Nanny contracts don’t need to be intimidating or hard to understand, as we discussed yesterday. Mistakes are nevertheless made, and the consequences can be severe – back taxes, fines, audits, and more.
Today we address four common mistakes with nanny contracts that can land you in hot water:
# 1: Employee vs. Independent Contractor
Some parents think they can avoid ‘nanny taxes’ by calling their nanny an independent contractor. They’re wrong.
The IRS has two categories for workers – independent contractors and employees. Generally, an employer must pay certain taxes on wages paid to an employee. An employer doesn’t owe taxes, however, for payments to independent contractors.
To figure out a classification, the IRS looks beyond labels and examines whether an employer has the right to control or direct work performed and how the work is performed.
For nannies, parents exercise significant control – they tell the nanny when and where to work, what child care to provide, what house rules to follow, and more. Consequently, nannies are employees in most cases, and the parents must pay ‘nanny taxes’.
In short, don’t use a contract calling the nanny an independent contractor.
# 2: Salary Without Hourly Wages
Many parents pay their nanny a weekly or biweekly salary. It’s quick and easy. Parents who do so, however, should be careful.
Live-out nannies must be paid at least the minimum wage as well as overtime. Live-in nannies are generally exempt from overtime requirements, but they still must be paid at least the minimum wage. (For a useful chart of state requirements, click here.)
Parents who pay a flat salary can easily run afoul of minimum wage and/or overtime requirements. They might neglect to pay their live-out nanny overtime for a week where the nanny put in extra time. Or a live-in nanny’s wages might drop below minimum wage for a particularly busy workweek.
To avoid these problems, specify hourly and overtime rates of pay in your nanny contract. Also, track hours worked, and make sure that extra pay is provided for additional work.
Because wages and taxes can be confusing, it’s usually best to work with a good accountant or nanny payroll company. You can also consult an employment attorney licensed in your state.
# 3: Illegal Pay Withholding
In general, parents must pay a nanny for the hours worked, regardless of whether the nanny’s job duties were completed in those hours. That means parents can’t withhold pay if the nanny did a poor job or violated the parent’s rules (e.g., no texting while driving).
Parents also generally cannot withhold pay because of lost or damaged property, absent proof that the loss or damage was intentional. Thus, a nanny must be paid even if he or she breaks a $100,000 antique vase while playing with the children.
In sum, don’t agree to a nanny contract with illegal pay withholding.
# 4: Forgetting About It
The fourth and final mistake is what’s done with a nanny contract – forgetting about it.
Legal contracts should be read and followed. Too often, however, they’re jammed into a file cabinet and forgotten about until spring cleaning. Or worse, they’re left untouched until a problem arises. By then it’s too late – chances are one or both sides have been failing to follow it as they should.
The same goes with a nanny contract. If you forget about it, there’s a good chance you’ll start straying from its requirements, even if you don’t mean to.
It’s easy to avoid this problem. Obviously, read the contract from start to finish before signing it. After signing it, re-read it a week or two later. Then re-read it again after a couple months and at the end of the first year. During the process, if you see you’re not following the contract, either change your behavior or, alternatively, change the contract. Be sure to get any changes to the contact in writing, signed by those who initially signed it.
This post is the third article of a five-part series on nanny contracts. Nathan Hammons is an attorney in Milwaukee, Wisconsin. He’s also a father and the creator of MyNannyContract.com a website with information about the legal issues of nanny care and providing a professionally written nanny contract. He can be contacted at nathan@mynannycontract.com.
DISCLAIMER: This post provides information only and not legal counsel or advice. If you need legal advice, please consult an attorney licensed in your state.
The reason we cannot treat nannies as self-employed is that a nanny does not fit the IRS definition of an independent contractor. Nannies are defined as an employee because the employer controls the nanny's responsibilities making the nanny an employee, and requiring him or her to pay taxes.
ReplyDeleteMiriam, Nanny, Dallas, TX
I really had no idea sitters + nannies had contracts! I'm learning a lot!
ReplyDelete