Many households hire nannies to take care of children, but many aren’t aware of the legal and tax issues involved.  Here are some of the most common legal issues that families should understand before hiring a childcare provider.

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Independent Contractor vs. Employee?

Although there is less paperwork required when hiring an independent contractor, under federal law, a nanny is almost always considered an employee. Since the household or employer designates the hours the nanny must work, as well as specific tasks such as when to pick the children up and other household chores, a nanny would not meet the requirements for classification as an independent contractor.  Workers classified as independent contractors set their own hours, and can generally work however they choose to get the job done.  For a nanny to be classified as an independent contractor, she would have set her own schedule (not a very good idea for hiring someone who is taking care of your children), be available to the general public, and is only obligated to finish a job, but it doesn’t matter how she does it (again, unlikely).  

Creating an Employment Agreement

When you hire your nanny, it is a good idea to have a comprehensive Nanny-Family Employment Agreement.  This document will include state guidelines such as the hours the nanny will work, how much and when she will be paid, the basic job guidelines, and conditions and procedures for termination.  You may also want to include additional duties and guidelines for confidentiality.  It’s easy to create a Nanny-Family Agreement with Rocket Lawyer.

Work Eligibility

Before a nanny starts work, ask her to complete an Employment Eligibility Verification form (I-9). Read the directions on the form and verify the nanny’s proof of employment eligibility.  The prospective nanny should be ready to show a combination of documents as evidence of her ability to work legally in the U.S.  Documents can include a Social Security card, driver’s license, birth certificate, passport, green card, or work permit, or combination thereof.  You should make copies of these documents and keep them in your records along with the completed I-9 form.

Tax Responsibilities

If your nanny is paid at least $1,500 a year, the employer contributes to Social Security and Medicare.  The employer pays for half of the Social Security taxes and deducts the other half from the nanny’s pay check.  The employer  may choose to withhold income taxes as well, although it is optional.  However, it’s usually more convenient for the household worker.  When your nanny starts employment, ask her to complete a W-4 form so you know how much to withhold from her pay.  You’ll also need to issue a W-2 form to her every year so she can report her income when she files her tax return.

Overtime Pay

All household employees, including nannies, must be paid for overtime work under federal law.  Any time she works more than 40 hours within a 7 day week you must pay her 1.5 times her wage.  Live-in nannies, however, don’t have to be paid overtime. However, there may be other forms of compensation.  Check with your state’s labor and employment department for more information.

Get Started Create your Nanny Agreement Answer a few questions. We'll do the rest.

Get Started Create your Nanny Agreement Answer a few questions. We'll do the rest.