Guest post from Seattle employment law attorney Noah Williams who is an Associate at Reed Longyear Malnati Ahrens, PLLC. Noah is also a parent and has personal experience navigating the world of nannies and nanny shares. Thanks Noah for sharing this valuable information with us!
As childcare for newborns and young children becomes more expensive, families may find they can hire a nanny (or nanny share) for a comparable cost as daycare. A nanny or nanny share are very convenient – location, child to caretaker ratio, no stressful waiting list etc. I know, because it appealed to my wife and me when we had our son. I was naïve enough to think it would be a piece of cake – I am an employment law attorney, how hard could it be? The bad news was that there was a lot I did not know, the good news was that I think anyone can do it, and do it right. Like most things with a new child, it was humbling.
What follows are a few common questions I am asked, my general response, and some general considerations.
Can’t I just pay my nanny under the table?
You should not pay your nanny “under the table” (not reporting the employee or pay). It is also quite risky to try to pay your nanny as an independent contractor instead of an employee. You may be fined or penalized for failing to report, or misclassifying the nanny as a contractor. I realize that many families do just this, but it is important to know a few of the common risks, at least that way you will not be caught by surprise:
How will your insurance (homeowners, renters, auto, etc.) treat the nanny should an accident occur?
Though policies vary, many insurance policies could deny coverage for an unreported nanny if they are injured on the job. If any civil suit arose from the injuries the family would potentially be responsible for the injuries without insurance coverage.
What is the real risk if it is found the nanny was being paid under the table?
It depends which taxing agency discovers the error. It could be for many reasons – your nanny is injured and files a claim with the state, you put your child in day care and your nanny applies for unemployment, or your nanny complains they should have received more pay. In general, you should expect to have to pay all back taxes or wages owed, and likely a penalty on top. This can be a sudden and significant burden. Note from Laura: This link contains a complete list of the consequences you may face if caught.
What if my nanny insists on being paid under the table?
In my experience, most skilled nannies will reject offers of only being paid under the table. The newer nannies, or those just looking for a temporary gig (and who will stick around just a short while), are those that typically ask to be paid off the record. Other than the risks above, I question the reasons to avoid a formal working relationship with accountability of both sides, and would suggest reconsidering a nanny who refuses to be paid otherwise.
OK, you’ve convinced me I shouldn’t pay my nanny under the table, but can’t I just use a service and they take care of everything?
In my experience, most “nanny services” are really “placement” services; they are not the nanny’s employer. If the family places ads for a nanny through services such as Nanny Parent Connection or even Craigslist, then likewise those services are not the employer.
Most frequently, the family is the employer. This may seem daunting if the parents do not have a clear idea on how to draft an employment contract, set up appropriate accounts with necessary government agencies, arrange for reporting, taxes, payroll etc. It is not as easy as just agreeing to a monthly pay amount and writing a personal check.
Well then how do I set up those accounts? Is it difficult?
Luckily there are several options of varying levels of self-sufficiency. You can find these services online with a simple search for “payroll processing services”. Not surprisingly, the greater the help provided, the more the option typically costs. On one end of the spectrum you can pay a monthly or quarterly fee and have a service produce paychecks, account for taxes, produce W-2’s etc. with your input of hours worked. On the other end, you can set up your own accounts with the appropriate government agencies (they typically have “how to” guides), and your own accounting system that tracks hours worked to calculate the appropriate tax and withholding.
Laura and her team have compiled some great information including guides on writing an employment contract, tracking hours, and paying taxes in their library.
However comfortable you are in doing it yourself, it is best to set up before that first paycheck is due. Do not get behind, as it will increase the chance you just decide to pay the nanny under the table.
I’m making progress – I’ve found a payroll service I am happy with, but what do I need in a contract or on top of that?
It is possible to find basic contracts online; however, those contracts – even if mostly correct – may not be as much help as you would like. The contract itself is an excellent time to educate yourself on basic employment issues, pay practices, and scheduling. Some questions to ask yourself and address are:
- Hours of work? Is overtime going to be an issue?
- Rate of pay? How is overtime going to affect that rate of pay?
- Holidays? Will the nanny have paid holidays or not?
- Paid Time Off? Will the nanny accrue paid time off?
- How do breaks work? Can the nanny even take a break?
- Driving or child transport? Does the nanny have access to a vehicle?
- What does your insurance (home, renters, vehicle etc.) have to say about an employee such as a nanny now working for the family?
- Have a conversation with your income tax preparer on how to report your payments to the nanny.
This is not an exhaustive list, but is a good sample of common questions. Of course the most important question is if the nanny is actually good at taking care of your child/children.
I am ready to go, but I am involved with a nanny share – what else do I need to worry about?
You have probably already sat down with the family you are sharing with to discuss some of the above. If this post prompts additional questions, then you should just sit down again and hammer out the details before they become an issue. The most common difficulties I run into can be easily solved with a conversation:
- What do you do when one family needs less nanny coverage than the other? Most people can agree that you should only pay for what you use. The problem is that a rate that was being split previously is now being carried by just one family. This should be conversation you have with your nanny’s input. I find that it is common for the hourly rate to go down somewhat when there are less children to care for.
- What do you do if you only need 30 hours a week, but the other family needs an additional 20 hours? Do I need to pay overtime? This now becomes a surprisingly complicated legal question, that is uncommon in most industries but common with nannies. The rules will vary widely from state to state or even city to city. It is quite possible that overtime will be needed, but then there will be a debate as to whether the overtime will be at the lower or higher rate. In either case, if overtime is owed and not paid, significant penalties and back wages can occur. I’ve had this happen to a client and it is not pleasant.
Anything else I should know?
Yes, the most important thing I tell clients – and this is usually at the point where their eyes start to glaze over as they realize there is yet another problem to tackle with everything else involved with the new child – other than some annoying paperwork, it is not all doom and gloom. As an attorney I do not receive calls reporting that everything is going fine. The calls I receive are when something has gone wrong. The majority of experience is pleasant, without difficulty, and without complaint. Sure it is great to be prepared for the worst, but chances are that with just a little thought, effort, and conversation, you can have a great, stress free experience.
Noah Williams is an Attorney with Reed, Longyear, Malnati and Ahrens, PLLC. His practice focuses on employment, trade secret, and intellectual property issues presented to businesses and individuals. Noah enjoys the opportunity to represent clients throughout the Seattle, Pacific Northwest, and Tri-Cities areas. Noah has lately focused on navigating employment disputes, (wrongful termination, harassment, wage and hour etc.) and addressing trade secret and intellectual property issues. Disputes relating to theft of trade secrets, trademark infringement, contractual violations, non-compete agreements, and claims of workplace harassment, are unfortunately common. Noah is driven to help his clients obtain the best result.