Nanny Employee vs Contractor: Why Your Nanny is an Employee Under Federal Law
- The Noble Nanny
- Aug 13
- 5 min read
Updated: Aug 14
When families hire a nanny to care for their children, one of the most crucial decisions they face involves proper worker classification. The nanny employee vs contractor distinction is not a matter of preference—it's a legal requirement with significant implications. Despite what some may assume or hope, the answer is clear-cut according to federal law: nannies are employees, not independent contractors. Understanding this distinction is essential for legal compliance, proper tax handling, and protecting both your family and your nanny.
Understanding the Nanny Employee vs Contractor
Classification Under Federal Law
The simple answer is a nanny is NOT an independent contractor. A nanny, housekeeper, or home health aide that you hire directly is your employee under common law. This nanny employee vs contractor classification applies regardless of how many hours they work, whether the position is permanent or temporary, or how much you pay them.
Federal law dictates that household workers like nannies, housekeepers, and in-home senior caregivers are to be treated as employees and not independent contractors. This isn't a matter of preference or convenience—it's a legal requirement that families must follow when making the nanny employee vs contractor determination.
Why the IRS and Department of Labor Are So Clear on This
The determination comes down to control. If you hired someone to do household work and you were able to control what work he or she did and how he or she did it, you had a household employee. When you hire a nanny, you typically:
Set their work schedule and hours
Determine what tasks they perform
Provide the location where work is performed (your home)
Control how the work is done
Provide the tools and materials needed for the job
If you hire the person to work certain hours, direct what the person does and how it's done, and the person works only for you, you're probably an employer. This describes the typical nanny arrangement perfectly.
Household Employee Tax Requirements: Your Legal Obligations
One of the most significant practical differences in the nanny employee vs contractor debate involves tax documentation and household employee tax requirements. When you hire a nanny, senior caregiver or another household employee, you must give them a W-2 to file their personal income tax return. Independent contractors are given a Form 1099 to handle their taxes.
As an employer, you have several tax responsibilities:
Withholding taxes: Generally, you must withhold and deposit income taxes, Social Security taxes and Medicare taxes from the wages paid to an employee. Additionally, you must also pay the matching employer portion of Social Security and Medicare taxes as well as pay unemployment tax on wages paid to an employee.
The "nanny tax": This refers to the employment taxes that household employers must pay when they hire domestic workers who earn above certain thresholds.
Legal Protections and Rights for Nannies
Classifying nannies as employees isn't just about tax compliance—it's about ensuring they receive the legal protections they deserve. Per the FLSA, nannies are non-exempt employers who must be paid hourly and are eligible for overtime. This means nannies are entitled to:
Minimum wage protections
Overtime pay for hours worked over 40 per week (in most cases)
Workers' compensation coverage in many states
Unemployment benefits eligibility
Domestic service workers who reside in the employer's home and are employed by an individual, family, or household are exempt from the overtime pay requirement, although they must be paid at least the federal minimum wage for all hours worked.
Why Families Might Consider Independent Contractor Status
Some families are tempted to classify their nanny as an independent contractor because:
It seems simpler administratively
They believe it reduces their tax burden
They assume it gives them more flexibility
Their nanny might request this classification
However, "We've spoken to the IRS in the past about nanny and senior caregiver employment situations, and they have ruled in almost all cases that household workers should be classified as employees," says Tom Breedlove, Sr. Director of Care.com HomePay.
The Consequences of Misclassification
Incorrectly classifying a nanny as an independent contractor can lead to serious consequences:
Back taxes and penalties: The IRS may assess back taxes, interest, and penalties on unpaid employment taxes
State violations: Individual states may have additional penalties for misclassification
Loss of legal protections: Both employer and employee lose important legal protections
Audit risk: Misclassification increases the likelihood of tax audits
When Independent Contractor Status Might Apply
There are very limited circumstances where a childcare provider might be considered an independent contractor:
A worker who performs child-care services for you in his or her home generally is not your employee. If an agency provides the worker and controls what work is done and how it is done, then the worker is not your employee.
This typically applies to:
Daycare centers
Agency-provided caregivers where the agency maintains control
Babysitters who work in their own homes
Steps to Ensure Proper Classification
To properly classify and manage your nanny as an employee:
Obtain an Employer Identification Number (EIN) from the IRS
Complete Form I-9 for employment eligibility verification
Set up payroll systems to properly withhold taxes
Maintain accurate records of wages paid and taxes withheld
File required tax forms including Schedule H with your annual tax return
Consider workers' compensation insurance as required by your state
Getting Professional Help
Given the complexity of employment law and tax requirements, many families benefit from professional assistance. Household payroll services can help ensure compliance with all federal and state requirements while simplifying the administrative burden.
Conclusion
As you can see, it's much more advantageous for a nanny and other household workers to be classified as employees and not independent contractors. While the employee classification comes with additional responsibilities for families, it provides important legal protections for both parties and ensures compliance with federal and state laws.
Understanding and properly implementing employee classification isn't just about following the law—it's about creating a fair and legally sound working relationship that benefits everyone involved. When families properly classify their nannies as employees, they're not only avoiding potential legal issues but also contributing to a more professional and protected domestic work environment.
Ready to Hire the Right Way? Hiring a nanny is more than finding someone you trust—it’s about building a professional, legally sound relationship that protects your family and your caregiver. At The Noble Nanny, we connect families with pre-screened, experienced nannies who meet your unique needs. Start your family application today.
This blog post is for informational purposes only and does not constitute legal, tax, or professional advice. Employment laws and tax requirements vary by state and individual circumstances.
Before making decisions about worker classification or tax obligations, consult with qualified professionals including employment attorneys, CPAs, and payroll specialists familiar with household employment law in your jurisdiction.
The author makes no guarantees about the accuracy or completeness of this information. Laws change frequently - verify current requirements with the IRS and your state's labor department.
Use of this information is at your own risk. The author is not liable for any consequences resulting from reliance on this content.
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