Paying “On the Books:” How Your Nanny Benefits from Legal Pay

Your nanny benefits in a number of ways when they’re paid “on the books” and taxes are withheld from their pay.

We often discuss how families benefit from legally paying their household help and what can go wrong if they don’t. A nanny benefits as well from being paid legally even though they may see a little less in their paychecks.

If you’re hiring or looking to transition a current employee to “on the books” and she doesn’t want taxes taken out of her pay, explain these nanny benefits and protections that they’ll enjoy.

Here are the six major benefits of paying your nanny legally:

1. Verifiable income

If your employee applies for a car loan, student loan, mortgage or even a credit card, they’ll need to show that they can pay monthly installments. Being paid legally provides a verifiable income to show the lending institution. If their pay is not documented, they have no way to show that they have a job that brings in a steady income.

2. Legal employment history

Having a work history is also important when applying for a loan, credit, or their next job. Being paid “on the books” creates a legal employment history that banks and lending institutions as well as future employers can verify.

3. Unemployment benefits

As an employer paying your workers legally, you are required to pay unemployment taxes. This is an employer-only tax yet it’s your employee who benefits. If your nanny loses her job, through no fault of her own, unemployment benefits will partially replace their lost wages for up to six weeks while they look for a new job. Amicable splits are common in household employment and this is a benefit your nanny will want if they find themselves without a job.

4. Social Security and Medicare benefits

Social Security and Medicare taxes will be taken out of your nanny’s pay. This money is set aside to help pay for their living and medical expenses when they retire. As an employer, you’ll also pay into their Social Security and Medicare. If your nanny is paid “under the table,” they won’t receive these benefits. As a result, they may need to continue working past retirement age.

5. Health care subsidy

Under the Affordable Care Act (ACA), a health insurance marketplace has been created to help uninsured people find coverage. If your nanny wants to purchase a policy through the marketplace, they could qualify for a subsidy and cut the costs of their insurance. For example, a nanny who makes $40,000 and lives on her own in New York City would save 38 percent on their health insurance premiums. Of course, this is only available to them if they are paid legally.

6. Employment benefits

As an employer, you may want to provide benefits to your workers to help retain your best employees. A 401k retirement plan and health insurance plans that may be cheaper and provide better coverage than the ACA marketplace are a couple of perks that would set you apart from other employers. But your nanny will be need to paid legally in order to take advantage of these benefits.

The benefits and protections of being paid legally far outweigh the small amount of money that will be taken out of their pay each week.