If you employ a nanny, chances are strong at some point you will need to let the nanny go. There are myriad reasons a family fires a nanny. The children grow up and your beloved family nanny is no longer needed. Perhaps the nanny has horrible work habits - always late or a frequent 'no show.' Your family and the nanny simply may not 'click.' The nanny who was a wonderful nurturer of your infant does not have the energy to deal with your demanding toddler. Whatever the reason, firing a nanny can be an uncomfortable experience for both family and nanny.

Below are some tips and best practices when letting the nanny go.

Are you ready to compute your 2012 payroll?

The 4nannytaxes.com household payroll calculator has been updated with new withholding tax rates for 2012. Clients who write their own paychecks, please confirm your withholding calculations before issuing any 2012 payroll as there are many income tax rate changes!

Many states enacted legislation and regulations in 2011 that impact household employers. If you employ a nanny, housekeeper, house manager, home health aide, or any household staff, please stay informed.

Household staff, and nannies in particular, find that a former employer's letter of recommendation is an important part of his/her professional portfolio. The nanny or house manager often uses this portfolio, which is a collection of materials including her resume, work history, educational certifications, and examples of her work, to help 'sell' herself to prospective employers in the job interview. These letters are an important initial reference for families when they begin screening potential nannies and house managers.

 The US DOL has proposed a series of rules changes that will result in a substantial number of elder care and home care workers being covered by the Fair Labor Standards Acts' (FLSA) minimum wage and overtime protections. This continues a trend of increased regulation and enforcement in the area of domestic service employees, with an increasing number of household workers being subject to Wage and Hour protections and enforcement. The proposal more strictly limits and defines the services of a "companion," and states that household employers MUST maintain accurate and contemporaneous time tracking records and pay household staff for every hour on duty. It also states that employees of third party employers such as staffing agencies are not exempt from minimum wage and overtime protections. Public comments will be solicited when the proposal is published in the Federal Register.

While most media attention in 2011 was focused on AB889 the California Domestic Workers' Bill of Rights, which did not pass in the 2011 legislative session, two other pieces of legislation that household employers must be aware of passed with little notice.

Monday December 19, 2011 Update: What appeared a certainty two days ago is suddenly in jeopardy today. The House of Representatives is poised to reject the Senate's 2 month extension of the payroll tax holiday - insisting on a bill that funds the extension for a full year. We are watching this...

The IRS announced that the standard employee mileage reimbursement rate for transportation expenses paid or incurred beginning January 1, 2012, will be 55.5 cents per mile, unchanged from the rate in effect during the final six months of 2011 [Notice 2012-1].

This mileage rate is commonly used by household employers to compute the amount to reimburse employees such as nannies and housekeepers who use their personal vehicles for business purposes such as preschool transportation, grocery shopping and household errands.

Federal Healthcare Reform legislation (Patient Protection & Affordable Care Act) creates some compliance issues that will begin impacting household employer's payroll recordkeeping in 2012. Effective January 1, 2012, all employers must report the total cost of all “applicable employer-sponsored coverage” provided to an employee for health insurance on the employee's Form W-2. Any non-taxable payments or reimbursements that the household employer makes to their employee(s) for health insurance coverage must be reported. If the employee pays for (funds) any part of his/her health insurance coverage that is partially sponsored by the employer, the total premium cost must be reported.

There are a number of anticipated changes to nanny and other household payroll as we move into 2012 - and some unknowns at this time.