The minute you hire a nanny, you're running a small business. And with that business come costs and legal implications that go beyond the base salary, including some you may have already thought of (like health insurance) and others you may not have considered (like gas money). Keep in mind that the information below assumes that you're paying your nanny legally. Though this will cost you more day to day, it's a lot cheaper than the legal fees you'll face if the IRS finds out you've been paying someone under the table.
Employer Payroll Taxes
Cost: An additional 7 to 8 percent above the nanny's take-home pay.
All household employers are responsible for paying federal and state unemployment insurance, as well as a matching portion of Social Security and Medicare taxes. If your nanny's salary is $500 a week, for example, your share of taxes would be an additional $35 to $40 a week.
Health and Workers' Compensation Insurance
Cost: It depends on the state, but health insurance ranges from $90 to $500 a month, and workers' comp is no more than $500 a year.
Providing health insurance isn't mandatory, but you don't want the person in charge of your children to avoid going to the doctor because she can't afford it. Parents can reimburse the nanny for the entire premium or a portion. Workers' compensation insurance covers the cost of medical care and protects you from a potential lawsuit should your nanny get hurt on the job. Because rules are different in every state (in some, this insurance is mandatory), consult both an attorney and an insurance agent.
Base Salary
Cost: It depends on the city, number of children, and duties, but it usually ranges from $400 to $700 a week after taxes.
Most employers also provide two weeks of paid vacation, seven paid major holidays, five sick days, and overtime pay for any time exceeding 40 hours a week. Don't forget to factor in annual raises of at least 1 to 3 percent and a holiday bonus (usually a week's salary).
Car Insurance
Cost: It varies based on location and driving record.
If your nanny drives your car, make sure to add her to your policy. If she drives her own car, she's not covered by your insurance, so check to see that her coverage is at least equal to your own. Depending on how much of her overall driving is nanny-related, she may need coverage for business-related driving. Expect to pay any difference between her old consumer policy and the new business one.
Payment Services
Cost: About $20 a month.
If you want to avoid calculating payroll taxes and filling out W2s and other federal and state forms, you can use a service like paycycle.com, which will manage all the paperwork for you. Direct deposit is included, so you can pay your nanny online, transferring the money straight from your bank account to hers. Though the service does add an incremental cost to your child care, if you make a mistake while handling the paperwork yourself, IRS penalties can be steep.
Extras
Cost: From $50 to $100 a week.
Alaina Smith, placement coordinator for the Seattle Nanny Network, says families should always reimburse nannies for gas used during the workday. Some families pay by the mile (the IRS's standard rate is 44.5 cents per mile); others provide a monthly gas allowance. Also, expect your grocery bills to go up, as most nannies expect to be able to eat whatever they want from the family kitchen. Finally, some families choose to pay for their nanny's cell phone so she's always reachable, as well as provide her with walking-around money for things like movies, museum trips, and cab rides.
