Paying Your Nanny: A Legal Checklist

Oct 28, 2024 | Household Payroll & Taxes

Hiring a nanny involves more than just finding someone to care for your children. It requires understanding the financial responsibilities that come with employment.

As you embark on the journey of hiring a nanny, consider essential aspects like nanny pay rates, employment laws, and tax obligations. By being informed, you can ensure a smooth relationship with your nanny while fulfilling your legal duties as an employer.

Steps to Pay Your Nanny Legally

1. Determine Your Nanny’s Pay Rate

Start by researching average nanny pay in your area, considering factors like experience, duties, and hours worked. Understand different payment structures (hourly rates, overtime, and guaranteed hours) and typical rates. Read 9 Factors That Will Influence Your Nanny’s Pay.

2. Properly Classify Your Nanny

Nannies are considered employees and not independent contractors. Employees are subject to payroll taxes and workplace protections, while independent contractors manage their own taxes and may not receive the same employment rights. Read Independent Contractor or Employee? How to Classify Your Nanny

3. Register as an Employer

Obtain an Employer Identification Number (EIN) from the IRS, which will help you report taxes and pay your nanny legally.

4. Set Up Payroll

Establish a payroll system to manage wages, hours, and taxes. from GTM Payroll is an easy and stress-free way to track hours and pay your employee

5. Consider Workers’ Compensation

Workers’ Compensation protects both the employer and the employee in case of a work-related injury. Workers’ compensation can cover medical expenses, lost wages, and other related costs if an employee gets hurt while performing their duties. It’s important for household employers to understand their state’s specific requirements regarding workers’ compensation coverage and ensure they have the necessary insurance in place to protect themselves and their employees. GTM works with household employers to help them secure the coverage they need.

6. Understand Nanny Taxes

Learn about the various taxes you need to withhold from your nanny’s paycheck such as Social Security, Medicare, unemployment taxes, and federal/state income taxes. A payroll provider like GTM can ensure you are compliant with IRS and state tax requirements.

7. Provide Paystubs and Documentation

Issue paystubs to your nanny and maintain accurate records of payments made, including tax withholdings, paid time off accruals and balances, and any other deductions.

8. File Employment Taxes

Prepare and file quarterly and annually required tax forms and remit your contributions as an employer and your employee’s withholdings. GTM can file for you, saving you valuable time.

9. Discuss Paid Time Off & Benefits

Clarify any paid time off policies and benefits such as health insurance or retirement plans to enhance your nanny’s job satisfaction and ensure compliance with the law.

Understanding how to pay your nanny legally is essential for compliance and maintaining a positive working relationship. By following the steps above, you will protect yourself legally and create an environment of trust and respect with your childcare provider.

GTM Can Help

Let the household employment experts at GTM Payroll Services manage nanny taxes and payroll for you. We will set you up as an employer, get your employee paid the right way, and remit all employee and employer taxes to federal and state agencies. It really can be that easy. Questions about hiring or employing a nanny? Want to learn more about our services? Call (800) 929-9213 for a complimentary, no-obligation consultation. Or schedule time with us at your convenience.