Choosing to hire a nanny vs enrolling your child in daycare is not only a decision on care preference but also a significant financial commitment. In this piece, I’ll detail the financial implications of hiring a nanny, including considerations for hiring an au pair. I’ll also cover the essential aspects of drafting a contract with a nanny to protect both parties. And if you make it to the very end, I’ve included a personal note of my experience with childcare options and the reasoning behind those decisions.
Costs associated with Hiring a Nanny
Base Salary: The most significant expense when hiring a nanny is their salary. Depending on your location, experience, and job expectations, a full-time nanny can earn anywhere from $35,000 to $60,000+ annually.
Overtime Pay: If your nanny works more than 40 hours per week, federal law mandates overtime pay, typically at 1.5 times their regular hourly rate.
Payroll Taxes and Services: As an employer, you are responsible for paying payroll taxes on your nanny’s wages. This includes Social Security, Medicare, federal and state unemployment taxes, and potentially state disability insurance. These taxes typically add about 10% to 12% to the nanny’s salary. In addition, there is a cost to managing the payroll. And the whole process can be complex, leading many families to opt for a payroll service. These services help with tax withholding, wage reporting, and year-end tax forms, with costs ranging from $20 to $50 per month. Services like Care.com have these services, but you can also hire a local bookkeeper, CPA, or more broad virtual payroll service.
Liability Insurance: When you hire a nanny, you may need to update your homeowner’s and auto policies to reflect this new household member. Typical homeowner’s policies do not provide liability coverage to household employees. This would require the policy be amended with rider coverage or a separate worker’s compensation be taken out (see next).
Workers’ Compensation: Some states require families to provide workers’ compensation insurance for household employees. This insurance covers medical expenses and lost wages if your nanny is injured on the job, and the cost can range from $500 to $1,000 annually.
Agency Fees: If you decide to hire a nanny through an agency, there are additional costs involved. Nanny agencies typically charge a placement fee, which can range from $1,500 to $5,000+, depending on the nanny’s salary and the services provided by the agency.
Screening and Background Checks: Some agencies also charge fees for background checks, reference verification, and other screening processes. Or if not using an agency that includes these perks, you may opt to pay for these services directly. These fees can add a few hundred dollars to the total cost.
Going the Au Pair Route
Many families find hiring an Au pair very appealing for more reasons than just the financial aspects (although we’ll get to that!) Au pairs typically come from another country and live in your home to provide childcare. They come into the country on a short-term visa, so the length of stay is typically up to just 1 year. They often speak another language and have a different world views that can enrich your child’s education and experiences. Also, if children are attending school, the au pair is flexible to help with errands and household chores. Or if that’s not needed, potentially their 8 hours can be split between the morning rush (6-8am) and then again once school is over until bedtime (3-9pm). The fact that they’re living in the home helps facilitate a non-traditional schedule as compared to a 9-5pm nanny or daycare. The key is to iron out these coverage details so everyone is on the same page.
Program Fees: Au pairs typically cost less than a professional nanny, but there are still significant expenses involved. The cost of hosting an au pair includes program fees (ranging from $8,000 to $10,000 per year), a weekly stipend (usually around $200 per week), and potentially additional costs to provide them a reasonable room and board.
Cultural Exchange Requirements: Au pairs are part of a cultural exchange program, which comes with specific requirements, such as providing educational opportunities and adhering to certain work-hour limitations. So while the schedule may be flexible, it doesn’t mean an au pair will work extra hours as compared to a nanny or daycare.
Contract Considerations for Hiring a Nanny
Creating a comprehensive contract is essential when hiring a nanny. This document should outline the expectations, responsibilities, and terms of employment to protect both parties. Here are key aspects to consider when drafting a nanny contract:
Duties and Responsibilities: Clearly define the nanny’s role, including childcare tasks, household chores, transportation responsibilities, and any educational or extracurricular activities. Being specific helps avoid misunderstandings and ensures that both parties have clear expectations.
Salary and Payment Schedule: Specify the nanny’s salary, payment frequency (weekly, bi-weekly, or monthly), and any overtime compensation. Include details about any bonuses, raises, or benefits, such as health insurance or retirement contributions.
Paid Time Off: Outline the nanny’s entitlement to paid time off (PTO), including vacation days, sick leave, and holidays. Be sure to include any policies regarding PTO accrual and usage. I find this aspect of the contract hugely important and worth being insanely detailed, especially if you have a career that’s inflexible. IE) If you’re a nurse who has to go to work period the end, you need to be prepared with backup care options as not all PTO will be scheduled in advance. Whereas if you’re more flexible, an impromptu sick day may be more easily navigated. But that said, you also need to define your true feelings around a sick day in our post-COVID world. Let’s face it – when I get sick I feel like it can linger for a month. And while COVID is basically a bad cold now, it’s still pretty miserable for a week. Would you want someone like me out on my first 1 or 2 worst days but muddle through the week or month? Do you want me out entirely to avoid spread? And if you’re not sick but recovering from an elective surgery… is that considered a sick or vacation day if you’re delineating two as paid vs unpaid leave. These are expectations that need to be discussed and documented in advance to avoid hard feelings.
Work Schedule: Define the nanny’s regular work hours, including start and end times, as well as any expectations for flexibility. Include provisions for weekend work, holidays, and travel if applicable. If you anticipate needing additional hours or on-call support, outline how these situations will be handled and compensated.
Notice Period: Specify the notice period required for either party to terminate the contract. A standard notice period is two to four weeks, but this can vary depending on the circumstances.
Severance Pay: Consider including terms for severance pay if the contract is terminated without cause. This provides financial security for the nanny and can help maintain a positive relationship.
Privacy Agreements: If your nanny will have access to sensitive family information, consider including a confidentiality or non-disclosure agreement. This protects your family’s privacy and ensures that any personal matters remain confidential. In a world of social media, this is something to seriously consider.
Mediation and Arbitration: Outline the process for resolving any disputes that may arise during the employment period. Mediation and arbitration clauses can help resolve conflicts amicably and avoid costly legal battles. This is something that’s typically mentioned in most contracts.
Conclusion
Hiring a nanny offers personalized care and convenience, but it also comes with significant financial and employer responsibilities. From payroll taxes and liability insurance to agency fees and contract considerations, the costs and time associated with correctly managing it all can add up quickly. By understanding these financial implications and planning accordingly, you can make an informed decision that aligns with your family’s needs and budget. And after reading all this, you may decide to throw caution to the wind and just hire a family friend under the table. You wouldn’t be the first!
My own experience with hiring care
On a personal note, I largely relied on daycare for my three kids, so I’m willing to admit I have a bias in that direction. My reasoning for daycare was threefold, and I’ll explain them only because my circumstances and reasoning could be 100% opposite of your own situation which would make a nanny your best fit.
First, I found the cost of hiring a nanny for 1 child against daycare was much more expensive – plain and simple. And despite having 3 kids in short succession, there was only about a year or two where 1 nanny vs 3 daycare bills may have been slightly more financially savvy.
Second, I work from home and want a peaceful and picked up environment. Yes, kids can go on a walk or another section of the house as needed, but it feels like something I have to juggle and plan around. If they’re at daycare, I don’t have to give it ongoing thought. There are scheduled holidays or breaks at the daycare which I have time to plan around. Child sick days can be tough, but I found that to be largely an issue in year 1 with immunity kicking in thereafter. But yes, Year 1 is crawling with germs. However, I figured I’m just trading potential kid sickness for potential nanny sickness so there is no perfect solution either route in figuring out impromptu sick days other than to have a plan b.
Third, I like that the teachers follow a routine and teach a group curriculum, which made the transition to Kindergarten a smooth one. They also clued me in on when to expect certain milestones, so much so that when one of my children was a bit behind on speech we were able to get early intervention involved right away around age 2. When I was her age I had the same issue and my family passed it off as “cute.” So I appreciate the daycare providing the context and resource.
All that said – COVID happened. And the daycares understandably stumbled navigating that. Given their shutdown and restricted re-opening, we went the nanny route for 1 year. And given the circumstances, it was definitely the better fit for our family and a win-win solution for all involved at that time.
And in having these care preference talks with families, it’s hard not to notice these conversations sound nearly identical to when discussing elder care options of home care vs assisted living. So remember – it really is a circle of life, any maybe not the last time you’ll be having this debate!
