Nanny pay can be confusing, so how do you know if you are paying your nanny correctly? The answer is simpler than you might think. The Federal government has defined how to classify and pay a nanny in two essential documents. The Fair Labor Standards Act, and IRS Publication 926 set the stage for how to pay your nanny legally. Additional MA state laws for minimum wage, paid sick leave, and MA PFAML round out the requirements.

Fair Labor Standards Act

Domestic employees are specifically covered by the Fair Labor Standards Act (FLSA) and have been since 1974. The FLSA establishes nannies and senior caregivers as non-exempt hourly workers under the law and your employment agreement must specify the pay rate on a per hour basis. Legally, a nanny can not be paid by salary.

Pay a Nanny Overtime

You are required to pay a domestic employee overtime, 1.5X their regular hourly rate, for hours worked above 40 in a week. The FLSA defines ‘hours worked.” These include all time the employee is required to be at the employer’s home, and all time the employee is required to wait in the course of his/her duties.

Nanny Minimum Wage Rules

A nanny or other household worker must be paid at least the minimum wage for every hour they work. The FLSA stipulates that domestics (household workers) must be paid at least the Federal minimum wage, however MA has established a higher minimum wage of $15 per hr. (2023) which means all workers in MA must be paid at least that wage.

Can a Nanny be an Independent Contractor?

It is important to note that the FLSA specifically calls out domestic employment (housekeepers, maids, nannies, etc.) in the statue as non-exempt employees, covered by the rules and protections of the FLSA. The term employees defines that there is an employment relationship at play; therefore the worker must be given a W-2. They are not independent contractors, who might receive a 1099 for their services.

To quote the » FLSA’s Handy Reference Manual, “Domestic service workers such as day workers, housekeepers, chauffeurs, cooks, or full-time babysitters(nannies) are covered if: their cash wages from one employer in calendar year 2024 are at least $2700. (Different amounts would be designated in other calendar years, pursuant to an adjustment provision in the Internal Revenue Code)”

IRS Publication 926

Nanny taxes, what are they?

First it is important to understand the so called “nanny taxes” are not just for nannies! The Nanny Tax is a catchy phrase for headline writers! However, these are really household employment taxes and apply when you hire a nanny, housekeeper, senior caregiver or other domestic-worker.

Household employers contribute to or pay:

Employers and employees share Social Security and Medicare Taxes responsibility. Each contributes a total of 7.65% of gross wages. At the end of the day, you, the employer, are solely responsible for the deduction and remittance of the Social Security and Medicare taxes. Should you fail to collect the 7.65% tax from the employee via periodic payroll deductions, the employer remains responsible to remit or pay the full tax to the IRS. The household employee CANNOT remit their share of Social Security and Medicare tax independent of the employer.

There is no statute of limitation on the employer’s nanny payroll tax obligations.

To pay a nanny off the books or ‘under the table’ might sound like a great idea – until it isn’t! The single most common way a family gets caught is when the employment relationship ends badly or suddenly. The nanny then files for unemployment compensation or benefits. In a situation where the nanny was being paid off the books, she will still be entitled to benefits – the only consideration she is likely to have when her groceries or rent are on the line. The family in these situations becomes 100% responsible for all Social Security and Medicare taxes – both the employer and employee portion(a total of 15.3%). There can be substantial back nanny tax payments and unemployment insurance payments, as well as penalties and interest due, so it is better to just set things up the right way from the start.

What benefits can I offer which aren’t taxable?

In order to reduce an employer’s, and also the employee’s taxable compensation, many employers choose to include tax advantaged benefits when building a total compensation package for their household employee. These include benefits such as a QSEHRA or ICHRA for healthcare expenses, education reimbursement, transit & parking reimbursement, gas mileage reimbursement, and partial cell phone reimbursement.

If these taxes still sound confusing, or you would just like someone else to manage them for you, Homework Solutions is here for you. They are happy to offer free consultation and affordable payroll & tax management services.

About The Author

Homework Solutions Nanny PayrollRachel is passionate about the nanny industry, and her work shows it. Her focus is always on education and improvement. She’s attended and spoke at industry conferences put on by iNNTD, Nannypalooza, INA, APNA, and USNA. Rachel believes when we know better, we tend to do better, so knowledge is the natural first step to change. She focuses on educating household employers and employees, about why legal pay and adhering to labor laws is so important.  She also works to encourage the industry as a whole to strive for higher industry standards.

Rachel’s passion and knowledge come from an 18 year foundation in the industry, in a variety of rolls.  Her career began as a nanny, later moving on to work for local and national placement agencies. She then owned a boutique nanny agency and worked as the Operations

Manager for the International Nanny Association, all before joining the HomeWork Solutions team in 2019.  As a working mom with three children, she has also been a nanny employer.

In addition to her professional work in the industry, Rachel volunteers as well. She has twice served on the board of directors of the INA. Additionally, she is the founder of FairAndLegalPay.com, a coalition designed to raise awareness for legal pay in the industry.