If you have a full-time nanny, then you have to pay them like an employer would an employee, and handle taxes, too. Read on to learn how to pay a nanny.
Do you outsource your childcare? If so, you aren’t alone. Research shows that over 60% of married parents both work.
If you have little ones, then you know you can’t put a price on the cost of excellent childcare. Chances are, you treat your nanny as a member of the family, but are you compensating the services fairly and legally?
Let’s get into how to pay a nanny and manage the taxes.
Determining the Pay
In protecting your family, you are responsible for vetting qualified and competent staff to work in your home.
The International Nanny Association is a fantastic resource to review recommended practices and benefits. It’s also a great starting point for establishing an appropriate pay rate.
You’ll need to distinguish the pay differences between part-time and full-time nannies. You’ll also need to adjust your pay if you intend to have your nanny work more than 40 hours per week.
Likewise, you’ll need to assess if you plan to have a live-in nanny, as they are not required to be paid overtime if they are provided room and board.
Additionally, you’ll need to consider the following:
- Health insurance
- Paid vacation time/holidays
- Sick days
- Reimbursement for professional development
- Bonuses
- Retirement plans
Like with most professionals, you get what you pay for when hiring a nanny. Is your child’s well-being an area where you really want to cut costs?
Becoming a Valid and Legitimate Employer
You can’t just fork over an envelope of cash or check to your nanny. Instead, you need to establish yourself as an actual employer. This entails a few responsibilities including:
- Completing an SS-4 form with the IRS to obtain a Federal Identification Number
- Determining all state and federal requirements for withholding unemployment tax, disability, and social security
- Reviewing necessary year-end tax forms
- Providing W-2 forms by January 31 each year
- Filing a Form W-3 by February 28 each year
- Having your nanny fill out Form 1-9 to keep for at least three years after the initial hire date
You’ll benefit from establishing a system like ThePayStubs to automate your payment plan. Such systems help with organization and accurate recordkeeping.
Wages and Taxes
You are responsible for calculating both gross and net wages. To do this, add up the hours your nanny works each period.
Multiply this number by the hourly wage. This will provide you with a total gross wage. You’ll then need to calculate both Medicare and social security taxes.
Subtract the employee’s share from gross wages. If your nanny needs to withhold federal income taxes, use the withholding table to determine the leftover figure. Finally, calculate any state unemployment taxes that need to be considered.
Final Thoughts on How to Pay a Nanny
Your children are your world. Now that you know how to pay a nanny, you can rest easy knowing they are in good hands!
There’s no doubt that managing the challenging demands of work and parenting can be tough. Keep browsing our blog to learn the instant stress relief tips to help you restore balance.