The Nanny Tax Conversation: Nanny Agency Tips
You are helping a new client family do a needs assessment prior to beginning the nanny search. During the course of the conversation you query them about their childcare budget. How much do they plan to spend on their nanny? The family throws out a weekly number that sounds reasonable. You clarify that this is the nanny’s weekly wage, and that this is before taxes? The parents look at each other in puzzled manner, then turn to you and ask “What taxes?”
Every nanny agency faces this situation, and how you respond to it can either help you build trust with this family or undermine their faith that your nanny agency is a good resource for their family. You specialize in recruitment. Your primary focus is to match this family with a nanny that they will be delighted with long term. You are not an accountant, nor do you want to be! The nanny tax is complicated. What do you do?
- ALIGN YOUR NANNY AGENCY WITH ONE OR MORE INA-MEMBER PAYROLL FIRMS THAT SPECIALIZE IN NANNY TAX COMPLIANCE. These businesses can facilitate the conversations with your clients, answer their questions in detail, connect them with Workers’ Compensation Insurance firms, and help draft a FLSA compliant compensation offers to the nanny.
- MAKE SURE YOU AND YOUR NANNY AGENCY TEAM KNOW THE BASICS, AND TRAIN YOUR AGENCY STAFF TO REFER CLIENTS TO YOUR PAYROLL PARTNER(S). Take the time to prepare a quick script for staff to address key points. The basics include:
- A nanny is an employee, not an independent contractor. This is established under law, and is not a matter of opinion or a decision that the family and nanny can make together. There are online tools, videos and written advice you can steer your clients too.
- A family is responsible to report and pay the Social Security and Medicare taxes for their employee, and to contribute to unemployment insurance. The nanny cannot do this herself. Nanny tax compliance is the law. For budgeting purposes the family can expect to pay roughly 10-12% in employment taxes above the gross agreed upon wage, depending on the state.
- Workers’ Compensation Insurance protects the family from financial liability should the nanny suffer an accident on the job. (Your nanny tax partners can connect your client with appropriate insurance agencies.)
- Paying cash under the table is risky for families because when and if the nanny’s job ends the nanny can file for unemployment benefits, which can result in audit and hefty penalties once the state is able to determine the nanny worked for the family.
- FACILITATE THE WRITING OF AN FLSA COMPLIANT COMPENSATION AGREEMENT. Federal law establishes that all nannies are hourly employees, and that live-out or come-and-go nannies are entitled to overtime. Your state may have stricter overtime definitions. Putting these details down in writing when the job offer is extended protects all parties – the family, your nanny agency and the nanny – from misunderstandings or even unwitting violations of Federal or state law. Lean on your nanny payroll tax partners for help here – their staff will be happy to help you.
- REMIND THE FAMILY THAT A PROFESSIONAL NANNY EXPECTS TO RECEIVE HER WEEKLY PAY IN FULL EVERY WEEK SHE IS AVAILABLE TO WORK, WHETHER THE FAMILY DECIDES TO TAKE A HOLIDAY OR NOT. Follow that up by including this in the compensation agreement. All too many ‘good’ nanny job matches fall apart because there was not clarity at time of hire on this point. The family trusts your nanny agency to provide the necessary guidance that results in a satisfying, long term relationship with their nanny.
- FACILITATE THE DOCUMENTATION OF BENEFITS SUCH AS PAID HOLIDAYS AND PAID TIME OFF. Define which Federal holidays the nanny will be paid for. Define vacation and sick time pay if included. A key component of a ‘good’ nanny job match is mutual understanding on benefits and household ‘policies.’ Your nanny agency’s reputation is reinforced when you help the family work through these issues in advance.
A nanny agency builds trust and credibility when the agency provides the client with the advice, tools and partners that both manage the family’s risk and saves the family valuable time. Your agency reputation is enhanced when you guide the family through the hiring process and minimize their time spent on research. Your valuable knowledge and access to expert assistance differentiates your nanny agency from the less professional agency across town and from the national, online databases. Your clients have better things to do with their time!
The following INA-Member Nanny Payroll and Tax Services provide Sponsor Support to our Annual Conference:
GTM Associates
Care.com HomePay, Provided by Breedlove
HomeWork Solutions Inc.
Find INA-member Nanny Payroll and Tax Services online in our member directory.
A special thank you to INA-member HomeWork Solutions for providing this guidance. HomeWork Solutions offers both household payroll and household payroll tax compliance services to US families on a nationwide basis and has partnered with INA nanny agencies since 1993.
Do you have specialized knowledge, experience or resources that you want to share with your fellow INA members? We encourage you to submit original, informational articles to the INA to be considered for publication. Authors of selected articles will receive attribution in the post. Email your submissions to the INA Office.