How to Pay a Nanny Legally - Savvy Nanny Payroll Services

If you are researching this topic, you must be aware that a nanny or caregiver is an employee, and subject to Federal, State, and Local laws. Some employers try to get around these laws by paying under the table. The problems with under the table are another topic for another day. For now, we assume you want to pay your employee in a legal way. Here are some of the main considerations.

Nannies Are Household Employees, Not Contractors

As a household employer, you must follow federal and state labor laws that protect employees, including wage and hour regulations.

Wage & Labor Laws for Household Employees

Minimum wage laws, overtime regulations, and workplace protections apply to nannies and caregivers just as they do for other employees.
Household employees must be paid hourly, not as salaried workers.
Nannies working more than 40 hours per week (if not live-in) must receive overtime pay at 1.5 times their hourly rate, as required by federal law.

Workers’ Compensation Insurance

Many states require household employers to carry workers’ compensation insurance to protect nannies in case of work-related injuries. Be sure to check your state’s requirements.

Understand Your Tax Obligations:

As a household employer, you’re responsible for withholding and paying taxes, including Social Security, Medicare, and unemployment taxes

Federal Taxes:

Social Security and Medicare Taxes (FICA)

You’ll need to withhold a portion of your nanny’s wages for Social Security and Medicare taxes and pay your share as well.

Federal Unemployment Tax (FUTA)

If your nanny earns more than $1,000 in a quarter, you’ll need to pay FUTA.

State Taxes:

State Income Taxes

Some states require you to withhold state income tax from your nanny’s wages.

State Unemployment Tax (SUTA)

Many states have SUTA, which you may need to pay.

Local Taxes:

Local Income Tax

Some cities and counties have local income taxes that may apply. Hello Pennsylvania!

Fun Fact! Savvy Nanny Payroll Services files and pays all Federal, State, and Local taxes for clients.

Set Up Payroll:

Don’t make the mistake of taking the DIY route. Though you can file and pay taxes on your own, there are so many ways that can go wrong. Select a Payroll Service like Savvy Nanny to handle tax calculations, withholdings, and payments.

One part of setting up payroll that seems extra tricky, but really is not, is obtaining a Federal EIN and State Account number(s). Savvy Nanny provides guidance for clients on how to do this.

Provide Necessary Forms:

Ensure your nanny receives the required tax forms for reporting wages and withholdings.

W-4 Form

Have your nanny fill out a W-4 form to determine the correct amount of federal income tax to withhold.

State Tax Withholding Form

Your nanny may need to fill out a state tax withholding form if applicable.

How to Process Payroll:

An online payroll service like Savvy Nanny will allow you to enter hours worked and apply it to the pay rate you have already entered once during your setup. The software calculates taxes owed and amount to pay your nanny. This amount of payroll plus your taxes is then deducted from the bank account information you have already entered in setup. You will always see the total amount being deducted so there are no surprises.

Pay by Direct Deposit

This is the most convenient and secure method of payment.You will have already entered your nanny and your bank account information at setup, so this is just an easy click. Our service uses the ACH Network (a federally regulated electronic network) to make all payments. You should never use a peer-to-peer payment method like Venmo or Zelle.

Pay by Check

Ensure you keep accurate records of all payments. You can create a paystub with our service and present it with a paper check.

File Tax Returns:

Household Employer Responsibility:

The only tax return that you will need to file yourself is to provide a Schedule H with your yearly income tax return. Savvy Nanny creates this filled form that you just need to add. No calculations or form filling for you. This form reports your nanny’s wages and taxes paid.

Your Nanny’s Responsibility:

Your nanny will receive a W-2 form from you (filled out by our service of course), which they’ll use to file their own tax return.

Additional Tips:

Written Employment Agreement: Having a written employment agreement can help clarify expectations and terms of employment.
Timekeeping: Keep accurate records of your nanny’s hours worked.
Compliance: Stay up to date on federal, state, and local tax laws and regulations. A good resource for non-payroll related obligations is the US Department of Labor.

By following these steps and understanding your legal obligations, you can ensure that you’re paying your nanny legally and responsibly.

Savvy Nanny Makes Payroll Simple & Affordable

Managing nanny payroll shouldn’t be complicated or expensive. Savvy Nanny Payroll Services offers a simple, automated solution that handles everything for you—wages, tax calculations, and payments—all at an affordable flat rate with no hidden fees.

For just $39/month in your first year, you get a full-service payroll system that ensures compliance and eliminates the hassle of tax filing. With direct deposit, automatic tax payments, and easy online access, paying your nanny has never been easier.

Save time, stay compliant, and avoid payroll headaches—Sign Up for Payroll Services Today!