny states they would like to receive $500 per week and then trying to work backwards to figure out what the total gross salary is and how much the deductions would be. The actual cost will be higher than $500 and they should be prepared for the additional cost.
If you find you need any assistance in calculating gross and net pay, please contact us!
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