Effective January 1, 2018, the minimum wage in Ontario increased to $14 per hour, representing a 21 per cent increase from the previous $11.60 per hour. A perhaps unforeseen impact of this new legislation is that individuals will need to re-evaluate the amount paid to personal service employees, such as nannies and domestic workers. Many nannies negotiate their wage based on the net take-home pay (gross wage net of withholdings for income tax, Canada Pension Plan contributions, and Employment Insurance premiums), so once employers have settled on a net take home pay amount with their domestic worker, they must ensure that the corresponding gross wage is in compliance with the new minimum wage legislation.
As an example, for a nanny who works 40 hours a week, the gross annual salary at the new minimum wage of $14 an hour will need to be at least $29,120 ($14 x 40 hours x 52 weeks). For these wages, there would be payroll source withholdings of $3,314 for income tax, $1,268 for Canada Pension Plan contributions, and $484 for Employment Insurance premiums, resulting in a net salary of $24,054. This works out to roughly $463 net pay per week. This means a 40 hour per week nanny will need to be paid at least $463 per week for an employer to be compliant with the new minimum wage legislation. Also, keep in mind, for a live-in-nanny, the taxable room and board benefit cannot be included in calculating the gross wage for purposes of meeting the new minimum wage.
In 2019, the minimum wage in Ontario is expected to increase again, to $15 an hour. The same exercise will need to be performed at the beginning of next year to ensure that your nanny is paid a gross hourly wage at least equal to the higher minimum wage amount. Assuming there are no changes to the personal tax rates, Canada Pension Plan contributions, and Employment Insurance premiums in 2019, an individual working 40 hours a week will need to earn approximately $492 net, after payroll source deductions for the employer to be compliant.
Though the negotiation of the net salary may be the focus of some domestic workers and their employers, for 2018 and 2019, employers will need to take into consideration the impact of the increase to the minimum wage and ensure that they complete the additional step of calculating the implied gross wages to confirm they are in compliance with minimum wage legislation. The Canada Revenue Agency payroll calculator is a very useful tool to assist in this calculation. Click here to access the payroll calculator.
For further information, please consult with your Crowe Soberman tax advisor.
This article has been prepared for the general information of our clients. Specific professional advice should be obtained prior to the implementation of any suggestion contained in this article. Please note that this publication should not be considered a substitute for personalized tax advice related to your particular situation.