Hiring a domestic payroll service vs. doing it yourself: what’s the best option for your household?
Managing payroll for your nanny or caregiver can be complex and time-consuming, fraught with regulatory requirements and potential pitfalls. You have to navigate tax withholdings, taxable benefits, employer contributions, compliance with labour laws, and Workers’ Compensation Board (WCB), and other payroll-related responsibilities.
You have two main options when handling payroll: hiring a domestic payroll service or managing payroll yourself (DIY). In this blog, we’ll explore the advantages and disadvantages of both approaches to help you make an informed decision.
Time and Expertise:
DIY: Managing payroll can be time-consuming, especially if you don’t have payroll experience. It requires staying up-to-date with pay statements, changing tax rates, tracking hours and vacation accrual, calculating and processing pay, filing monthly/quarterly/annual reports to the Canada Revenue Agency (CRA) and WCB, and handling compliance matters. Read our blog about how to avoid the unexpected costs of hiring a nanny or caregiver to learn more about important considerations: https://nannytax.ca/how-to-avoid-the-unexpected-costs-when-hiring-a-nanny/.
Payroll Service: Outsourcing to a payroll service frees up your time to focus on other responsibilities. A payroll service can save you time and frustration, and provide peace of mind, knowing that experts are handling your payroll accurately and in compliance with the Canada Revenue Agency (CRA), WCB requirements and provincial labour standards. A payroll service can also support you with any general questions related to managing payroll for your nanny or caregiver, such as what to consider for a salary increase or how to handle vacation time.
Cost Considerations:
DIY: Handling payroll yourself can be cost-effective in terms of service fees. However, you should factor in payroll software costs, updates, and potential penalties resulting from errors or non-compliance with the CRA. Your time also has value. The amount of time needed to keep on top of regular pay, plus monthly/quarterly/annual filings, and eventually tackling the Record of Employment (ROE) when employment ends, can be significant.
Payroll Service: While a payroll service incurs a fee, it often includes services like tax and WCB filing and compliance management, which can save you money compared to potential penalties for DIY payroll mistakes. A domestic payroll service may even be able to find you extra dollars through smart accounting. The convenience and reduced administrative burden will justify the cost for many households.
Employee Benefits and Deductions:
DIY: If you offer benefits such as health insurance, a bus pass, or other deductions, managing these can add complexity to your payroll. Ensuring accurate withholdings and contributions is crucial.
Payroll Service: Payroll services are experts at handling various taxable and non-taxable benefits and contributions, making sure they are processed correctly and reported accurately.
Control vs. Convenience:
DIY: Managing payroll yourself offers control over the process. You can customize procedures to your liking and have immediate access to payroll records. However, this control comes at the cost of time and effort.
Payroll Service: A payroll service provides convenience by handling all payroll tasks for you.
It is an efficient and hassle-free option, allowing you to focus on other aspects of your life.
In summary, hiring a domestic payroll service or handling payroll in-house hinges on your unique situation and priorities. Whichever option you choose, the key is to ensure that your nanny or caregiver is paid accurately and on time while staying compliant with relevant laws and regulations.
If you need help deciding which path to take, feel free to reach out to us so you can make a decision tailored to your household’s specific needs. You can call us toll-free at 1-877-626-6982 or email us at taxquestions@nannytax.ca.
Credits: Photo by Nataliya Vaitkevich
