Hiring a Nanny: Legal and Tax Considerations

These are some legal considerations to consider before hiring a nanny for your children.

What you’ll discover:

Employee vs. Independent Contractor?
Making an Employment Agreement Employment Eligibility Tax Duties
Overtime Compensation

Many families employ nannies to care for their children, but many are unaware of the legal and financial implications. These are some of the most prevalent legal problems that parents should be aware of when selecting a daycare provider.

Employee vs. Independent Contractor?

While employing an independent contractor requires fewer paperwork, a nanny is nearly always deemed an employee under federal law. A nanny would not fulfill the qualifications for categorization as an independent contractor since the family or employer specifies the hours the nanny must work, as well as particular responsibilities such as when to pick up the children and other domestic chores. Independent contractors establish their own hours and may typically work whatever they want to get the project done. To be categorized as an independent contractor, a nanny would have to determine her own schedule (not a good idea when employing someone to care for your children), be accessible to the general public, and be solely bound to accomplish a work, regardless of how she does it (again, unlikely).

Making an Employment Contract

It is a good idea to have a complete Nanny-Family Employment Agreement when you engage your nanny. This contract will cover state standards such as the nanny’s working hours, how much and when she will be paid, the fundamental employment norms, and termination circumstances and processes. You may also wish to specify extra responsibilities and confidentiality requirements.

Eligibility for Employment

When hiring a nanny, have her fill out an Employment Eligibility Verification form (I-9). Read the form’s instructions and confirm the nanny’s employment eligibility. The potential nanny should be prepared to produce a variety of papers as proof of her legal right to work in the United States. A Social Security card, driver’s license, birth certificate, passport, green card, work permit, or a combination of these documents may be required. Make copies of these papers and maintain them alongside the completed I-9 form in your records.

Duties in Taxation

The employer pays to Social Security and Medicare if your nanny is paid at least $1,500 per year. Half of the Social Security taxes are paid by the employer, with the other half deducted from the nanny’s pay check. While it is voluntary, the employer may choose to withhold income taxes as well. It is, nevertheless, more convenient for the domestic worker. When your nanny begins working, ask her to fill out a W-4 form so you know how much to deduct from her income. You’ll also need to provide her with a W-2 form each year so she can declare her income when she files her tax return.

Overtime Compensation

By federal law, all home workers, including nannies, must be compensated for overtime labor. You must pay her 1.5 times her weekly income if she works more than 40 hours in a seven-day week. Live-in nannies, on the other hand, are not required to be paid overtime. Other types of compensation, however, may be available. For further information, contact your state’s labor and employment department.