Would you pay Mary Poppins under the table if she were your children's nanny? What are the risks and benefits for your nanny, the employee, or you as the employer? We will also analyze it in this article.
Let's take the following example:
Basically,
you need a full-time employee 5 days a week, 8 hours per day. In this
article, we'll use the USA's costs and rules, but they're very similar
in other countries as well.
Here's how it works:
The cost of hiring a full-time nanny may range
from $30000 to $40000 per year. Let's take $35000 per year as the
average for our discussion.
Based on 52 weeks per year, the cost is $670 per week. If we pay under the table, then this is the employer's cost as well as the employee's income. We will ignore commuting costs in this discussion.
Let's find the difference when paying according to the law. In this article, we will focus on the state of California since there are a number of states in the USA with different tax rules.
First we have the FICA taxes (Federal Insurance Contributions Act)
As our nanny salary exceeds $1000 per quarter in California, we must pay Unemployment Insurance (UI) and Employment Training Tax (ETT). State Disability Insurance (SDI) must also be withheld.
Here are the rates in 2022:
A California employer paying his nanny a salary of $35000 a year can see that the difference between legal and under the table is small.
An additional annual cost of $2950 or $56.73 per week for the employer.
Employees are deducted $2789 annually or $53.63 per week.
When compared to the annual salary, this represents a cost increase of less than 9%. It's a no-brainer that the risk isn't worth the savings. If something goes wrong and you end up in court, this savings is not worth the risk. Should you consider a public position in the future, you would not want this small saving to hinder your progress Nannygate
Mary Poppins or your nanny are not worth paying under the table! Why do people do this?
You can refer to the rate for California in this link: https://edd.ca.gov/en/payroll_taxes/rates_and_withholding/
Equipped with these number we can now check the numbers.