Paying in Arrears or Current? What’s the Best Way to Pay My Nanny?

Apr 15, 2021 | Household Employer Policies, Household Payroll & Taxes, Tax & Wage Laws

paying-in-arrears

When paying your nanny, you can pay them in arrears or current. Here are the differences between the two methods and why paying in arrears may work best for your family.

You have a couple of choices when it comes to paying your nanny or other household employees. You can pay your worker in arrears or pay them current. Here are the differences between the two methods and why arrears payroll may work best for your family.

What is paying in arrears?

Paying your employee in arrears simply means compensating them on payday for work performed from the previous pay period instead of the current pay period. Typically the lag is one or two weeks.

For example, your nanny works Monday through Friday and payday is every Friday. Paying in arrears means on this week’s payday, they will get paid for their previous week’s work and the current week’s work is paid next Friday.

Paying employees in arrears is a common practice in the traditional workforce and has benefits for household employment as well. It is straightforward despite sounding like a complicated accounting term.

What is paying current?

The alternative to paying in arrears is paying current. Your employee gets paid for the current week’s work on the last day of the pay period.

So, if your nanny works Monday through Friday and is paid on Friday, their paycheck will reflect the hours they worked for that week. There is no lag between the end of the pay period and payday.

What are the advantages of paying in arrears?

Before paying your employee, you need to calculate:

  • hours worked at their regular rate
  • overtime pay
  • paid sick days and other PTO
  • unpaid time off

Based on your worker’s gross pay, you then need to determine:

  • federal and state (if applicable) income tax withholdings
  • FICA (Social Security and Medicare) tax withholdings
  • Any other taxes or deductions

By paying in arrears, you can take a week to make all these calculations (or submit them to your payroll service), so you can take your time for accurate reporting, reducing the chance for mistakes.

Once you get into the cadence of paying in arrears, your employee likely will not even notice (or will have the expectation) that they are being paid for the previous week of work.

By paying current, your employee’s paycheck needs to be ready by the end of the last day of the pay period.

If they work a consistent schedule, it may be easy to calculate pay ahead of time and meet that deadline. But what if Friday is payday and they work an extra hour because you are running late. Or they get sick and you need to come home early to relieve them. They use PTO or take unpaid time. Now you need to recalculate everything, and you are rushing because you have an employee waiting for their paycheck. Or you say you will make it up to them the following week … if you remember.

Running payroll in arrears is more efficient and takes the guesswork and stress out of payroll causing fewer issues for you and your employee.

Should I add this to my nanny contract?

It is important to stipulate in your nanny contract that you will be paying in arrears or paying current. Also, indicate the pay periods, pay dates, and, if paying in arrears, any lag between work performed and payment for that work.

For example, you could state that:

  • The workweek/pay period is Monday-Friday
  • Payday is every Friday
  • Employee will be paid in arrears on a one-week lag

That way there are no surprises come payday.

When paying in arrears, what happens with an employee’s first and last paychecks?

One possible disadvantage to paying in arrears is the delay in your employee receiving their first paycheck. If they start work on a Monday and the pay period ends on Friday, then they get their first paycheck on the following Friday, which is two weeks into the job.

Also, with paying in arrears, your employee’s last payday may need to be sooner than it normally would be if you have a one- or two-week lag. In some states, if you fire an employee, you may be required to pay them on the same day as their termination or the next business day. If your employee quits, you likely can pay them on their next payday. But there are exceptions.

View Final Paycheck Laws by State

What about wage laws?

You will want to make sure you are following federal and state wage and labor laws when paying your employees. This can influence when you pay your workers and how often they get paid. For example, in New York, the state’s Domestic Workers’ Bill of Rights says household employees must be paid weekly. You can still pay in arrears, but your employee must get a paycheck every week.

View Household Employment Wage Laws by State

State payday requirements vary and can even be different for certain industries like household employment. It is always best to check with your state’s labor agency on the rules you need to follow.

Whatever method you decide to use – in arrears or current – the most important piece for you, as the employer, is to pay accurately and on time.

GTM can simplify payroll for you

One way to avoid any confusion about how to pay your nanny is to let us do it for you! We will set you up the right way and make payday a breeze. Want to know how? Give us a call at (800) 929-9213 and get a complimentary, no-obligation consultation with a household employment expert. We will answer any questions you have and show you how GTM Payroll Services can make paying your nanny easy and hassle-free. Can’t talk now? Schedule time with us at your convenience.

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