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5 Steps to Hiring a Nanny Legally

May 17, 2012

The formality of hiring and paying a nanny legally seems overwhelming to many parents, but it doesn’t have to be.  Whether it is ignorance, time or perceived cost that prevents nanny employers from hiring and paying their nannies legally, the reality remains that doing so is not an option.

If you are considering or in the process of hiring a nanny, be sure to follow these five steps to hire and pay your nanny legally. Doing so may be easier than you think.

1. File for your employer identification numbers. As a nanny employer, you’ll need to have a state and federal employer identification number. To obtain a state number, contact your state office that handles employment. To obtain a federal employer identification number, use form SS-4 from the International Revenue Service.

2. Verify that your potential employee is legally able to accept work in the United States.  To verify your potential nanny is eligible to work legally in the United States, you will need to obtain and complete form I-9, the Employment Eligibility Verification form. You can obtain this form from the Department of Homeland Security from the U.S. Citizenship and Immigration Services office.

3. Report your new hire (or rehire) to the state government. While the reporting procedures may vary from state to state, all new hires must be reported to the appropriate state agency within a specified amount of time from the employee’s hire date.

4. Set up a payroll system and pay your employee according to current, Federal and State labor laws. Live-out nannies must be paid at least minimum wage for each hour worked and overtime rates for hours worked over 40 in a 7-day-period. Live-in nannies must be paid at least minimum wage for each hour work and in some states (like Massachusetts), may also be entitled to overtime. Nanny employers are also required to pay the “Nanny Tax” which includes Social Security, Medicare, and the Federal Unemployment Tax. In some states, nanny employers may also have to pay state unemployment insurance tax, disability and workman’s compensation. The “Nanny Tax” is estimated to be about 10% of the nanny’s pay and you are responsible for these taxes if you have paid a nanny more than $1800 per year (2012 threshold). While not required, at the request of the nanny many nanny employers opt to withhold their nanny’s portion of taxes so that she doesn’t have to make quarterly payments. If you decide to do this, be sure to have your employee complete Form W-4 the Employee’s Withholding Allowance Certificate.  If the payroll process seems to daunting, there are payroll service providers that specialize in household employment that can do it for you.

5. File proper end of the year forms. As a nanny employer, it is your responsibility to be sure that your nanny gets her W-2 form by January 31st of each year. You’ll also need to file this form, along with a W-3 form to the Social Security Administration by February 28th of each year.

Nannies who work in the private homes of their employers are their employees. While it’s popular belief that nannies can be classified as independent contracts, this is not the case. The International Revenue Service takes the misclassification of household employees seriously and you can incur penalties should you misclassify your nanny as an independent contractor.

While it may take a little extra time and energy to hire and pay your nanny legally, avoiding the penalties that can come with hiring those ineligible to legally accept employment in the United States and paying “off the books” should you get caught, are well worth it.

Hiring and paying your nanny properly is not only the right thing to do, it is the legal thing to do.

Michelle LaRowe is the 2004 International Nanny Association Nanny of the Year and the author of Nanny to the Rescue!, Working Mom’s 411 and A Mom’s Ultimate Book of Lists.

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7 Responses to 5 Steps to Hiring a Nanny Legally

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Georgina says:

Too many families don’t realize that paying off the books is not only not OK, it’s illegal. Hopefully articles like this will bring more awareness to the situation so that more nannies can be legally paid!

Jessica says:

Agreed – and more nannies need to speak up and say that being paid under the table is not ok. Yes, you may get a higher paycheck initially, but in the long run you’re only hurting yourself.

Ashley Long says:

Great tips, Michelle, as always! I always look forward to reading your articles!

Scott J. says:

It’s so important to remember that nannies can NOT be added to the company payroll if you own your own business – they are household employees, not company employees and must be paid separately.

admin says:

Great point Scott!

Cara Valintino says:

Do you have anyone you recommend for taking care of payroll taxes and such?

admin says:

Check out Breedlove & Associates – they are wonderful!