Who is A Self Employed Nanny?
When a caregiver is a self-employed nanny, then it is the nanny that is responsible for filing her own taxes, and it is the nanny that determines how much money she makes as well as which types of self-employed "business expenses" to write off on her taxes. Although if the nanny provides proof of insurance (i.e., a copy of her Certificate of Insurance), then it is possible that a family could agree to reimburse her for specific expenses like her car insurance or cell phone plan as long as the nanny keeps accurate records of her expenses and provides a corresponding invoice with each payment.
The nanny may be independent from the family, or she may be attached to a professional agency who then bills the family for her time and pays her directly. In either case, however, the courtesy of a 1099 should be extended to the nanny since the IRS needs to know the amount of money that has been paid to her over the past calendar year, so that she can properly file her annual taxes and determine her quarterly estimated tax payment amounts.
A self-employed nanny operates like any other small business , except in most cases she is not expected to make a profit; a self-employed nanny is usually hired because her time and expertise are needed to provide temporary, specialized care to a sick child or an infant child multiple days per week – there will be no need for the nanny once the infant starts kindergarten, or until the sick child recovers from his illness. And unlike most small businesses, a self-employed nanny will often choose to "lease" her salary to an agency in exchange for the agency either finding her clients, or billing the client and collecting her payment.
The self-employed nanny has total control over every aspect of her care, including when to include overnight care, whether or not she will travel, what her rate is, and how long she will work per week. A self-employed nanny is also usually much more experienced than a regular nanny who may be either new to child care or have other household responsibilities (such as laundry), so her day-to-day childcare techniques are likely to differ from what any family or agency is used to.
Essential Components of Any Nanny Contract
When you are in the business of caring for children, it’s difficult to think of you, like any other business owner, as having a contract with those you serve. But in many ways, you do, and that is because you and your employer have a business relationship that needs to be defined and documented. Even though the family you work for is more often than not like your own, it is still a relationship that can go south, and your livelihood should not hang in the balance. Every contract, whether it is for an employee, vendor, supplier or another service, usually has some common terms. What are the essential elements of a nanny contract?
Duties The duties of a self-employed nanny — what you are going to do for the family; when you will do it; how often you will do it; with who you will do it; and sometimes, who you will not allow in the home or around the children; where you will do it; why you will do it — need to be the first and most clearly spelled out term of any self-employed nanny contract with a family. Even if you worked for the family before, it is wise to revisit this every time you sign a new contract with that family as things have likely changed since the previous contract. You should both read the term thoroughly and ask questions before signing a contract. Working Hours Your working hours are also very important to the success of your job and the happiness of you and the family. En el Journal of Pediatric Health Care, an article on "Nanny Contracts" advises that a section in your contract says, "the schedule is a guide and must allow for flexibility to accommodate the family’s needs." Working hours are the next most common term of any nanny contract. Payment Terms Nanny contracts should contain the sections on payment amount and schedule, as those you would find in any employment agreement. This section is very specific and should list the times you will be paid and when you will get paid, as well as how much. Do not allow yourself to be bullied into working for less than the going wage in your area. It is illegal, and it is not fair. Also be sure to stipulate if you will get a raise, how much the raise will be and when the raise will occur. Take into consideration your experience level, and the pay for your level of experience during negotiations with parents. In the Guide to Getting Paid, Appleby Real Estates says raising rates are "expected as your experience and energy level increase. Expect parents to ask about the rates of other nannies." Termination Procedures And finally, the length of your contract, and what will happen if a family decides to terminate your employment or you choose to resign need to be clearly set out in the fourth section of the basic nanny contract. You could and probably should include a severance package and any other special considerations at the end of the contract. To contract or not to contract? That is the question that any self-employed nanny will face when taking on a new client. And the answer often comes down to how you feel comfortable dealing with new clients, and what kind of employer you want to be.
Legal Issues that Can Arise in Nanny Contracts
When entering into any sort of employment contract, it is important to be aware of whether or not the agreement you are planning to sign is legally enforceable. If the contract outlines a type of work that is illegal or immoral, the court will not enforce it. In other words, there is no point in creating a nanny contract that asks the nanny to perform an illegal task. You should also avoid including vague terms that would be confusing to the average person. If either the employer or the nanny spends a lot of time trying to decipher the reasoning behind certain terms, then the contract may be considered void.
An employer should be aware of federal and state laws for employing a worker as her employee, as well as the IRS’s definition for independent contractors. Detailed information can be found on the IRS website.
Contract enforceability often comes down to the nature of the behavior that is being requested and the nature of the relationship between the two parties. It is expected that there may be some blending of the lines—the nanny may not necessarily work strictly 40 hours per week, but the children may call her "Aunt Kathy." Neither party should violate the terms of the agreement, even if they choose to revise the terms later on down the road.
A contract is meant to be a mutual understanding between the two parties, so if you do not agree with a particular term or statement in the contract the nanny created, be sure to discuss your thoughts with her when she presents it.
Benefits of a Nanny Contract
When it comes to employment agreements, there are a few reasons why they’re important for both the nanny and the family employing her.
One of the most common reasons people don’t bother to have a formal contract is that they think it just doesn’t need to be done. However, having a formal contract in place can help eliminate many of the problems and issues that arise over time.
When there’s no formal contract in place, you can very easily misunderstand something. By writing it down, both of you have a clear idea of what was agreed to, and if an issue arises in the future, both parties can go back to their copy of the contract and get clarification on the situation.
As a self employed nanny, it’s essential that you have a written contract with your employer that confirms the nature of the working relationship. When the job ends, you will need to prove your self-employed status in order to receive unemployment benefits that you may be entitled to. To do this you will need to provide copies of all your contracts from the last few years, it is essential then that your contracts are water-tight.
One of the benefits of having a formal contract is being able to prove that you have been working as a self employed professional rather than as an employee. It is increasingly difficult to gain access to the self employed arrangements where a parent has been paying directly rather than through an agency as the agencies have made incorrect assumptions about how a self employed nanny is paid.
It is always important as well to ensure that you keep a copy of the contract yourself. You never know when you might need it again months or even years down the line!
Pitfalls to Avoid and Rectify
When drafting or negotiating a nanny contract, several common pitfalls can arise that might lead to misunderstanding or disagreement down the line. For instance, many families do not properly address the termination of the contract. While some opt for a simple resignation clause that requires two weeks’ notice from either party, the contract may be clearer if it provides for how much notice is required if employment is discontinued during a live-in period. The contract should also specify whether the family can terminate the contract without notice in case of unsatisfactory service. For example, if a caregiver arrives late to work multiple times in a short period, is the family entitled to remedy the situation in another manner (e.g. additional warnings to the nanny) or can they terminate the contract? If you are a family hiring a nanny, or a nanny being hired, it is important to think through these issues in advance so that they are clearly stated from the outset.
Another common mistake is failing to address the payment of taxes. Remember that if your nanny is an employee, you must withhold certain taxes from her pay and pay unemployment and worker’s compensation insurance . At one point, the IRS had said that you could treat your nanny as an independent contractor, cutting down on your payroll expenses, but upon reconsideration of the issue, they have decided it is inappropriate for households to treat their nannies as independent contractors.
In addition, a mistake often made by families is presuming that they can vary the work schedule at will or change the pay rate without consulting the nanny. They also feel they can pay the nanny less during slow weeks, such as when the children are ill and they take time off from work. It’s crucial to understand that pursuant to the Fair Labor Standards Act, you cannot pay less than you agreed upon for any week of employment, regardless of your circumstances. As you probably are familiar with, many employers hire outside HR firms to assist with payroll processing, but you must be careful that the payroll processor does not treat your nanny as an independent contractor, as fails to withhold taxes and pay unemployment insurance. The IRS generally looks to see whether the family is treating the nanny as an employee or a contractor, which has tax implications. More than likely they are treating her as an independent contractor, when she should be an employee.
Negotiating an Appropriate Contract
In order to properly negotiate a contract that is fair for both parties involved, it is important to keep the following in mind: Negotiations should start with the basis of a complete breakdown of the conditions of employment. This should include detailed sections on pay per hour after taxes, and any other monetary payments, like health care or tuition. It is also important to include how many hours will the nanny be expected to work that week, and what rate they will be pay for overtime hours. If the over time rate is not set in the contract, then the federal minimum wage is what will be expected under the Fair Labor Standards Act, which is currently $7.25. (Keep in mind that in Oregon, there is a specific law that has a definition of overtime and as well as a higher minimum wage.) By including these provisions in a contract, neither party will have any issues or concerns with how services are provided or paid for. When you have established your base rate, you must keep in mind when setting what taxes should be withheld, and if the benefit of pre-tax payments towards medical, child care or tuition should be considered. It is important to note, that while the IRS has stated that the only payments that are pre-tax are FLEX spending accounts if your contract includes education benefits or ‘tuition’ reimbursement, the IRS has previously stated that these benefits are considered post-tax and are not deductible. So, do not expect to get out of any taxes on educational reimbursements. Once you have established when payments will be made, whether they will be upon receipt of an invoice, or due each Friday, it is then essential to focus on compensation for out of pocket expenses while they are acting as an employee of the family. I have seen some contracts with amazing terms for each party involved. At the end of the day, a ‘fair’ contract is one where both parties are satisfied with the terms and that both parties are willing to fulfill those terms.
How and When to Update the Contract
Both the employer and the employee should periodically review and update the contract. While consistency is certainly important, a nanny’s or caregiver’s role and requirements may change as children grow, schools change, or home circumstances change. It is not uncommon for a family to go through several different employment arrangements in my experience. As baby #2 comes along, the care of the older child may require special attention due to afterschool activities, lessons, or monitoring homework. It is short-sighted for the employer to get sucked into the idea that raising their new precious bundle is more important than the care and quality assurance of the older child. Or perhaps a parent has recovered from an injury and is now able to participate more in family activities. The same goes for the nanny’s own evolving needs. She might want to determine whether she can tolerate writing a consumer report every week, or maybe she wants to know whether she will ever find a boyfriend during her employment term!
A contract can also clarify the duties of the nanny or caregiver so that conflicts do not arise later on. This is particularly important when dealing with a situation where multiple nannies or caregivers are employed with rotating shifts .
The decision to amend a contract should be joint, and hopefully all parties are able to review the contract with the favorable outcomes. It is preferable to mutually agree to changes rather than having the employer spring the changes upon the employee, thus inadvertently creating an adversarial setting. This could lead to the employee resigning her position because of diminished respect for the employer and a sense of being taken advantage of. It is better to have a conversation through the process of understandably wanting to keep the role challenging and fulfilling for the nanny while still meeting the needs of the family.
The process of amending the contract does not necessarily require a formal written contract or the assistance of a labor attorney, but it is highly advisable. The purpose of the amendment is to clarify the employment relationship and benevolently specify the roles of the employer and the employee. It is a good idea to carefully craft the contract to make sure all terms are clear. Discussing the proposed amendments at the time of renewal (yearly) allows both parties to express any concerns as well. The amendments are then added to the original contract and both the employer and employee sign the document.