November 2007

MANAGING YOUR RISKS WHEN HIRING A NANNY

Many working couples with children are choosing to solve the daycare issue by hiring their own nanny, or sharing one with another family.

Although this practice may be becoming more commonplace, many parents are still not aware of the risks associated with employing a nanny directly.

If you hire your own nanny, you face potential IRS problems for improperly paying an employee as an independent contractor and not withholding payroll taxes. Additionally, if payroll taxes aren’t correctly calculated and submitted on a timely basis, you could face substantial fines and penalties.

You can eliminate this risk by treating the nanny as your employee and hiring a payroll provider to handle the taxes.

Being sued by your nanny for job-related injuries is the second biggest risk you could encounter. To cover this risk, you should purchase Workers Compensation. Without Workers Compensation, you would owe all benefits that would have been payable under the policy plus fines and penalties imposed by your home state. Don’t be fooled into thinking this risk is already covered by your Homeowners insurance or Umbrella Liability coverage. Neither policy will defend you because both exclude injuries for which Workers Compensation benefits are due.

Hiring a nanny could make you a potential target for lawsuits initiated by the nanny’s spouse, or from other family members for loss of her services if she is injured on the job. Workers Compensation coverage does provide employer’s liability coverage, but the limits may not be adequate to cover a lawsuit of this kind.

To protect yourself from these types of suits, you would need additional coverage under an Umbrella policy. Be sure to obtain an umbrella policy that includes excess employer’s liability coverage.

If an injury should occur to another child being watched at your home by the shared nanny, you could also find yourself being sued by their parents. That’s the risk of having the nanny work out of your home instead of another family’s. To counter this risk, ensure your personal umbrella limits are high enough to comfortably shield your personal assets.

Consider an Agency
There are some significant additional benefits to hiring a nanny through an agency. When using an agency, the nanny will be considered the agency’s employee, and they’ll have the responsibility of managing payroll taxes, securing proper insurance coverage, etc.

Also, the agency will perform background and reference checks to find suitable workers that you can trust to be in your home watching your children. Most reputable agencies will even provide a backup nanny if necessary. Those benefits, plus eliminating the need to spend hours interviewing perspective candidates, may be worth the added cost of a nanny service.