Hourly vs. Salary Wages for Nannies

Deciding to pay a nanny or other household employee hourly vs. salary wages is another key element of household employment. Generally, most household employees are paid an hourly wage, especially those that work part-time. This allows for more accurate record-keeping which is mandatory according to the Fair Labor Standards Act for hourly workers. This is especially true because, according to the FLSA and many state’s labor standards, household employees are classified as non-exempt to overtime laws and therefore must be paid on an hourly wage basis. However, salaries are sometimes appropriate for long-term employees who work full-time and who generally have managerial or supervisory responsibilities (like household managers). There are important considerations for both.

An employee paid an hourly wage is based on the actual hours they’ve worked in a given payroll cycle. On the other hand, a salaried employee is paid based on an agreed annual salary amount, divided by the number of payroll cycles in a calendar year. The most common payroll cycles are:

• Weekly, giving you 52 cycles for the year;
• Weekly-Lag, which lags your payroll by one week, giving you 52 cycles in the year;
• Bi-Weekly, giving you 26 cycles in a year;
• Semi-Monthly, giving you 24 cycles; and
• Monthly, giving you 12 cycles per year.

For example, an employer and a nanny agree to an hourly wage of $12.50. To compute the compensation, you would multiply the hours (40) times their rate of $12.50 to come up with a $500 weekly rate. For a salaried employee, you would take the annual salary (for example, $26,000) and divide by 52 pay frequencies to come up with a $500 weekly salary.

Once the agreed compensation has been discussed, employers should always communicate in writing an hourly compensation to their nanny, keep proper time cards, and document the hours worked on the employee’s pay-stub each pay cycle.

For help calculating hourly vs. salary wages, please use our tax calculators. For more information, contact GTM’s Household Employment Experts at (888) 432-7972.