How to Set Up a Nanny Payroll

Nannies are an important part of many families, especially those in which both parents work. Whether your nanny is there to help with day-to-day tasks or is a major, live-in part of your family, you need to be sure that you are compensating her appropriately. To protect yourself and your nanny, set up a payroll system that works for both of you as soon as you complete the hiring process.

Instructions

    • 1

      Agree upon an hourly rate for your nanny. The amount is entirely between you and the nanny, but for the purpose of a written contract, should be determined hourly.

    • 2

      Determine the frequency of pay for your nanny, choosing from such options as weekly, bi-weekly and monthly. For weekly and bi-weekly schedules, determine which day of the week payment will be made. For monthly payment, determine the pay dates and keep them the same each month.

    • 3

      Decide on how you'll manage payroll deductions. As an employer, you are required to pay contributions to Social Security and Medicare for both yourself and your employee. You can choose to deduct your nanny's portion from her pay. You also have the option to deduct your nanny's income tax from each paycheck. If you do deduct her income taxes, apply for a state unemployment tax account and a state withholding tax account.

    • 4

      Obtain a Federal Employer Identification Number. Issued for the Internal Revenue Service, this number is required for all federal tax filing. It is required by a number of state tax agencies as well.

    • 5

      Research and apply for worker's compensation insurance. There are penalties for not securing insurance at the time that the employment starts, so be sure to do this immediately.

    • 6

      Research tax reporting schedules for your state. All states differ, but some require quarterly reports while others require reports on a monthly basis.

    • 7

      Obtain completed W-4 and I-9 forms from the nanny. The W-4 form includes tax information particular to the nanny, such as her address, legal name and social security number. The I-9 shows that a person is legally allowed to work in the United States and is a requirement for all newly hired individuals.

    • 8

      Complete a written contract that clearly includes all of the information from steps 1 to 7. Ensure that there is a copy for yourself and for the nanny and have all parties sign all copies, ideally with a neutral, third-party witness.

    • 9

      Have your nanny keep a complete time card for all hours worked. The information should also include any other expenses that she has incurred.

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