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In-Home Childcare Employment Issues

Responsibilities, pay rate, taxes

In-Home Childcare Employment Issues A childcare provider who looks after your child in her home rather than yours is usually not considered to be your employee, but is instead known as an independent contractor. If you, rather than the nanny or the nanny agency, control the nanny's work, you are an employer. You want to have a written employment agreement in place. Having a written employment agreement helps make the relationship run more smoothly and provides a method to address problems before they come up.

Also as an employer, you have various legal responsibilities of which you need to be aware. You may be required to withhold certain payroll taxes, sometimes called nanny taxes, from the nanny's paycheck, and pay them over to the Internal Revenue Service. You may be liable for state taxes as well. There also are state and federal statutes that apply to the business relationship between you and the nanny, perhaps in much the same way that your own workplace may be regulated.

Please keep in mind that this article is meant only as an overview of your potential tax and legal liabilities. Consult a tax expert or lawyer for specific advice on what you are or are not required to file or pay if you hire an in-home childcare provider.

The Employment Agreement
Once you have settled on your preferred nanny candidate, it is advisable to formalize your professional relationship with an employment agreement. Unlike the application, this should be a comprehensive document, with as many terms of your agreement memorialized in writing as possible. The main reason to have a contract with specific terms is to help prevent your nanny from accusing you of breach of contract if you decide to terminate the employment relationship. A discussion of some of the more important parts of the agreement follows.

Parties
Be sure to specify the people who are to be bound by the agreement. This means the nanny, you, and your spouse (if applicable). Include the addresses of all parties.

Responsibilities of the Childcare Provider/Job Description
Describe what tasks you want the nanny to perform relative to the job of providing childcare. (Additional housework is discussed in a later section.) Be thorough in including the general categories of activities you wish the nanny to undertake, but leave flexibility in the particulars. For instance, require that the nanny facilitate learning, but do not limit the methods by which she can accomplish this. Provide examples of educational activities, but state that the list is not limited to those that are specified.

Start Date/Contract Term
Differentiate between the date the contract is entered and the date that employment is to start. If they are two separate dates, both should be included in the contract. The agreement date is the date that the employment relationship is entered. The start date indicates when the nanny's care-giving responsibilities and the parents' duty to pay the nanny begin. Also, provide either an end date or a specific time period for the life of the agreement. A one- or two-year term is fairly typical.

Pay Rate/Overtime
Wages should be very specific. The pay rate should be expressed in hourly, daily, or weekly terms. If the nanny may be expected to provide babysitting services above and beyond her normal work hours, overtime pay should be designated in writing. If possible, explain in the contract the circumstances under which overtime work would be requested—for example, the amount of advance notice that the nanny could expect before being called upon to stay late at work.

Taxes
Employment taxes in the nanny situation are discussed in this article. For purposes of the nanny agreement, you will want to set out which party is responsible for remitting the necessary taxes from the nanny's pay to the proper state or federal agency. Certain taxes must be withheld by the employer while others may be paid by either party on behalf of the nanny. The latter type of tax can be withheld and paid over by the employer only if the nanny agrees.

Work hours, paid days off, insuranceWork Hours
It is necessary to state exactly what hours and days of the week the nanny is responsible for working. If your work schedule varies from week to week, you should include language declaring that that is the case, and that the nanny will be given her work schedule within 24 hours of you receiving it yourself. If you expect that your hours will change at some point in the future, leave room for change in the contract, by providing that you can change the nanny's work hours with a certain amount of advance notice (if possible, at least two weeks notice would be preferable).

Additional Children
Even if you do not plan on having more children, it would be a good idea to include a provision covering extra pay for extra kids. If your plans do end up changing for some reason, you will have one less issue to worry about. If you discuss such a possibility in advance, you can determine how your nanny feels about taking on the care of another child—particularly a newborn.

Vacation, Holidays, and Sick Days
Paid days off for the nanny need to be explicit in the agreement. State the paid holidays by name. If a holiday falls on a weekend and you wish to give the nanny another day off as a make-up holiday, specify which day it will be. If you want the days off to correspond to your own work schedule, and you do not know which days will be holidays for you from year to year, state that you will give notice of the paid holidays by a certain date—for example, by December 1 of the year before the year in which the holidays are to be given.

Insurance
Insurance in a nanny situation generally refers to two different types of policies—automobile and health. If you want the nanny to drive your children to activities in your car, you will want to add her to your insurance as a covered driver. If you expect her to use her own vehicle, you can handle it in one of a couple of ways. You can purchase auto insurance for her, but that may be on the expensive side. You could agree to pay for part of her insurance premium, but then you will want to include in the contract a requirement that she present you with proof, probably every six months, that she has sufficient automobile insurance.

At the very least, you should require that the nanny have the following kinds of insurance:

• medical payments insurance, which covers medical expenses incurred by a driver or her passengers as a result of an accident;
• personal injury liability insurance, which covers claims by others for bodily injury;
• property damage liability, to pay claims for damage to the personal property of another, resulting from an auto accident caused by the nanny; and,
• uninsured/underinsured motorist liability insurance, which pays for expenses incurred in an accident either with another driver who has insufficient insurance coverage, or with a hit-and-run driver.

Some states have statutory requirements for the minimum amount of liability insurance a driver must have; however, state law mandates often do not go far enough. For liability insurance, the policy should include personal injury expense limits in the minimum amount of $100,000 per person or $300,000 per accident.

Be aware, however, that some insurance policies will not cover an accident that occurs while your nanny is performing job duties for you. Under a legal doctrine called respondeat superior, an employer can be held legally responsible for the actions of an employee that are committed during the course of the employment. One example would be an auto accident that occurs while the nanny is taking the children to school. Whether the nanny will be covered by her own policy or by yours, check thoroughly to be sure that you will not be personally liable for damages that she may cause.

The primary reason some families offer health insurance to their nannies is to attract the best candidates for the position. Unfortunately, health insurance for a nonfamily member can be extremely expensive to purchase. For that reason, if you are considering providing her with insurance, you should discuss with your potential nanny whether she wants health coverage, and if so, whether she would accept a lower salary in exchange for it. She already may be covered by her own or her spouse's policy. Whatever you both decide, include the terms in your written agreement.

Expenses, house rules, disciplineExpenses
Depending on the number and ages of children in your household, there may be a variety of extracurricular activities that your nanny will have to drive to. In addition, you may want her to take your children on outings, such as a trip to the movies, to the ice cream parlor, or to the bowling alley. You can either provide the nanny with cash in advance, or you can simply reimburse her after she submits receipts for her expenses. In any event, you should require her to get your prior approval before taking the children on an excursion, so that you are not caught off guard with an unplanned bill for activities.

If the nanny is using the family car for transportation, you will not need to worry about mileage expenses. When the nanny uses her own car, however, you may wish to offer reimbursement on a per-mile basis. The amount, of course, is open to agreement. One guideline is the Internal Revenue Service standard mileage expense deduction, which is 40.5 cents per mile (in 2005).

House Rules
Providing a list of house rules gives the nanny a guide to the rules that she and the children are required to follow. Any policy that you expect to be enforced should be included in this section. The following are just a few possibilities for you to consider:

• rules regarding the children's friends coming into the house;
• rules limiting the amount of television the children may watch;
• rules setting limits on computer or hand-held electronic games;
• rules prohibiting unhealthy snacks;
• requirements for chores to be performed by the children; and,
• limits on telephone use by the nanny and the children.

Acceptable Methods of Discipline
Describe both acceptable and unacceptable approaches to discipline. You should already be familiar with your nanny's philosophy regarding discipline from your initial interview, but putting it in writing emphasizes your own philosophy further. Spanking or other forms of corporal (physical) punishment should not be allowed, according to the vast majority of experts. Time-outs and redirection are good forms of discipline for younger children; older ones may be responsive to grounding or taking away some other privilege or prized item. Obviously, your own preferred method of correction is the one you should require of your nanny.

Additional Duties/Housework
You want to be as thorough as possible with your list of additional duties you expect. List not only the tasks that you expect the nanny to perform, but also the jobs for which she is not responsible. Be very clear, so there are no misunderstandings. If you want the nanny to take on housekeeping duties, be sure to discuss this in advance, then outline the duties in the agreement. If possible, also state how often you expect the tasks to be done. Some housework must be performed on a daily basis, while other jobs need to be done only once a week.

At the same time, you should anticipate that there might be some duties that you will want the nanny to handle that you have not thought to set out in the agreement. For that reason, you may want to include a statement that other, nonspecific tasks may be required of the nanny from time to time.

Annual Review/Pay Raises
If you have found a good nanny, you will want to keep her by offering her pay increases on a regular—usually yearly—basis. You may put right in the contract that she will receive a certain percentage increase every year. However, it may be better not to commit yourself to a set amount, but rather to make the increase contingent on an annual review. At the review, give the nanny an evaluation of her job performance for the past year. Based on how happy you are with the childcare your nanny is providing, you can decide what kind of a raise to give her.

Emergencies, consent forms, terminationEmergencies
Be very clear on the procedure you wish the nanny to follow in case of an emergency-especially a medical emergency. Of course, if a serious injury, fire, or crime occurs, the nanny first should summon emergency personnel, most likely by calling 911. Otherwise, the nanny should get in touch with you immediately. Keep all work and cell phone numbers listed in a conspicuous place near the telephone, and be sure the nanny is aware of the list's location.

Consent/Authorization Forms
In the case of a medical emergency, especially if the nanny cannot reach the parents, it is crucial that the nanny has written authority to seek treatment for the children. The parents should complete and sign a consent form for each one of their children that specifically names the nanny and authorizes her to obtain emergency services, such as paramedic assistance or hospital care, as necessary.

Release of Children
There may be occasions when a member of your extended family will want to take your children out for a treat. Perhaps your child's friend will call wanting to invite your child for a playdate. You may wish to treat each of these requests on a case-by-case basis and have the nanny contact you at work to see if you approve of her releasing your child to the relative or neighbor. On the other hand, you may feel that anytime your mother wants to take your child to the park, it is perfectly fine with you, and the nanny should let your child go.

You should clarify whatever policy you are comfortable with, and if there is anyone you want the nanny to release the children to without having to contact you first, you should list them specifically in the agreement. You should be sure to introduce them to the nanny as soon as possible once her employment begins, so she is familiar with them. Anytime you allow your child to leave the house with a person the nanny does not know, such as the parent of your child's friend, you should require that the nanny verify the identity of the person by requesting identification. Of course, you will want to let the other parent know your nanny will be asking for identification, so the parent will not be caught off guard and possibly become offended.

Relocation Expenses
If you have a nanny who has relocated from out of town specifically for this position, you may wish to specify whether or not you are paying any of the costs of relocation. Be clear about expenses both for the move to your town and for her return home at the end of the caregiver relation­ship. Some families agree to pay some or all of these costs in order to recruit the best possible nanny. If you are not willing to contribute to these expenses, include a provision in the agreement that the nanny is responsible for her own moving costs. This is more likely to come up in a live-in nanny situation.

Termination/Notices
The contract should set out the proper method for ending the employment relationship by either party. Unless there are issues involving imminent harm to the children or to your household property, it is courteous and professional to give the other party notice of the intent to terminate the agreement. If you are the one ending the contract, you should give the nanny time—with pay—to find other employment. If the nanny decides to end the relationship, she should continue to work for a period of at least several weeks to allow you to make other childcare arrangements. Put your notice requirements in writing in the agreement.

Even if you have all the necessary provisions concerning the separation with your nanny in writing, signed by both parties, the actual process of terminating the employment of the nanny can trigger unforeseen reactions, including her refusal to vacate your home voluntarily. This is not to say your written employment agreement is meaningless, but that you should take care to address as many contingencies as possible in the agreement. A thorough contract will help to put you on firm legal ground, should it be necessary to take any action to conclude your association with the nanny or au pair. (Termination of the relationship between the parents and the childcare provider are discussed generally in Terminating the Childcare Relationship.)

Income tax, social security, FICANanny Taxes
The following is a general summary of your obligation for so-called nanny taxes.

Income Tax Withholding
You do not have to withhold federal income tax from your nanny's wages, because she is the one who is responsible for paying the tax. If she chooses, she can wait until she files her yearly federal income tax return to pay whatever tax she owes. If the nanny does want you to withhold income tax, and you agree to do it, then you will need to pay the withheld amounts over to the IRS. Also, She will have to provide you with a complete IRS Form W-4, the Employee's Withholding Allowance Certificate. This form tells you how many allowances your employee is claiming, based on various deductions, credits, and other income adjustments. You need to know the number of allowances in order to calculate the proper withholding.

Regardless of whether you actually withhold the income tax for your nanny, if any income or nanny taxes are owed, you will be required to report the nanny's wages. To do this, file a Schedule H (Form 1040) along with your own tax return, which is due April 15^th. You also will report the nanny's wages to the Social Security Administration (SSA) by filing Copy A of IRS Form W-2, Wage and Tax Statement, along with IRS Form W-3, Transmittal of Wage and Tax Statements.

Before January 31^st of the year after the year in which you paid wages to your nanny, you must provide her with Copies B, C, and 2 of the W-2 form. In order to properly file the W-2 and other necessary documents with the SSA or IRS, you will need to apply for an Employer Identification Number (EIN) from the IRS. To apply for an EIN, you must complete and file an IRS Form SS-4, Application for Employer Identification Number.

Some lower-income wage earners are eligible for a federal tax credit called the Earned Income Credit (EIC). As an employer, you also need to be aware of the EIC, because you may have certain obligations as a result of the credit.

If you agree to withhold income tax for your nanny, but when you attempt to calculate the amount of withholding, the tax tables indicate that nothing is required to be withheld (because her income is below a certain level you must give your nanny notice of the EIC. There are several ways you can do this. The most common way is to provide her with Copy B of the W-2 form. Proper notice must be given by January 31^st of the year following the year in which the nanny could claim the credit. The IRS suggests that the employer of the household help give the employee notice of the EIC if her wages are not up to the EIC maximum eligible level ($31,030 in 2005).

Some employees who are able to claim the EIC also are entitled to have the EIC paid to them in advance. If your nanny provides you with a complete IRS Form W-5, the Earned Income Credit Advance Payment Certificate, you will have to calculate how much to pay. Because this is a tax credit, you also will reduce the amount of federal income tax and FICA withholding by the amount of the advance EIC payment. If you find yourself in the position of having to make an EIC payment in advance, consult IRS Publication 15, Employer's Tax Guide, for help in calculating the amount to pay.

Social Security and Medicare (FICA) Taxes
FICA stands for Federal Insurance Contributions Act and refers to Social Security and Medicare taxes that are withheld from an employee's wages in addition to federal and state income tax. You do not have to pay FICA taxes on your nanny's wages unless you pay her $1,400 or more in cash wages each year (for tax year 2005). Moreover, you do not have to pay these taxes at all if the wages are being paid to your spouse, minor child, or parent. However, there is an exception when it comes to your parent. If you are divorced and not remarried, widowed, or your spouse is disabled and cannot care for your children, and your children are under the age of 18, you do have to count the wages you pay a grandparent to watch the kids. If the total wages exceeds $1,400, you will be required to withhold FICA taxes. FICA liability is 15.3% of the employee's cash wages, which means you do not count the value of the employment benefits you give your nanny. Of the 15.3%, you and your nanny are each liable for one-half of the amount, or 7.65%. However, the employer will often simply pay the entire amount rather than withholding it, providing an extra benefit to the nanny.

Unemployment, state taxes, Form I-9, FLSAUnemployment Taxes
If you pay wages of $1,000 or more in a calendar quarter of 2005, you also are required to pay federal employment tax (FUTA), which is generally .8% of the wages paid until wages exceed $7,000. After that, there is no liability for federal unemployment tax, although you may be required to pay state unemployment tax.

State Taxes
In addition to federal withholding and FICA liability, you may have to withhold or report state income tax on the nanny's wages as well. Also, states may require employers to pay for workers' compensation insurance. States' laws vary in these areas, so be sure to get competent tax advice when hiring a nanny.

Employment Eligibility Verification
Once you hire a nanny and become an employer, both you and the nanny are required to complete a United States Citizenship and Immigration Service (USCIS—formerly the Immigration and Naturalization Service (INS)) Form I-9, also known as the Employment Eligibility Verification.

You are not required to file the completed form with the federal government. Keep it for your records, because the law does mandate that you have it available for inspection by the proper federal authorities if necessary. You must keep the I-9 for the longer of three years after you hire your nanny or one year after the employment relationship ends.

For you to complete your portion of the I-9, you are required to review certain documents proving that your nanny is legally eligible to work in the United States. She needs to provide you with documentation that shows (1) her identity and (2) employment eligibility. Some documents are adequate to show both, but some only show one or the other. For example, a United States passport will serve as proof of both identity and eligibility. A driver's license, however will show only identity, and the nanny also will have to give you proof of eligibility, such as a Social Security card. A complete listing of appropriate documents is included with the Form I-9. A copy can be obtained online at www.uscis.gov.

Minimum Wage and Laws
As an employer, you have to abide by other state and federal labor laws. The federal Fair Labor Standards Act (FLSA) governs minimum wage and overtime pay for covered employees. Although casual babysitting arrangements are not subject to the FLSA, a domestic workers, such as fulltime nannies, must be paid minimum wage. Overtime pay in the amount of one and a half times the employee's regular wage must be paid for hours worked in excess of forty per week. (However, this part of the law does not apply to live-in nannies.)

Where the state minimum wage law differs from the federal law, the higher of the two is the wage you must pay. Most of the states that have their own minimum wage laws mandate the same amount as the federal government. A handful of states require a higher minimum wage.

NOTE: Workers who are under the age of 20 have a lower minimum wage for the first 90 consecutive calendar days of employment or until the worker turns age 20, whichever comes first. After that, the minimum wage goes up to the regular amount.