Cash vs Payroll Service for Nanny Share?

What payroll services do you recommend using for taking care of all tax filings for a nanny?  Is there any insurance that should be purchased? 
 

What do you recommend telling a nanny that requests cash vs payroll for payment?

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When my family worked with a nanny, we used Homework Solutions for payroll.  They helped with the entire process from getting an employer ID, to the documents the nanny needed to fill out, to sending the payments and tax forms.  I'm not sure there are substantial differences between the different payroll companies, but you DEFINITELY want to use one (if going over the table), unless you have personal expertise and automation of tasks in this area.

For insurance, you're supposed to purchase workers comp for the nanny.  Additionally, it is common to provide a health insurance 'subsidy' (a couple hundred a month) to contribute to their purchase of health insurance, if they do not have it through a spouse.

Paying in cash vs using payroll (under vs over the table): this is something that family and nanny must agree to, and may be an irreconcilable difference otherwise.  There are legit reasons nanny or family might want either arrangement, so everyone must be on the same page.

If you are relatively Excel savvy, it isn't hard to do on on your own--the state has a very good guide to tax filings for domestic workers. I'm sure others will suggest the services they have used and liked, too. You'll need to have workers' comp insurance, but this should be covered under your homeowners' or renter's policy since California now requires that. (Call to confirm, and if you rent but don't have insurance, get a policy.) You can certainly pay in cash and still withhold the needed payroll taxes--payment doesn't need to be via a payroll service or by check to do that, though I liked paying by check to have good records. If the nanny is asking you to pay cash so that it's under the table, though, that's different and you'll need to decide if you're willing to do it. (We were not willing to for a number of reasons, so just said upfront that we would only pay legally when interviewing prospective nannies and talking with nannyshare partners.)

We had a good experience with using HomePay from care.com. You need to get worker's compensation insurance, which can be purchased through your usual insurance carrier. We got it through State Farm. 

For us, it was not worth the risk to pay cash under the table. There are big tax penalties for you as an employer if you choose to pay cash and other risks. 

When interviewing nannies, some who requested cash were willing to use a service, but they expected us to gross up and pay their portion of taxes as well. They essentially wanted to negotiate their take home pay, not their actual hourly wage. We ended up hiring someone who preferred to be paid via a service with taxes taken out and workers' comp protection. This method protects them as well as you. You can remind them that if you end up letting go of the nanny when your kid goes to preschool, for example, they may be eligible for unemployment. If they end up getting hurt at work, such as a car accident or a fall, they and you would be protected. If not, and there is an injury, you could end up being responsible for medical costs and lost wages out of pocket as well as back taxes and penalties.

In addition to tax filings and pay stubs, Care.com/Homepay also tracked holiday pay, vacation and sick time usage and accrual. When our nanny left, she had accrued a vacation day she hadn't used yet, so we paid her for that on her last day, as required by CA law. It was nice to have everything handled for us by Homepay so we didn't have to wonder if we were in compliance. 

Lots of people do pay cash, but it's not legal and wasn't worth it to us. 

I use Poppins Payroll and have been very happy with them.  Their website is user friendly, their customer service responds quickly and they've done all the taxes no problem.

You need workers' comp insurance for residence employees.  If you have homeowners' insurance, read the fine print as it might already be included.

If you pay cash under the table and get found out you'll be in a lot of hot water with the IRS.  If it turns out your nanny's request for cash was because they're not legally allowed to work in the US, you're in even more trouble.  Not worth it.  I would just tell them that your offer is to pay them through a payroll service.

We have had a good experience with Poppins Payroll. When I was recently looking for a nanny, I found the vast majority wanted to be paid in cash so I ended up using willingness to be paid w taxes withheld as a screening factor before interviewing and making it clear in posts that that was a parameter of the job we were offering

BPN moderator here. Just some data for you. BPN has conducted five nanny surveys, most recently in 2021. We always ask whether parents pay their nanny under the table or over the table, and the answers have been pretty consistent over the years: more than 70% of respondents say they pay their nanny under the table. When we ask why they don't report the nanny's earnings as required, the most frequent response by far is that their nanny asked them not to, most often because the nanny is worried about losing income-based benefits such as medical insurance or subsidized childcare. Some parents have also commented that they do report a portion of the nanny's income so they qualify for SDI, social security, etc.  Parents have also mentioned on the surveys that it's hard to find a nanny who wants to be paid over the table. View past surveys here