What Parents Need to Know Before Hiring a Nanny

Quick answer: What do parents need to do when hiring a nanny?

Parents who hire a nanny should usually:

• confirm whether the nanny is a household employee
• review the current IRS household employer rules
• get an Employer Identification Number, or EIN, when required
• complete Form I-9
• collect Form W-4 if federal income tax withholding is used
• register for state tax accounts when required
• report the new hire to the state
• track hours worked
• pay at least the required minimum wage
• pay overtime when required
• withhold and pay required employment taxes
• provide a Form W-2 when required
• file Schedule H when required
• check workers’ compensation rules
• review homeowners, auto, umbrella, and workers’ compensation insurance
• use a written nanny work agreement
• create household policies for cameras, privacy, transportation, property, and emergency care.

For current federal tax thresholds, parents should review IRS Publication 926, Household Employer’s Tax Guide, and IRS Topic 756, Employment Taxes for Household Employees. These IRS pages are better evergreen sources than prior-year articles because the dollar thresholds, forms, and filing rules can change.

Is a nanny an employee or an independent contractor?

In most direct-hire nanny jobs, the nanny is a household employee. This is because the family usually controls:

• the work schedule
• where the work happens
• the child’s routines
• the nanny’s duties
• household rules
• transportation expectations
• communication expectations
• how care should be provided.

Calling a nanny an “independent contractor” does not make the nanny a contractor if the actual working relationship is employment. IRS Publication 926 explains that a household worker is an employee when the family has the right to control both what work is done and how it is done.

What are nanny taxes?

“Nanny taxes” is the common name for household employment taxes. These may include:

• Social Security tax
• Medicare tax
• federal unemployment tax
• federal income tax withholding, if used
• state unemployment tax
• state income tax withholding
• state paid leave or disability contributions, where required.

Parents should not rely on an old article, social media post, or prior-year threshold. Instead, they should check the current version of IRS Publication 926 and IRS Topic 756 before setting up payroll.

Federal income tax withholding is different from Social Security and Medicare taxes. A household employer generally does not have to withhold federal income tax unless the employee asks for withholding and the employer agrees. However, Social Security, Medicare, FUTA, and state tax rules may still apply. Parents should confirm the current rule in IRS Publication 926.

What federal forms do parents need for a nanny?

Parents should set up the nanny job like an employment relationship. Common federal forms and resources include:

• Employer Identification Number: Parents may need an EIN for household employment tax reporting. The IRS provides an online EIN application through IRS.gov.
• Form I-9: Employers use Form I-9 to verify identity and employment authorization. Parents should use the current Form I-9 from USCIS I-9 Central.
• Form W-4: Parents use Form W-4 if federal income tax withholding is requested and used. The IRS provides current Form W-4 information through IRS Topic 753.
• Form W-2: Household employers may need to provide a Form W-2 and file wage information when required.
• Schedule H: Parents use Schedule H to report household employment taxes with their federal tax return when required. The IRS explains Schedule H on its Schedule H page.

Do parents need to report a new nanny to the state?

Usually, yes. Employers generally must report newly hired employees to the state directory of new hires. State deadlines and reporting methods vary. Parents should check their state’s new hire reporting system or use a household payroll provider that handles state new hire reporting. The federal Office of Child Support Services provides employer resources through its Child Support Portal for employers.

Do parents need to pay nanny overtime?

Often, yes. Nannies are domestic service workers. Many live-out nannies must receive overtime pay for hours worked over 40 in a workweek. Parents should review the U.S. Department of Labor’s domestic service hours worked guidance for current information.

Live-in nannies may be treated differently under federal law. However, live-in domestic service employees still must receive at least the required minimum wage for all hours worked, and state law may provide additional protections. Parents should review the Department of Labor’s live-in domestic service worker guidance.

Because of this, parents should track actual hours worked. A salary or weekly flat rate does not remove the need to understand minimum wage and overtime rules.

What time counts as hours worked?

Parents should count time when the nanny is on duty and responsible for the child. This may include:

• active childcare
• driving children
• waiting during activities
• preparing child meals
• cleaning child-related areas
• working during naps
• overnight hours when the nanny is not fully relieved of duty
• travel time required for the job.

The Department of Labor’s domestic service hours worked guidance explains when domestic service employees must be paid for time spent waiting, sleeping, traveling, or remaining responsible for someone in their care.

What state and local rules may apply?

Federal rules are only part of household employment compliance. Parents may also need to follow state or local rules for:

• state income tax withholding
• state unemployment insurance
• paid sick leave
• paid family or medical leave
• state disability insurance
• workers’ compensation
• minimum wage
• overtime
• meal and rest breaks
• pay stubs
• final paycheck timing
• reimbursement rules
• wage notices
• recordkeeping.

Because these rules vary, parents should not assume that federal compliance is enough. The Department of Labor maintains a state labor office contact page, and the IRS provides a directory of state government tax websites.

Do parents need workers’ compensation insurance for a nanny?

Workers’ compensation is state-specific. Some states require household employers to carry workers’ compensation for domestic workers. Other states have exceptions or different thresholds. Workers’ compensation may help cover job-related injuries. For example, a nanny can be injured while lifting a child, slipping on stairs, driving for work, preparing meals, or performing household duties.

The U.S. Department of Labor provides a directory of state workers’ compensation officials. Parents can use that directory to find the correct state agency and confirm current requirements. Even when workers’ compensation is not required, parents should ask an insurance professional whether voluntary coverage is available.

What insurance should parents review before hiring a nanny?

Before the nanny starts, parents should contact their insurance agent. Ask these questions:

• Does our homeowners policy cover injuries to a household employee?
• Does our policy exclude domestic workers?
• Do we need workers’ compensation?
• Does our umbrella policy apply to household employment claims?
• What happens if the nanny drives our child?
• What happens if the nanny drives our car?
• Should the nanny be listed as an authorized driver?
• What happens if the nanny damages our property?
• What happens if the nanny is injured while traveling with us?
• Are there exclusions for paid childcare or business use?

In addition, parents should check auto insurance before the nanny drives any child. This matters whether the nanny uses the family car or the nanny’s own car.

What should be in a nanny work agreement?

A written nanny work agreement helps prevent confusion. It also creates a shared reference point. The agreement should match the law. It should not classify the nanny as an independent contractor if the nanny is actually an employee. A strong agreement should cover:

• start date
• work location
• schedule
• hourly rate
• overtime rate
• pay frequency
• payroll process
• tax withholding
• job duties
• child-related duties
• household duties, if any
• guaranteed hours, if offered
• paid time off
• paid holidays
• sick time
• travel expectations
• transportation rules
• mileage reimbursement
• confidentiality
• phone use
• social media
• camera and monitoring disclosure
• visitor rules
• discipline and child guidance expectations
• medication permission
• emergency procedures
• termination notice
• final paycheck process
• return of keys, cards, devices, car seats, and other property.

Can parents deduct property damage from a nanny’s pay?

Parents should be very careful with wage deductions. If a nanny breaks something, damages a car, loses a key, stains furniture, or causes another loss, parents should not automatically deduct the cost from the nanny’s paycheck.

The Department of Labor explains that deductions for items that benefit the employer, including damage to the employer’s property, may not reduce an employee’s wages below required minimum wage or overtime compensation. State laws may be stricter. Parents should review the Department of Labor’s wage deduction guidance.

A safer process is:

1. Document what happened.
2. Discuss it calmly with the nanny.
3. Review the work agreement.
4. Check state wage deduction rules.
5. Contact a payroll provider or employment attorney before deducting wages.
6. Use insurance when appropriate.
7. Handle intentional damage or theft through proper legal channels.

Normal accidents, child-related messes, and everyday wear are part of having childcare in the home. For that reason, parents should separate ordinary accidents from serious misconduct.

Can parents use nanny cameras?

Parents may use cameras for child safety and home security. However, privacy, surveillance, and recording laws still matter. As a best practice, parents should:

• disclose cameras in the work agreement
• state whether cameras record video only or video and audio
• identify camera locations
• avoid bathrooms, changing areas, private bedrooms, and other private spaces
• protect camera apps with strong passwords
• limit who can view footage
• avoid sharing footage publicly
• avoid using cameras to embarrass, harass, or micromanage the nanny.

The FTC warns that internet-connected home cameras create privacy and security risks. Parents should review the FTC’s guidance on how to secure home security cameras before using cameras in the home.

Can parents record audio?

Audio is more sensitive than video. Some states allow recording when one party consents. Other states require all parties to consent. Also, a parent may not be a party to a conversation between the nanny and another person.

Because of this, parents should not assume that a camera with a microphone is legal to use. Before recording audio, parents should check their state recording law or speak with an attorney. In many homes, the safer approach is to disclose cameras and turn off audio unless the consent rules are clear.

What should parents do before the nanny’s first day?

Before the first day, parents should complete these steps:

• Confirm the nanny’s start date.
• Confirm the schedule.
• Confirm duties.
• Confirm the hourly rate.
• Confirm the overtime rate.
• Decide whether to use a payroll provider.
• Get an EIN if needed.
• Complete Form I-9.
• Collect Form W-4 if withholding is used.
• Register for state tax accounts if required.
• Report the new hire to the state.
• Review workers’ compensation rules.
• Review homeowners, auto, and umbrella insurance.
• Sign a written work agreement.
• Set up timekeeping.
• Create emergency contacts.
• Prepare medical authorization forms if needed.
• Disclose cameras and monitoring practices.
• Explain house rules.
• Explain child routines.
• Clarify transportation, visitors, confidentiality, and phone use.

What records should parents keep?

Parents should keep organized records during and after the nanny’s employment. Important records include:

• signed work agreement
• Form I-9
• Form W-4, if used
• time sheets
• payroll records
• pay stubs
• reimbursement records
• mileage records
• tax filings
• W-2 copies
• Schedule H
• state registration confirmations
• new hire report confirmation
• workers’ compensation policy documents
• insurance correspondence
• PTO and sick time records
• schedule changes
• performance notes
• termination records
• return of property checklist.

IRS Publication 926 explains that household employers should keep records that support household employment tax filings, including wages paid and taxes withheld or paid.

What should parents avoid when hiring a nanny?

Parents should avoid:

• paying off the books
• treating a regular nanny as a contractor without legal basis
• skipping payroll taxes
• failing to track hours
• ignoring overtime
• paying a flat salary without checking wage laws
• skipping state registration
• failing to provide a W-2 when required
• deducting property damage without checking the law
• using audio recording without checking consent rules
• placing cameras in private spaces
• asking the nanny to perform medical services outside their qualifications
• asking the nanny to hide injuries, incidents, or reportable concerns
• relying on a certification, directory listing, or background check as a guarantee of future conduct
• failing to put expectations in writing.

Bottom line for parents

Hiring a nanny makes a family an employer. That role comes with real responsibilities. Parents should set up payroll correctly, track hours, follow wage and tax rules, review insurance, use a written agreement, and create clear home policies. These steps protect the child, the nanny, and the family.