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We have a nanny with a contract that we have set up on payroll, withhold taxes, give reasonable PTO, have worker’s comp insurance on and compensate well. The professionalism we show has yielded results in the professionalism we get. Many local peers are hiring off the books, going with recent college grads, etc. and have cycled through 4 flaky nannies in the same period as ours has been a stalwart of our sanity and ability to operate. My recommendation is to treat it like a real job if you want to get a real employee. You’ll be better off in the long run.
Let me also say, though, that I know a number of tremendous nannies that have been with their families long term who are cash only because they are here without a work permit. Going that route just depends on how much risk you want to take. Our risk threshold was low.
I agree with trying to compensate fairly and building a relationship. You don’t want to try to squeeze a dollar per hour or savings with this person.
We pay cash but would be open to payroll if the nanny preferred. We agree to a set number of hours per week and the nanny receives that amount every two weeks which includes sick / PTO. If my wife and I are not working, the nanny will get paid time off work which is usually about three - four weeks per year (2 weeks at Christmas, 1 week for Fourth of July, 1 week if random days off) plus all major holidays (labor day, Memorial Day, etc)
If you pay your nanny more than $4k in a single year, then they are an employee and you need to provide them a W-2 and pay taxes. There are many companies that make it easy for you, like www.myhomepay.com.