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Personal Finance
Nannies in demand
October 21, 1999: 6:37 a.m. ET

Agencies that help you find a nanny and comply with the law abound
By Staff Writer Shelly K. Schwartz
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NEW YORK (CNNfn) - For dual-income parents exploring the merits of in-home child-care services these days, the flurry of negative press reports has created more questions than answers.
     How do you find a reputable care provider? Will your child be safe? What are the tax implications of hiring a full-time nanny? Can you afford it?
     All important questions. Luckily, there's a whole new industry out there that caters to nanny neophytes, and it can help put your mind at ease.
     "Parents have become very aware of the safety issues, maybe through the negative (publicity) this industry has received," said Becky Kavanagh, president of the International Nanny Association and a career nanny herself.
     "They know that they need to be very careful who they choose, but they also know this is really a wonderful way of making sure your child is cared for in the way you want," she said, noting that day-care children are usually required to stick to a standard curriculum.
    
Serious business

     The nanny industry in this country is growing by leaps and bounds -- a product of the surging salary levels in Corporate America and the growing number of fast-track professionals with more money than spare time.
    
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     In fact, Kavanagh and other industry insiders say their biggest problem these days is keeping up with demand.
     "In the last five years, demand has been so great that there is actually a nanny shortage," Kavanagh said. "Parents are waiting in line for them."
     By and large, the families who hire nannies to look after their kids tend to be those who fall into the higher income brackets. But increasingly, parents who bring home a little less pay per year are getting in on the action too.
     "The concept of sharing nannies is the new thing," Kavanagh said. "You get a few families, with similar-age children, who live close together and they get together to hire one nanny."
     The care provider goes to one of the families' homes each day, and the other parents drop their kids off.
     "It's become sort of a mini day care," Kavanagh said.
     Often times, nannies who agree to this charge a bit more than they would for a single client, but it still works out to be cheaper for the parents since the cost is divided by the number of families involved.
    
Referral agencies

     Finding a qualified caregiver to look after your children can be a tricky task, especially if you don't have a friend who can recommend one.
     You can always call up several of the nannies who advertise in the newspaper. But if you're new to the industry, you may instead choose to hire a placement agency to do your legwork for you.
     Companies such as The Nanny Authority in Newark, N.J., are designed to pair up nannies with families. And it may comfort you to know that they provide comprehensive background checks on all the nannies they place.
     "We recruit very carefully," said company president Clifford Greenhouse. "It's a way of legitimizing those who claim to be nannies."
     The Nanny Authority digs up driving records, criminal records and even calls for reference checks from past employers. The company also conducts extensive personal interviews with the clients to determine which nanny would best meet their needs.
    
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     With new placement agencies springing up all the time, however, Greenhouse stressed it's important for parents to find out what kind of background checks their agency runs. And don't take their word for it, he advised.
     "Ask for the paperwork," he said. "We furnish our families with detailed write-ups of the reference checks and copies of the criminal reports, but a lot of agencies don't do that."
     Placement services, however, don't come cheap.
     The Nanny Authority charges families $175 for the application fee, plus $2,300 per placement - which is about average for the East Coast. For nannies who are paid more than $475 per week, the placement fee is higher still.
     And, like most agencies nationwide, you'll have to pay those fees all over again if you wait too long to request a replacement.
     If the family decides the nanny is not working out within 60 days, a new nanny is sent to them for free. If the client requests a new nanny 61 to 90 days after the initial placement, the clients have to pay 50 percent of the cost of their next placement.
     After that, you're on your own.
     "It's so difficult to find a good quality caregiver out there that I always advise families not to wait until the last minute," Greenhouse said. "They should begin looking many months in advance."
    
Gut feelings

     Regardless of whether you hire your nanny from word of mouth or you pay an agency to find one for you, Kavanagh said you should always look closely at their employment history.
     "If they are moving from family to family after short periods of time with no clear-cut explanation, that would make me concerned," she said. "Not everyone gets along, and you usually can tell within the first 6 months, but if you see a pattern of that it should raise a red flag."
     Also, Kavanagh noted, sit down with prospective nannies and interview them yourself.
     "You should try to ask a lot of situational questions, like what would you do if…," she said. "I think that reveals a lot about how that person would react."
     And lastly, trust your gut.
     "Parents get feelings about nannies and you need to trust that," Kavanagh said. "They are very accurate. If you feel like something is not right, or you've got a bad feeling about what is going on in your home while you are away at work, you are probably right. Act on that immediately."
    
The bottom line

     It's probably not news to you, but the cost of hiring a nanny to look after your kids doesn't come cheap either.
     The cost of services can vary widely, depending on which area of the country you live. But generally speaking, you can expect to pay anywhere from $350 to $600 per week for their services. And that doesn't include the placement fees, taxes and any benefits you may offer.
     Since live-in nannies get room and board free, they charge less than their homeowner counterparts.
    
The business

     Hiring a nanny is much more involved than getting a neighborhood kid to baby-sit for you each week
     For starters, this person is a professional whose sole career is child care services. In many cases, they act as pre-school teachers and many have college degrees.
     Some live full-time with their employers, others work a regular business day and go home at night.
     Perhaps the most important distinction, though, is that by hiring a nanny, you become a household employer -- and as such you are required to pay social security tax, Medicare, and in some cases federal unemployment tax.
     You are also responsible for collecting your nanny's share of those taxes.
     And you must file for an employer identification number (EIN) with both the federal and state governments.
     Figuring out whether you owe nanny taxes or not is simple.
     According the Internal Revenue Service, if you pay your nanny, baby sitter, caretaker, housekeeper or yard worker more than $1,100 a year in wages, you are both liable for taxes. That limit is being raised to $1,200 next year.
     To comply with IRS codes, you must use the Schedule H form for Household Employment Taxes to report wages paid to your household employees and to report the employment taxes due on those wages. It should be filed along with your regular income tax forms at the end of the year.
     (You can click here for the IRS' online Schedule H form.)
     The agency's Publication 929 is also a useful tool, providing detailed information on what your tax obligations are as a household employer. The form can also be request by facsimile by dialing: (703) 368-9694.
     The nanny will also be required to deduct from their paychecks funds to cover social security, Medicare taxes, federal and state withholding taxes and in certain cases a small amount for unemployment or disability insurance. The amount they have to deduct is a percentage of their gross annual pay.

     (Click here for IRS information on household employees.)
     Take note that if your household employee cares for your dependent who is under age 13 or your spouse who is unable to provide self-care so that you may work, you may be eligible for the Child and Dependent Care Expenses tax credit.
     If you qualify, you'll be able to take an income credit of up to 30 percent of your expenses -- including your share of the federal and state employment taxes you pay and the employee's wages.
     As an employer, you are also responsible for verifying that your worker is either a U.S. citizen or is an alien who can legally work in the U.S. You must complete the employer's section of the Immigration and Naturalization Services Form I-9 - Employment Eligibility Verification.
     You can order the Forms by calling 800-870-3676 and request a copy of the INS Handbook for Employers (Form M-274). For questions about the verification process itself, call 800-357-2099.
     Lastly, you may also be required to pay state unemployment taxes. To find out, simply call your state agency and ask. The IRS provides a list of addresses and phone numbers for your convenience.
     And while you're at it, find out if you're required by your state to carry worker's compensation or any other state employment taxes.
    
Penalties and fines

     The penalties for failing to meet your tax obligations as an employer can be stiff.
     According to IRS spokesman Don Roberts, if you fail to attach a Schedule H form to your regular income tax return, for example, you'll be charged a 20 percent negligence penalty on the amount of taxes you failed to report.
     You'll also, of course, have to pay the underreported taxes, plus interest which currently stands at 8 percent but is subject to change each quarter.
     If you're found guilty of fraud, you could have to pay 75 percent of the underreported tax. Filing a false statement is a felony that could earn you up to 3 years in the slammer and a $100,000 fine.
     And if your habits of underreporting have been really egregious, you might have to pay the same $100,000 fine, but this time you'll end up in prison for 5 years
    
Payroll firm

     If the tax rules leave you a bit breathless, don't sweat it.
     There's a whole new industry that has sprung up to help you - for a small fee, of course.
     Some of the largest payroll and tax services firms out there today include GTM Associates, Breedlove Associates and Homework Solutions.
     GTM Associates president Guy Maddalone said the process of collecting and paying taxes for your employees as well as processing the biweekly paychecks isn't as tough as it sounds. But for most people, it just takes up too much time.
     "We've done studies that show it takes the average nanny employer 60 hours a year to complete all the paperwork," he said.
     GTM Associates is a one-stop shop that will set you up with an employer identification number, administer the payroll responsibilities and collect and file the employee's taxes for you.
     The company even completes your Schedule H form at the end of the year, and it acts as the administer for employer-sponsored health benefits if you request them.
     GTM charges a $75 set-up fee for new clients, plus $43 per month for its trouble. The health benefits, a must in today's competitive marketplace, will set you back an extra $140 to $200 a month.
     Remember, that's on top of the weekly salary you're paying your nanny.
     "We will deposit the nanny's checks directly or by processing a check, whatever is easier," Maddalone said. "We try to make it very easy for our clients." Back to top

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Market indexes are shown in real time, except for the DJIA, which is delayed by two minutes. All times are ET. Disclaimer LIBOR Warning: Neither BBA Enterprises Limited, nor the BBA LIBOR Contributor Banks, nor Reuters, can be held liable for any irregularity or inaccuracy of BBA LIBOR. Disclaimer. Morningstar: © 2014 Morningstar, Inc. All Rights Reserved. Disclaimer The Dow Jones IndexesSM are proprietary to and distributed by Dow Jones & Company, Inc. and have been licensed for use. All content of the Dow Jones IndexesSM © 2014 is proprietary to Dow Jones & Company, Inc. Chicago Mercantile Association. The market data is the property of Chicago Mercantile Exchange Inc. and its licensors. All rights reserved. FactSet Research Systems Inc. 2014. All rights reserved. Most stock quote data provided by BATS.