Paying your nanny legally is always the right thing to do. With the stimulus plans that have been out in place as a response to the COVID-19 pandemic, legal pay has become even more important for nannies and more cost-effective for families.
With a larger number of nannies requiring to be paid legally and more families putting their in-home caregivers on the books, some could be struggling with the hassles of payroll and employment taxes.
You can try to do it yourself, which is time-consuming. Or use an accountant, which could be costly and they may not get it right. There are plenty of nuances to nanny taxes and payroll that can trip up even experienced accountants.
Your other option is to find a service that can handle taxes and payroll for you.
What is a nanny payroll service?
A nanny payroll service helps families pay their household employees legally and take care of employment taxes so they can be compliant with tax, wage, and labor laws and avoid costly fines and penalties.
While nannies are the most common type of household employee, a nanny payroll service can be used to pay other workers in the home like housekeepers, senior caregivers, chauffeurs, estate staff, and others.
How does a nanny payroll service work?
Typically, a family will enter the hours worked by their employee for the pay period and the nanny payroll service will calculate the worker’s take-home or net pay, which is their gross wages less any taxes and other deductions. The family can either write a check for the net amount or set up a direct deposit with the nanny payroll service and have their employee’s pay automatically deposited into the worker’s bank account.
The service will also hold onto the employee’s income taxes that were withheld as well as the worker’s and family’s share of Social Security and Medicare (FICA) taxes. These taxes are then remitted to the IRS and state tax agencies on a quarterly basis.
At the end of the year, a nanny payroll service will supply Form W-2 for the employee that they will use when they file their personal tax return. The family receives Schedule H, which details how much they paid in “nanny taxes.” Schedule H is attached to the family’s tax return or provided to their accountant.
Benefits of using a nanny payroll service
The IRS estimates that it will take a family 60 hours each year to manage their household payroll and taxes. A nanny payroll service will drastically cut this commitment so a family has more time for things they enjoy.
A nanny payroll service will take care of quarterly tax payments and year-end tax documents so a family does not have to figure out how to generate and file these forms.
Using a nanny payroll service can help a family get nanny pay and taxes right so they avoid fines and penalties from the IRS or state tax agencies.
With a nanny payroll service, the employee gets paid accurately and on time creating a more pleasant work environment for everyone.
Must-have features of the best nanny payroll services
When choosing a nanny payroll service, make sure they offer:
- Secure, online portal to easily make changes to an employee’s pay and hours
- Option for an employee to get direct deposit so you have no worries on payday
- Expert client support by phone, email, and web chat to answer any question and help with any task
- Quarterly tax filings (FICA, income, unemployment) for you and your employee
- Year-end service to handle Form W-2, Form W-3, and Schedule H
- Online access for employees to view and download pay stubs and tax documents
- Ability to handle state-mandated paid sick leave requirements that could require employee and/or employer contributions
- Integration of worker’s compensation insurance (may be required in your state) or employee health benefits into your account without having to go through another party
Evaluating the best nanny payroll service for your family
Here are six considerations when determining the best nanny payroll service for you in 2021.
1. No-effort employer set-up
If you are hiring for the first time or now deciding to put your nanny on the books, you will need to be set up as an employer. This involves a bunch of paperwork, forms to be filed, and tax accounts created with your state. Some services will leave you on your own for employer set-up. That’s a nuisance. Or they may set you up as a small business. That’s a headache. You deserve better. Get a nanny payroll service that will take care of employer set-up for you.
2. Hassle-free payday
You hired a nanny to make your family’s life easier. So why make payroll hard? You should have the option to set your payroll on “auto-pilot” by entering your nanny’s standard hours and pay rate once and then forget it. With employee direct deposit, there is nothing more for you to do. Taxes are automatically calculated, withheld, and filed on your behalf.
If anything changes, the payroll service should have an easy-to-use employer website so you can quickly make adjustments at your convenience. Your nanny should also have online access to paystubs and their W-2 for tax season.
Anything less is just another thing for you to worry about it.
3. Client support with expertise and experience
Managing household payroll and taxes is not easy. There are plenty of ways to get tripped up, fall out of compliance, and face trouble from the IRS or your state tax or labor agency. Look for a service that specializes in household payroll and taxes and has longevity in the industry. A business payroll firm may say they can handle your nanny taxes. In reality, they just shoehorn you into their small business product. That can cause issues down the road as there are several key differences between small businesses and household employers.
Your nanny payroll service should have extensive experience working with families that have household help and a staff of certified payroll, accounting, and insurance professionals and tax experts who can help with any question or task.
4. Workers’ compensation policy administration
Workers’ compensation insurance is a requirement for household employers in many states. Without the proper coverage, you could face thousands of dollars in medical bills and lost wages, if your nanny gets hurt on the job. It can be even more costly if you get caught out of compliance. Fines and penalties can easily reach tens of thousands of dollars. Not having a workers’ comp policy is one of the most damaging mistakes a family can make. Even if workers’ compensation is not required in your state, you can still get voluntary coverage and give yourself and your nanny peace of mind should an accident happen while they are working.
Find a nanny payroll service with an insurance team that will add coverage to your payroll and tax plan, manage your policy, and helps you stay compliant – not force you to make more calls to find insurance on your own.
5. Employee benefits integration
Finding the right nanny for your family is hard. Offering health benefits or a retirement plan is a great way for your job to stand out and attract top candidates (and keep your best employees once they are hired). Health plans with tax advantages – like a QSEHRA – can also help you and your nanny save some money. But where do you start? You will want a service that can offer multiple health care options and integrate a plan with your tax and payroll account.
6. Top-notch data security
Basic SSL encryption of your data is not enough to prevent hackers from accessing your information – including social security numbers – and stealing your or your nanny’s identity. Work with a nanny payroll service that goes above and beyond with data security. A firm should maintain strict compliance with SOC 1, the highest international standard for information security. 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.
Bonus: Help during the pandemic
There is no doubt we are living in unprecedented times due to the COVID-19 pandemic. It has impacted every aspect of our lives including household employment. How will your nanny payroll service guide you through the tax, payroll, and labor changes like paid leave, employer tax credits, and revised tax documents brought about by pandemic-relief legislation? It is not business as usual and you do not want to be left in the dark as an employer. Make sure you will get the support you need during this pandemic.
How does GTM Payroll Services compare?
We are confident that GTM is the best nanny payroll service for you. Take us up on our offer of a complimentary, no-obligation consultation with a household employment expert. Just call (800) 929-9213 or schedule time with us at your convenience. We’ll walk you through your payroll and tax obligations as a household employer as well as answer any questions you may have about hiring and employing someone to work in your home.
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