Hiring A Nanny Payroll Company vs. Handling Payroll Yourself

So you found the right nanny, verified their background check is clear and they have accepted your offer. Congratulations! You’re almost done!

While it may seem that the hard work is behind you, there is one more important decision for you and your family to make: do you hire a nanny payroll company to take care of paying your nanny or do you handle payroll yourself?

This critical decision can be the difference between hours of frustration and scrambling or a turn key solution which only requires a few minutes of your time each month.

First, let’s get this out of the way…

There are still many parents and care providers that decide to work together “under the table” where the parent pays the provider in cash and no taxes are withheld or paid. If that is the arrangement that you have agreed to, this article is not for you. Although I would strongly encourage you to watch this video about the risks and liability you may be opening yourself (and your nanny) up to.

Ok, so should I hire a professional or handle payroll myself? The answer depends on the time you have available, your budget, and your comfort level. Below, I have broken down the pros and cons of both scenarios to help you make the best decision for you, your family, and your care provider.

The Reality

What is involved with paying your nanny legally and on time? Below is a summary of all of the tasks involved with paying your nanny on a regular basis:

• Collecting all pertinent information from your care provider and ensuring they update you if that information changes
• Registering for tax accounts (and other accounts if the child care occurs in the City of Seattle and/or state of Washington)
• Determining what taxes (and rates) your nanny pays versus what your family pays
• Ensuring your provider’s time card is filled out correctly
• Calculating mileage reimbursement (if your nanny drives your children)
• Creating or printing pay stubs
• Withholding taxes from your provider’s paycheck
• Writing a paycheck or organizing direct deposit/automatic payments
• Filing quarterly and annual reports to local municipalities, state, and federal government agencies (much more complicated to figure out than people think since these taxes vary in almost every aspect, including frequency, reporting rules, which platform you report and pay through, etc.)
• Recording earned vacation hours, paid sick time, etc
• Actively staying up to date with local, state and federal law changes and understanding how they may affect your household employee arrangement

That’s a long list! Next, let’s break down the pros and cons of handling the above tasks yourself or hiring professionals like our friends at HomePay.

Handling Payroll Yourself

Many parents decide that they want to tackle the payroll puzzle themselves. I find that most parents making this decision have arrived at two specific conclusions:

#1: They have educated themselves about the time and requirements involved with “running payroll” and feel confident that they can handle it successfully, and;

#2: Are prepared to approach payroll in an organized fashion and are comfortable calculating numbers.

The “Pros” of Handling Payroll Yourself

• Save money. Most payroll companies cost anywhere from $50 to $400/month!

• A clear understanding of your nanny’s take home pay which is helpful if your nanny has questions about their paycheck.

• No back and forth between an accounting professional and yourself if there is a question or problem.

The “Cons” of Handing Payroll Yourself

• Time. Most parents end up spending at least 2-5 hours each month processing payroll and many more hours at the end of each quarter/year submitting reports. This time commitment increases quickly when parents cannot get the totals reconciled to match the online reporting tools, or find any errors in their calculations. 

• Stress. Even if you are a math whiz, running payroll can be a stressful and tedious process with a lot of checking and double checking.

• Skill set. The most sure-fire way to accurately calculate net pay and taxes for your nanny is to build your own Microsoft Excel sheet to calculate all the taxes and net pay. This requires a certain knowledge of Excel, attention to detail, and keeping the sheet updated and functioning properly. Sure there are online calculators, but ever notice how all of them seem to be different? And you never get the formula or math behind the tax calculation, so verifying the accuracy of the calculator is difficult and arguably more of a time investment than creating your own calculator in Excel (or otherwise)!

• Various government agency reports with different due dates. Keeping track of what forms to file and when they are due can be a bit nerve-wracking.

• Changes to the law. It will be up to you to stay on top of changes to the law that may affect how you pay your nanny.

• Penalties. If you make a mistake, you may have to pay a penalty due to incorrect or late filings.

Hiring A Nanny Payroll Company

In my experience, parents seem to turn to nanny payroll companies if they just had their first child (and are a bit overwhelmed and lacking in sleep), have multiple children (which can complicate payroll), or just don’t feel that they have the time or patience to ensure that all the i’s are dotted and t’s are crossed when it comes to paying their nanny.

The “Pros” of Hiring A Nanny Payroll Company

• Save Time AND Money! Yes, you are spending money on the payroll company, but you are saving YOUR TIME which is certainly very valuable!
• Confidence. A professional to provide clear understanding and explanation of your nanny’s paycheck if they have questions. You can be assured your payroll and taxes will be reported and paid correctly.
• Correspondence with government agencies is either handled by the payroll service providers or the payroll service provides clear direction and support for your family to respond appropriately to the agency. No headache or stress for you, and penalties avoided!
• Changes to the law. The payroll service provider will update you on changes to the law that may affect your nanny payroll.

The “Cons” of Hiring A Nanny Payroll Company

• Middle Man. You may see the payroll company as a “middle man” you have to correspond through, especially if there are questions on time cards or with tax reports. Yes, having another person to correspond through can potentially create confusion or another step in the process. However, it is worth the extra correspondence time when that “middle man” is a subject matter expert for payroll!
• Cost. At a most basic level, yes, a payroll provider is an extra outflow of money each month. However, as we have pointed out above, the intangible costs related to running your own payroll may far outweigh the basic, financial cost of hiring a professional to run your nanny payroll.

My Recommendation

What do you think? Is running nanny payroll for you?

For myself personally, I would prefer to work with a nanny payroll company to handle my nanny’s pay because of two reasons:

I have zero time with four kids always underfoot and I have always been nervous that I am going to miss a form or calculate something incorrectly which not only will create problems for my family, but probably for my wonderful nanny as well.

My husband is different. He loves to play with numbers and fill out forms – he has a sickness 🙂 In the past, he has handled nanny payroll for our family himself. I can’t recall any issues that he ran into but I do know that he would have to disappear into his office for a few hours every pay period to run payroll. That usually was followed by a bit of grumbling about spending time doing other things!

If you have the time, patience, and comfort to handle payroll yourself, I encourage you to do so. Make sure you check out our Pay Calculator which many members use to process payroll each month.

If like me, you would prefer having a professional handle all of these tasks, then I would encourage you to check out our nanny payroll service operated by our partner, HomePay. We’ve been working with HomePay for well over a year now to offer nanny payroll services to our members and they are FANTASTIC! It’s so easy to just pick up the phone and give them a call if you have a question or need some advice.

I’ve heard rave reviews from many parents that switched from running payroll themselves to working with HomePay. They know how to get you registered properly, pay the right taxes to the right agencies, and get the proper forms filed at year end for everyone’s taxes. They are experts at the process and the payroll so you do not have to be. You can take those extra hours and spend time with your family instead!

The best part about HomePay is their cost to handle payroll is extremely affordable – only $75/month.