Why You Should Stop Paying Your Nanny Under the Table
As a parent / employer, you've probably saved your receipts, collected your documents and spoken with your accountant, but have you declared your nanny as a lawful employee?
Quick Answer
As a parent / employer, you've probably saved your receipts, collected your documents and spoken with your accountant, but have you declared your nanny as a lawful employee?
Quick Answer
Paying a nanny under the table exposes you to back taxes, interest, and penalties if discovered, and leaves your nanny without unemployment insurance, disability benefits, or a verifiable work history. The most common trigger for discovery is an unemployment claim after the nanny leaves.
How Off-the-Books Arrangements Get Discovered
The most common trigger is an unemployment claim. When a nanny who was paid cash files for state unemployment benefits, California EDD contacts you to verify their wages. If you have not been remitting employer taxes, you owe them retroactively -- plus interest and often penalties. This is not a remote possibility. EDD unemployment filings by domestic workers are common and the agency has become more active in enforcing compliance.
What You Owe Retroactively
If EDD determines you were an employer of record (which they almost certainly will if someone worked regular hours for you), you owe the employer portion of FICA taxes, federal unemployment tax, California state unemployment insurance, and California SDI for every year the arrangement was off the books. Interest accrues from the date payment was due. Penalties can add an additional 10 to 25%.
The Risk to Your Nanny
For every year your nanny was paid cash, they have no Social Security credit, no official employment history, no disability coverage if they were injured, and no unemployment protection when they leave. Many domestic workers accept cash pay because they were not offered a choice. They bear significant risk for an arrangement that mainly benefits the employer.
How to Transition to Legal Pay
If you are currently paying off the books, transitioning to legal pay is straightforward going forward. Set up a household employer account with the IRS (EIN) and California EDD. Enroll in a payroll service. Give your nanny the choice between paying taxes out of their current rate or adjusting the gross rate so their net pay remains similar. Most nannies prefer the latter once they understand the benefits they gain.
The Cost Is Smaller Than the Risk
Employer payroll overhead in California runs approximately 10 to 12% of gross wages. On a $40/hr nanny working 45 hours per week, that is roughly $9,000 to $11,000 per year in employer taxes. The liability exposure from an undiscovered off-the-books arrangement can exceed $50,000 in back taxes, interest, and penalties on a multi-year engagement.
Frequently asked questions
Do I need to pay payroll taxes for my nanny?
Yes. If you pay a household employee more than $2,700 in a calendar year, you must withhold FICA taxes, pay employer FICA match, and remit federal and California state unemployment insurance. Paying cash does not eliminate this obligation.
What are guaranteed hours for a nanny?
Guaranteed hours mean your nanny is paid for an agreed minimum number of hours per week regardless of whether you use them. If you agree to 40 hours and only need 30 one week, you owe 40 hours of pay. California household employment law treats scheduled hours as wages owed.
Do I pay my nanny if I take a vacation?
If your nanny has guaranteed hours and you are not using them because you are traveling, you generally owe their guaranteed pay. If you negotiate a reduced vacation rate in advance and in writing, that may apply. Unilaterally not paying for weeks you are away is a wage violation.
Can I pay my nanny as an independent contractor?
No. In California, a household employee who works regular hours for one family is an employee, not an independent contractor. Misclassifying them as a contractor to avoid employer obligations creates retroactive tax liability and potential penalties.
Do I pay my nanny during holidays?
California does not legally require holiday pay, but paying for major holidays is standard in Los Angeles. Most work agreements list specific paid holidays. If your nanny works on a holiday, they should receive their regular pay plus any applicable overtime.
What are the real costs of hiring a nanny in Los Angeles?
Beyond hourly pay, expect: employer payroll taxes (roughly 10 to 12% of gross wages), paid sick leave (required by California law), 10 days paid vacation (competitive standard), and potentially a health contribution. Placement agency fees are typically 20% of first-year gross salary.
How does California overtime work for household employees?
California's Domestic Worker Bill of Rights sets overtime at 1.5x after 9 hours in a single day or after 45 hours in a week. Daily overtime is the rule most families miss. A nanny working 10-hour days Monday through Friday triggers daily overtime every single day.
Is it illegal to pay a nanny under the table in Los Angeles?
Yes. Nannies are household employees under California and federal law. Paying off the books exposes families to back taxes, penalties, and potential liability. It also leaves the nanny without workers compensation, unemployment protection, or Social Security credits.
How does California nanny overtime work?
California law entitles most nannies to overtime after 9 hours in a day or 45 hours in a week, and double time after 12 hours in a day. Personal attendant rules apply differently - families should confirm with a payroll specialist how their specific arrangement is classified.
Can I pay a nanny in cash in California?
Cash is a payment method, not a classification. You can pay in cash but must still report wages, withhold appropriate taxes, and issue a W-2. Paying cash without tax reporting is what is illegal, not cash itself.
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