I recently attended Nannypalooza in Philadelphia where I was asked by a nanny in attendance if I could coach her on how to speak to her employer about being paid on the books. Immediately several other nannies joined the conversation, sharing that this is one of the most difficult conversations to initiate with their employers.
Clearly it is optimal to have this conversation early, as part of the nanny job interview. The reality is, however, that many nannies NEED the job they are interviewing for and are hesitant to raise an issue that could derail the job opportunity.
How does a nanny who accepted a job paying cash under the table convince her employer that legal payroll is important to her?
#1 Recognize and acknowledge that the conversation is about money...
The fact is that legal nanny pay on the books costs both the employer and the employee money. The employer will be obligated to pay approximately 10% more in employer taxes - a significant amount in many families budgets. Often the amount the family pays the nanny exceeds the amount they pay for their mortgage or rent! The nanny pays taxes too - the family is entitled to collect 7.65% from the nanny's pay for their share of Social Security and Medicare taxes, and the nanny ultimately owes any income taxes that may be due.
It isn't all money out the window though! By paying legally on the books the family may be entitled to important tax breaks. These tax breaks typically offset 50 - 100% of the family's employer taxes, making this an easier decision for the family. (HINT: The family may not know this, the nanny can help them out by doing the research!)
The nanny too can qualify for tax benefits too - most importantly government subsidies for health insurance and potential eligibility for the Earned Income Tax Credit (EITC), a refundable tax credit for low income wage earners. In 2012, the average EITC payout was $2300 - often more than the total of deducted Social Security taxes and income taxes combined!
#2 Be clear that this is the right thing to do...
As Oliver Wendell Holmes Jr. so famously opined, "Taxes are the price we pay for a civilized society." No one actually likes paying taxes, yet without everyone paying their fair share, important social programs such as unemployment insurance and Social Security retirement benefits are not funded.
A nanny can begin by acknowledging that her employer wants to do the right thing. Often nannies and families both think by paying cash under the table the nanny receives more pay in her pocket. While this undeniably may be true and in the nanny's short term best interests, in the longer term the nanny may suffer and the family may put themselves at risk. How? All nanny jobs end, usually after a few years, because the children grow and the families needs change. Full time childcare evolves into part-time after school care, and the full time nanny is no longer needed. A nanny may not find a new job right away, and at that time legal unemployment benefits may be the only thing that allows the nanny to pay her rent or make her car payments. After the job ends, you may have to file for unemployment benefits to tide you over, an action that blows the whistle on both you and your former employer. Paying a bit now, and taking home a bit less every week is not ideal, but it will offer both you and your employer longer term benefits.
#3 Be a partner in the solution...
Remember, this conversation is about money! You can help your employer make the right decision by:
- Indicate early in the conversation that you know they will have to start deducting taxes from your check, and you are okay with that.
- Help the family understand what their obligations are. You can download HWS' free Guide to Household Payroll and share with your employer.
Did you know?
HomeWork Solutions provides free telephone consultations and we are delighted to help employers understand the rules, costs and how we can help make nanny tax compliance easy and affordable to them.