4 Mistakes Parents Make With Nanny Employment Agreements

Nanny employment agreements come in all shapes and sizes. Some are brief and easy to understand. Others are long and complicated. Whatever the case, parents routinely make five mistakes when writing an employment agreement for their nanny. The mistakes can have severe consequences, ranging from governmental fines and audits to lawsuits.

First, some parents mistakenly treat their nannies as independent contractors for the family rather than as household employees. Under IRS rules, an employer is required to pay taxes on wages paid to an employee for his or her work. An employer is not required, however, to pay taxes on money that is paid to an independent contractor.

Hoping to avoid taxes, some parents wishfully think they can call their nanny an independent contractor. The IRS, however, looks beyond labels and specifically examines whether an employer has the right to direct or control work performed in addition to how the work is performed. For a nanny or au pair, parents usually have and exercise a significant amount of control. For example, parents dictate when and where a nanny should work, the house rules the nanny must follow, and the care required for the children. Thus, nannies are classified by the IRS in nearly all cases as employees, not independent contractors. As a consequence, parents must pay taxes on their nanny’s wages.

Second, some parents mistakenly believe they can withhold their nanny’s pay. In general, parents are legally required to pay their nanny for the exact hours that the nanny has worked. That’s true regardless of whether the nanny actually performed his or her job duties at all, or whether he or she performed them poorly. Accordingly, parents are not allowed to withhold their nanny’s pay if the nanny texted while driving or smoked on the job. Likewise, parents cannot withhold the nanny’s pay if the nanny broke a prized lamp or painting while playing with the children. The parents may be justified in terminating the nanny’s job for such actions, but wages must still be paid for time the nanny has worked.

Third, some parents mistakenly pay their nanny a flat weekly salary and choose not to pay him or her hourly wages. Under federal law, nannies that live outside the home must be paid overtime. They must also be paid at least the minimum wage. Parents that choose to pay their nanny a flat salary are at risk of violating federal law. That could happen, for example, if a nanny were to work numerous hours in one week, for which overtime might be required.

To avoid the mistake, parents should always state the hourly rate of pay and overtime wages if they have a live-out nanny. It should be noted that live-in nannies are exempt from overtime requirements. It should also be noted that, to prepare for the unlikely event of an audit, parents should keep a written record of the hours that their nanny has worked.

Fourth, some parents make the mistake of not even having a nanny employment agreement in place with their nanny. Without a nanny employment agreement, there is a good chance the parents and nanny will forget to cover one of the many issues that arise with nanny care, such as taxes, time off, travel, or confidentiality. Without an employment agreement, it becomes more likely that a dispute may arise down the road between the parents and the nanny. It also makes the relationship unbalanced, as parents have the right to terminate a nanny without prior notice in the absence of a written employment contract.