- There's no special, lighter-touch category in the tax system for hiring someone to work in your home rather than your office.
- Some families assume that simply calling the arrangement "contract" or "self-employed" work settles the question.
- Once you've concluded the relationship is employment, the mechanics are the same as for any small employer: 1.
When an Ontario family hires a nanny, an in-home caregiver, or a live-in aide, it's easy to think of it as a private, informal arrangement — cash on Fridays, a handshake understanding. Legally, though, the CRA generally treats a family in this position as an employer, with the same payroll obligations as any small business.
That comes as a surprise to a lot of families, and it's one of the more commonly overlooked household tax obligations in Ontario. This guide walks through what "becoming an employer" actually requires.
Why a Household Employer Is Treated Like a Business
There's no special, lighter-touch category in the tax system for hiring someone to work in your home rather than your office. If the working relationship is genuinely employment — the family directs when, where, and how the work is done, provides the tools and environment, and the caregiver doesn't operate their own independent business — the family is the employer, full stop, and the same source-deduction and remittance framework applies as it would for any other business's employee.
Employee or Independent Contractor? The Test That Actually Matters
Some families assume that simply calling the arrangement "contract" or "self-employed" work settles the question. It doesn't. The CRA and the courts look at the substance of the relationship, not the label:
- Control — Does the family direct how and when the work gets done, or does the caregiver set their own methods and schedule?
- Ownership of tools — Is the caregiver using the family's home, supplies, and equipment, or bringing their own independent setup?
- Chance of profit / risk of loss — Does the caregiver operate like a business that could profit or lose money, or are they simply paid for hours worked?
- Integration — Is the caregiver integrated into the household's day-to-day operations the way an employee would be?
Most live-in or regularly scheduled nannies and caregivers look like employees under this test, regardless of what a private arrangement calls them. Getting this wrong exposes the family to reassessment for unremitted source deductions, plus penalties and interest, if the CRA later determines the worker was actually an employee.
Setting Up Payroll as a Household Employer
Once you've concluded the relationship is employment, the mechanics are the same as for any small employer:
- Register for a CRA payroll program account.
- Collect a completed TD1 and TD1ON from your caregiver.
- Calculate and withhold income tax, CPP contributions, and EI premiums from each pay period.
- Remit the withheld amounts — plus your own employer share of CPP and EI — to the CRA on your assigned schedule.
- Issue T4 slips at year-end and a Record of Employment if the employment interruption ever calls for one.
What You Must Withhold and Remit
The same three deductions apply as for any employee relationship: income tax, CPP contributions, and EI premiums. These withheld amounts are held in trust for the CRA the moment they're deducted — a family that withholds but doesn't remit is in the same legal position as any other employer that fails to remit trust funds, with the same interest and penalty exposure.
Records of Employment and Other Ongoing Duties
If your arrangement with a nanny or caregiver ends, or their hours are interrupted in a way that qualifies, you'll need to issue an ROE — the same document any employer provides so a former worker can access EI. Families are sometimes caught off guard by this, since it doesn't feel like running a "real" payroll, but the obligation is the same.
The Risk of Paying Cash Under the Table
Paying a caregiver informally in cash, without registering as an employer or withholding source deductions, is a common but risky shortcut. If the CRA later determines the relationship was employment — which is common for in-home caregivers — the family can be reassessed for the unremitted source deductions that should have been withheld from the start, along with penalties and interest. The caregiver can also be left without a documented earnings history for their own EI or CPP purposes, which affects them directly.
Frequently asked questions
Does it matter if I only need a nanny part-time or occasionally?
The employee-versus-contractor test focuses on the nature of the relationship, not the number of hours — a part-time nanny working under your direction, using your home and supplies, can still be an employee for CRA purposes.
Can I use a nanny agency to avoid becoming an employer myself?
It depends on the arrangement. If the agency is genuinely the employer — paying the caregiver, directing the placement, handling payroll — the obligations may sit with the agency rather than your household. Review the agency agreement carefully, since some arrangements still leave the family as the actual employer.
What if my caregiver insists they want to be treated as self-employed?
What the caregiver prefers doesn't change the legal test. If the relationship functions as employment, the CRA can still treat it that way regardless of what either party would prefer.
Do I need to run payroll if I only occasionally hire a babysitter for an evening?
Occasional, informal babysitting is generally treated very differently from a regular, scheduled caregiving arrangement — the more the relationship looks like ongoing employment, the more likely payroll obligations apply. When in doubt, get specific advice for your situation.
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