Expert Insights: Nanny Tax Myths with Guy Maddalone of GTM Payroll Services, Inc.

by Michelle LaRowe
Editor in Chief

When it comes to employing a nanny, it’s important to know what’s true and false. Guy Maddalone, founder and president of GTM Payroll Services, Inc. and household payroll and tax expert, provides some important insight that can help separate fact from fiction.

eNannySource: True or False: It’s legal to pay nannies through your company’s payroll.

Guy: False

It is not proper for an employer to pay a household employee through their business payroll. A household employee is an employee of the home, not the business, and therefore would not qualify for the tax deductions that would otherwise be allowed with a traditional business employee. In most cases, federal household employment taxes must be paid on the employer’s personal federal income tax return, either annually or quarterly.  The only exception to reporting federal household employment taxes on the employer’s personal federal income tax return is if they are a sole proprietor or if their home is on a farm operated for profit.  In either of these cases, the employer may opt to include federal household employment taxes with their federal employment tax deposits or other payments for the business or farm employees. For more information, refer to IRS Publication 926.

eNannySource: True or False: Nannies are entitled to overtime pay.

Guy: True and False (in some cases)

According to the U.S. Department of Labor, the federal Fair Labor Standards Act (FLSA) requires employers to pay overtime pay of one and a half times the regular pay rate.  Overtime pay must be paid for hours worked over 40 hours per week. However, some live-in nannies are exempt from overtime depending on the state in which they are employed.  Employees hired to provide baby-sitting services on a casual basis, or to provide companionship services for those who cannot care for themselves because of age or infirmity, are exempt from the FLSA’s minimum wage and overtime requirements, whether or not they reside in the household where they are employed. State and local laws for overtime vary and may supersede the federal FLSA law. Consult a certified professional at GTM for more information at (888)432-7972, or contact your state department of labor for your state’s specific laws.  A household employer should specify in the work agreement when approved overtime can occur and what the specific rate of pay will be to avoid conflict when the issue arises.

eNannySource: True or False: Nannies are independent contractors.

Guy: False

There are specific differences between an employee and an independent contractor. An employee is a person who takes instruction from the employer, has a schedule set by the employer and uses tools and equipment provided by the employer. An independent contractor is a person who works under their own conditions, sets their own schedule and uses their own supplies. Most nannies who work in an employer’s home, whether it be on a temporary or full-time basis, are considered household employees, not independent contractors, because they work under the family’s control and have their schedule and pay set by the family. In the past, the IRS has made determinations that caregivers are considered employees and it is illegal for a family to treat them as independent contractors.

eNannySource: True or False: Employers do not need to track a nanny’s hours.

Guy: False

According to the U.S. Fair Labor Standards Act, employers are required to keep records on wages, hours and other items as specified by Department of Labor regulations. These records include hours worked each day and total hours worked each week.  The risk of not keeping proper time records is that it is difficult to prove the hours an hourly employee has actually worked and when they may be eligible for overtime pay in the event of a wage and hour audit by the Department of Labor.

eNannySourCE: True or False: Only full-time nannies need to be paid legally.

Guy: False

Any household employee who earns $1,800 (2013) or more in a calendar year must be paid legally and the employer must withhold Social Security and Medicare taxes regardless of whether they work on a part-time or full-time basis. Employers must pay federal unemployment tax for any employee who earns wages of $1,000 (2013) or more in a calendar year. Since the wage threshold for these requirements is low, many times even the most part-time employee needs to be paid legally.

Guy Maddalone, Founder and CEO of GTM Payroll Services Inc., is a 25 year veteran of the payroll, human resource and employment services industry. Originally starting with the placement of home healthcare and eldercare personnel, he then expanded his business to include nannies and other household staff. In 1991, he founded GTM Payroll Services to provide payroll & tax administration for households, the first in the industry. Guy is a household employer himself and the author of How to Hire a Nanny: A Household HR Handbook - Your Complete Guide to Finding, Hiring, and Retaining a Nanny and other Household Help (SPHINX LEGAL). He is widely-recognized as the nation’s household employment expert and believes in sharing his personal and professional industry knowledge with the employment community.