Paying a Nanny Off the Books: Bad Idea
I have owned my own employment law firm for just over 6 years and have multiple employees. I thought employing a nanny would be easy.
There are steps every employer should take when hiring:
- define the job and describe all required duties;
- identify skills and characteristics you require of the employee;
- determine your salary budget;
- interview candidates who meet initial criteria; (v) check references; (vi) gather all new hire payroll paperwork; and
- present the job offer.
Having a checklist has always worked in my business so I assumed the same would work in hiring the person who would help my husband and I care for and raise our daughter. Oh how wrong I was.
First of all, like many parents who employ nannies, I found that most nannies we interviewed were either unaware of or completely disregarded the wage laws that apply to household employers. With certain limited exceptions (i.e. live-in help), nannies must be paid at least minimum wage plus overtime for hours worked over 40 hours per week.
Nanny Candidates Wanted Cash
My assumption was that our nanny candidates would appreciate being offered a job that paid "by the book." How wrong I was.
Hiring a part-time or full-time nanny who is going to be paid more than $2,000 per year requires that you pay nanny taxes.
And, payroll taxes affect both the household employer and the nanny. The nannies I interviewed were fine with being offered a well-above minimum wage hourly rate plus time and a half for overtime, but they were not ok with having their pay subjected to payroll taxes. They wanted cash.
After being told by 7 different candidates that they did not want taxes withheld, I started to think I would never be able to hire a nanny and comply with the law.
However, owning an employment law firm gives you a unique perspective.
In the beginning, your nanny may ask to be paid cash and paying cash may seem like the best and least expensive option for you as a parent. But, like many relationships in life, most nanny relationships are not permanent. And some even end badly. When that happens and the nanny who begged to be paid cash is fired, do you think he/she would hesitate to file a claim with the department of labor or your State's unemployment office?
And, when that happens, do you think the government (or a court of law) will be forgiving of your infraction because you were doing what your nanny requested? I can tell you with a fair degree of certainty that the cost of doing things the cheap, but wrong way can far exceed any savings you may get from not paying payroll taxes, minimum wage or overtime pay.
Paying payroll taxes is a huge pain. And household employers do not get the same deduction benefits that business employers receive (even though we are, after all, creating jobs by hiring care for our children).
But payroll companies take the hassle out of the compliance issues. The real pain is finding a nanny who shares your values and wants to help teach your children that when faced with an ethical quagmire, it's always better to take the right path instead of the easy path. My husband and I ended up finding someone who did exactly that.
Disclaimer: This post is for general information purposes only and is not intended to offer legal advice. This post does not cover all the specific issues that should be considered in nanny compensation nor does it address the specific laws of any individual state.
Kristen Prinz is the founder and managing partner of The Prinz Law Firm in Chicago.