You have a new baby in the house, you are not sleeping well, and you need to line up a great nanny before you return to work. Or mom is declining and you have to hire a senior caregiver to stay with her while you are working because she just is not safe alone any longer. Hiring caregivers, whether a nanny for your children or someone to care for your aging loved one, is a stressful experience.
Recently there has been a lot of attention paid to properly background screening your caregivers before you hire them. While this is incredibly important, and we do not down play this at all, we also find that all too many families make compensation offers to their nanny or caregiver without fully understanding the financial and tax implications. Many weeks or months later when these families get around to taking care of the payroll taxes, they are shocked at how much that casual agreement to pay $500 a week net wages and take care of the 'caregiver's taxes' actually costs.
So what are common mistakes in the nanny compensation offer?
- Failure to define "taxes." A family may agree to pay the nanny $500 a week "after taxes" and think they are only going to cover the required employment taxes (Social Security, Medicare and Unemployment tax) and the caregiver may interpret "taxes" to include her income taxes too. This is a very uncomfortable situation when the W-2 form later shows no contribution for income taxes.
- Failure to calculate taxes. In New York, for example, a nanny with a $500 weekly net or take home pay would gross $28K if just the employment taxes are covered by the employer, and $35K if employment taxes and income taxes are covered by the employer. That is a difference of $7,000 per year directly out of the employer's pocket!
- Quoting weekly salary instead of hourly rates. All household employees are hourly workers under Federal law, and should be paid for every hour worked. If you needed the caregiver for extra hours, legally she should be paid more for those extra hours.
- Failure to calculate overtime. All household workers who do not live with the employer, and many that do live with the employer are entitled to an overtime differential of 1.5 times their normal pay rate. There is a narrow exemption for companionship care. Click here to use our free 2014 Payroll Calculator.
At a minimum all compensation offers should be stated in GROSS wage terms (before taxes are withheld), NOT NET wage terms. HomeWork Solutions' calculators will help you determine how much the caregiver is to be paid gross for the desired net payment.
HomeWork Solutions publishes an easy to understand tip sheet, linked above, to help household employers understand and correctly deal with their household worker's compensation offer. It goes without saying that it is best to deal with these matters before the caregive begins employment and that documentation of the agreement in the written employment agreement is a best practice all around.