Let’s start with some word association.
What is the first thought that pops into your mind? Do you picture Mary Poppins or Maria from The Sound of Music (I guess Julie Andrews plays a good nanny)? If you were raised in a lower or middle class family (like I was), do you dismiss nannies as an overindulgence of the rich who don’t wish to take responsibility for raising their own children? Did you have a nanny growing up and consider her part of the family?
Over the last twenty years, I have been fortunate to harness the effects of upward mobility. My former working-class, rural upbringing has morphed gradually into an upper-class, urban existence. The beat-up used cars and cramped row homes of my youth have been replaced with BMWs and six-bedroom Victorians. Another new experience—unheard of in my childhood but common among my current friends and neighbors—is the use of nannies.
With the arrival of our daughter this summer, we knew a crossroads was approaching. As full-time working parents, one child in daycare is doable from a scheduling perspective. Two children—one in daycare and one at a different location in preschool—is a daunting prospect at best. After months of hemming and hawing, we came to the conclusion that hiring a nanny is the best option for us.
Before discussing the pros and cons of hiring a nanny, let’s dissect the nontrivial process of finding and hiring a nanny.
How to find a nanny
I’m comfortable doing most of my own research before a large purchase. However, you can’t yet buy nannies on Amazon (at least not until Robonannies become a thing). Most people find the nanny of their dreams in one of three ways:
- Word of mouth. In talking to quite a few nannies, this is surprisingly common. We spoke to a nanny with twenty years experience who had never been formally interviewed; she had always been referred by word of mouth to another family when her current family no longer needed her services.
- Self-directed search. Websites like Care.com have made the nanny finding process more accessible for do-it-yourselfers. Simply set up an account, plug in your criteria and location, and browse away. Our good friends found their nanny this way.
- Nanny finding service. For those who would prefer a little more hand holding, a nanny finding service is the way to go. From start to finish, someone will help you navigate the sea of potential nannies to find the perfect fit for your little angels.
In many parts of my life, including personal finance, I am a do-it-yourselfer. To find our nanny, however, I chose to utilize a service. That choice cost me $1850 (the fee charged by the nanny service), which I felt was worth every penny. What exactly did we get for this admittedly large chunk of change?
- The process began with a two-hour discussion between the director of the nanny finding service and us. Through a series of questions (and harsh, unspoken judgements), she “got a feel” for what type of nanny would fit our lives and personalities.
- The service maintains a large panel of pre-vetted candidates who the director has interviewed extensively. All nannies have undergone a comprehensive background check, employment verification, reference check, and (presumably) a flea and tick check.
- The director assisted with determination of an appropriate job offer, including salary, vacation, and benefits. Our position was then advertised to local nannies.
- We interviewed eight candidates and found a wonderful young woman to help us.
- Following our decision, the nanny service provided a sample employment agreement as well as guidance with taxes.
- If our chosen nanny does not work out, we receive a partial credit of the fee toward finding another nanny.
I would guess it might have taken us 20-30 hours to perform the equivalent work of the nanny finding service. Well worth the money and peace of mind in my opinion.
Becoming an employer
After the choice was made and employment agreement signed, it was time to address the less glamorous side of hiring an employee: taxes. Some choose to (illegally) pay nannies under the table, i.e. without taxes. One of the candidates we interviewed and otherwise quite liked strongly preferred to be paid this way—a deal breaker for us. When our nanny agreed to be paid “over the table,” we breathed a sigh of relief.
So what is involved in paying taxes as an employer? Quite a bit, it turns out.
- Obtain a FEIN (Federal Employer Identification Number) as an alternative to a social security number in the reporting of nanny taxes
- Calculate and withhold employee federal and state income taxes
- Withhold FICA (social security and medicare tax) from employee
- Calculate and remit employer FICA (7.65%)
- Calculate and remit employer FUTA (Federal Unemployment Tax), which is 6.2% of the first $7000 employee earnings
- Calculate and remit Pennsylvania’s State Unemployment Insurance (tax) of 3.6785%
- Remittance of all these tax payments on a quarterly basis
- Furnishing W2 for employee and Schedule H for us each year
In the end, we decided to use a “nanny tax service” at the cost of ~$1000/yr. I know, I know. But for this fee, they direct deposit our nanny’s paycheck after automatically withholding the appropriate taxes; collect and remit all federal and state taxes (employee and employer) on a quarterly basis; and provide and file all the necessary tax paperwork come April.
According to the IRS, the average family spends 50-55 hours per year dealing with nanny tax issues. Given the perpetual time and effort involved, outsourcing this activity was a no brainer for me. The whole point of hiring a nanny was to make our lives less difficult; why would we shoot ourselves in the foot with extra work and stress at the last minute?
If this all seems like a huge pain in the ass, it is. But now let’s dig into the reasons why we decided to endure this ass-pain (i.e. hire a nanny) in the first place.
A nanny is essentially a third parent. Ours will be the primary caregiver for our infant daughter during the day, and pick our son up from preschool in afternoon—saving us a potentially frantic drive to get there on time. We can walk in the door relaxed and ready to spend the evening with our children.
Worries about childcare on snow days, sick days, inservice days, or school holidays have gone out the window. Running late at work? No problem. Our nanny could even bring the children to their doctor’s appointments at my wife’s office while my wife works. Life will be gloriously less hectic.
Although the nanny’s primary duties will be related to direct childcare, it is—according to our nanny finding service—customary for the nanny to perform a few other household duties. Ours has agreed to do children’s laundry, tidy up around the house, perform basic food preparation, and—most exciting for yours truly—clean dirty bottles! (For some reason, I hate cleaning bottles with every fiber of my being.)
The obvious Mega-Con of employing a nanny is the money. After salary, state and federal taxes, nanny tax service fee, overtime pay, bonuses, and mileage reimbursement, I am looking at an additional annual cost of ~$38k straight in the face. Ouch.
Another concern and potential negative is the reliance on a single, unsupervised individual to care for our children. Compared to the highly regulated and public setting of our former daycare, it seems like much more of a roll of the dice. At the extreme end of the spectrum, child abuse is more likely to occur undetected: an unlikely but horrific thought.
Before deciding to hire a nanny, we considered the scenario in which my wife worked part-time, our daughter went to daycare, and our son to preschool. In short, it didn’t work. To pick up our son from preschool, my wife would need to leave the office at 3pm each day. Guess when peak patient hours for pediatricians begin? Right when she would need to leave.
At her practice, part-time work is structured as full days of work (until 5pm) alternating with days off. Pick up at 3pm would remain a problem on full days, and we would still be up the creek on a sick day or snow day. The icing on this nightmare cake is that our daughter would be in daycare at a separate location, with her own possible sick days looming. Part-time work simply does not mesh with our childcare needs.
After much deliberation, we concluded that the two best options for us were:
- My wife continues to work full-time, and we hire a nanny
- My wife quits work and assumes full-time child care
Working full-time, my wife’s annual take home pay is ~$98k. The total annual cost of our nanny is ~$38k. From purely financial standpoint, we are $60k in the black after nanny costs. Perhaps more importantly, my wife was not quite ready to completely hang up the stethoscope.
Could we have pulled it all off without a nanny? Sure—with a little sweat, tears, and more tears. But we decided that the relatively high price of a full-time nanny was worth the reduction in stress and addition of sanity to our lives.
Do you employ a nanny? What factors played into your decision? How much do you pay for a nanny in your geographic region?