Deciding on a Nanny Tax and Payroll Service Provider? Here are 9 Questions to Ask

Managing a household employee is not always an easy task. It’ll take some time to develop a relationship with your employee, find the best ways to communicate, resolve any issues that may arise, and set goals and expectations so your employee can grow and improve at their job. On top of all that, there are payroll, taxes, labor law compliance, and insurance obligations to manage.

Many families take payroll and tax administration off their plate by selecting a nanny tax and payroll service provider to handle paychecks, tax withholdings, and more. But not all providers are created equal. With some, you may be creating more work for yourself and with others, you may not be fully compliant with the law and could still find yourself in trouble with tax and/or labor agencies.

If you’re deciding on a nanny tax and payroll service provider, here are nine questions to keep in mind as you compare services.

1. Does the nanny tax and payroll service provider offer workers’ compensation insurance for domestic employers?

Worker’s compensation is a requirement for household employers in many states. Fines and penalties can accrue at thousands of dollars a month so this can be your most costly mistake if you don’t get it right. Some providers may not even mention this requirement, which will cause a huge surprise if your nanny gets hurt on the job, while others will leave it up to you to shop for quotes, handle invoices, and manage audits.

You’ll want to find a nanny tax and payroll provider that is also a licensed insurance broker and will administer a workers’ compensation policy on your behalf including getting quotes and handling audits. This way you’ll also have a single point of contact for all your payroll, tax, and insurance needs.

2. Will you need to process your household payroll each week?

You pay a service to help make your life easier and not add things to worry about each week. Look for a nanny tax and payroll service provider that will let you put your payroll on “autopilot.” Set your nanny’s standard weekly hours and pay rate once and your payroll will process automatically. You’ll only need to contact your provider when you make a change in hours worked or your employee’s hourly rate changes. You shouldn’t have to enter your nanny’s hours, review, and approve payroll each week if nothing has changed. If you forget to process payroll, your nanny doesn’t get paid. Or if you make a mistake, your nanny gets the wrong amount in their paycheck. That’s now more hassles for you.

3. Will your nanny tax and payroll service provider set you up as an employer with federal and state agencies?

The federal government requires that all household employers obtain an Employer Identification Number (EIN). You’ll have additional forms to file to get your state ID as well. The process is a nuisance and can confuse families hiring household help for the first time. Doing this incorrectly can mean big headaches for you come tax time. Some nanny tax and payroll service providers won’t help with tax IDs and new hire paperwork and then will impose fees if your tax accounts are not set up properly.

Find a service that will take care of EINs, state IDs, and new hire paperwork for you. They should file all proper federal and state forms on your behalf to make sure you’re properly set up as a household employer. That’s fewer items on your to-do list.

4. How quickly will you be set up with their service?

You should be able to set up your nanny payroll and tax service online or by phone in a matter of minutes. From there, it shouldn’t take much longer for your employee to receive their first check or direct deposit. The process should be highly automated with information submitted online and forms uploaded. You shouldn’t have to fax, scan and email or even use regular mail to send and receive forms. That can mean additional days and even weeks before you’re ready to pay your nanny. You need a service that works at the pace you do … quick and efficient.

Some services may have needlessly complex processes and systems, which can take hours to navigate. These payroll providers are designed for business – not household – payroll. And that brings us to…

5. Does the service provider specialize in household payroll?

Some nanny tax and payroll service providers are simply subsidiaries of larger business payroll corporations. They try to shoehorn household employers into their small business offerings. And it shows. Their sign-up processes and payroll platforms are designed for businesses and not families.

Household payroll, tax withholding, and insurance requirements are very different from those of a business. If you do it incorrectly, you’re the one facing significant fines and penalties.

Find a service provider that has the experience and expertise in household tax, payroll, insurance, and labor law.

6. How secure is your data?

Some nanny tax and service payroll providers offer basic SSL encryption of your data. But that’s not enough to prevent hackers from accessing your information – including bank account and Social Security numbers – and stealing your or your employee’s identity.

Look for a nanny tax and payroll service provider that goes above and beyond basic and meets the highest standards of security compliance. Your provider should comply with SOC 1 reporting. Developed by the American Institute of Certified Public Accountants (AICPA), a SOC 1 audit is conducted by a third-party auditor to validate that a service organization’s key internal compliance and information security controls are operating effectively. It is considered the industry standard for evaluating, testing, and reporting on these controls and shows a firm’s commitment to client information security.

7. What type of resources does the provider offer to support household employers?

You lead an active life and may not have the time to master all of the ins and outs of payroll, taxes, and insurance. Tax, wage, and labor laws are also constantly changing. That’s why client support from your nanny tax and payroll service provider is essential. They should provide unlimited support at no charge and assist with any question or task you have. Your team should include certified payroll professionals (CPPs), licensed insurance brokers, CPAs, and household employment tax specialists. This team will also handle any notices you receive from the IRS or state tax agency.

Beyond an expert team, your provider should offer free educational resources including guides, checklists, and “how-tos” so you can educate yourself on the ins and outs of household employment and be the best employer possible.

Your nanny tax and payroll service provider should keep you up to date any changes to wage, tax and insurance laws and regulations so you stay legal and compliant.

For families with multiple employees or an estate with staff, you’ll need human resources support to help with hiring the best fits for your team, retaining your top employees, complying with labor laws, and mitigating the risks of an employee lawsuit.

8. Does the nanny tax and payroll service provider offer employee benefits like health insurance and retirement plans?

To keep your best employees, you may want to offer benefits like health coverage and/or a retirement plan. A nanny tax and payroll service provider should be able to provide options like health insurance, flexible spending accounts, health savings accounts, health reimbursement accounts, concierge medicine, dental and vision coverage, and retirement plans and tie them into your payroll so you can provide health and savings benefits that meet the needs of your employee and not break your budget.

Without these types of benefits being offered, you may be left on your own to figure out the right health coverage for your employee or not be able to offer benefits at all and risk losing your best employees to a job that can provide health insurance or retirement savings.

9. Will your nanny tax and payroll provider handle all state and local tax, wage, and labor laws?

A growing number of states (New York, Massachusetts, and New Jersey among them) and localities mandate paid family and/or medical leave even if the employer has just one worker. These programs are typically funded by payroll deductions or employer contributions. States with domestic worker protections may add other tax and wage obligations.

It’s not something you want (or have time) to manage on your own. Not getting it right could mean fines and penalties. Your nanny tax and payroll service provider should handle all payroll deductions, employer contributions, and other tax and wax and wage responsibilities for you.

GTM Can Help

If you have questions about choosing a nanny tax and payroll service provider or would like to understand what GTM has to offer, call us at (800) 929-9213 for a complimentary, no-obligation consultation with a household employment expert. We think you’ll like our answers to your nanny tax and payroll needs.

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