Paying workers off the books

By. L

Household employers: why is paying nannies under the table the norm, and what can we do about it?


62 thoughts on “Paying workers off the books

  1. I always get really up in arms about this topic. When #1 was a baby and we were interviewing nannies we interviewed 19 people and only 1 of them was willing to be paid on the books! I don’t want to get disbarred/reprimanded and really need to pay people on the books. My other lawyer friends also either pay people on the books, or do daycare instead.

  2. My experience was the same as L. Almost everyone we interviewed demanded to be paid off the books! We did eventually have a nanny who specifically wanted to be paid on the books as she had just gotten a green card & wanted legal work history. But I was surprised. I’m not sure that it is the employers demanding it. I think it is benefiting both sides or it wouldn’t be so prevalent.

  3. L – you need to move to DC. Almost everyone pays on the books because so many people have security clearances and worry about getting them yanked. I have interviewed a bunch of potential nannies and no one ever refused. Plus, from my end beyond just complying with legal requirements, I want them to pay in to social security and Medicare so they will benefit from it later. Plus unemployment and workers’ comp. Never know when those will be needed.

  4. L and Ivy – I am curious – have you offered to gross them up so that they net the same amount? I would bet that is what you have to do.

  5. Related to this, my nephew worked at a restaurant when he was 16 and they paid him off the books. A couple of years later he applied for a job at a bank, and he listed this job in his work history. He almost didn’t get hired because of it, but it got worked out.

    On the nanny issue, the reason is simple – it benefits both sides if the nanny is off the books. As for what to do about it, increased enforcement is the only thing that will change it, but due to the nature of the work, it’s really hard to enforce.

  6. “so that they net the same amount”

    Tougher than it seems, and more than you think it’d because if they are in the situation of (generalizing, and assuming a lot): 2 adult, 2 kid family living in subsidized housing and probably eligible for other benefits like EITC, SNAP and one adult is working on the books albeit at a low wage, if the second adult takes an on-the-books job their income may well reduce/eliminate a lot of those benefits, and their economic situation may be worsened rather than improved by (her) taking the job on the books. So the gross up to keep the family even could be a lot more than just e.g. add 25% to the base pay to cover what the gov’t takes for income tax, fica, unemployment ins, etc.

  7. Fred – true, although IME, many nannies are younger women who aren’t married/have no children, so it is a pretty easy thing to just gross them up by 30% or whatever. As an aside, I think the nanny rates in DC are higher because of the taxes, at least based on anecdotal evidence that I have heard.

  8. Which IMO translates to the only people who are willing to work on the books are young people (women) for whom nannying will be a FT job and they don’t need those government benefits that are available only to those with low enough income, either because they live with their parents or a partner who is covering a lot of the rent/utilities. I think that’s a rare setup, perhaps a unicorn. And then I would contend that if that person is truly well qualified (maybe some kind of a degree in early childhood development or working toward it), they’ll want some kind of a teacher gig vs a nanny gig pretty soon.

  9. benefits like EITC

    You need income to get the EITC. If they have other income then it’s understandable. But if they have two kids and make $15/hr, after paying $2295 for their portion of FICA they get $3100 in EITC. So being paid on the books gets them $900 more than being paid under the table. At least at the federal level.

  10. I have a friend who is a nanny. Watching her go through several jobs over the past 10 years has been eye-opening. She doesn’t really care how she is paid as long as the take-home meets her needs. Typically, she works 45 hours a week, so when paid hourly 5 hours are overtime. She had a job where the family was late getting home regularly, which made her late to get her child and she while she got paid the overtime, it wasn’t compensating for the late pick up fee she had to pay. The next contract, she put in double time for time not previously planned late time over 15 minutes.

    Her last job, the family wanted to do salary, but up her hourly rate. She was really concerned that they could take advantage of her. However, it has really been to her benefit – this family tends to come home early and she leaves early – about 15 minutes a day a few days each week.

    The other thing I thought was odd, was even if a family pays on the books for their regular nanny care, they would pay off the books for weekend baby-sitting. My friend has a different baby-sitting rate, so I am not sure the paying family is getting a better deal as it was the same as her planned over-time rate.

  11. Fred – not sure. Our nanny is an older woman. She makes enough that she doesn’t qualify for any assistance (not even an Obamacare health ins subsidy). We pay for her health insurance, too, because there is really no other option for her.

  12. I think regardless of age, if you are the only adult in the household – be it child care, maid service, etc. – you need at least some work on the books to get your benefits. We had a woman who worked for the maid service 2 days a week on the books and on her own cleaning 4 days a week off the books. I only found out because when I asked about adding an additional service, she was keen to get me to pay for it on an “off the books” day for her.

  13. Birdie – perhaps the DC market area is relatively unique given the government and government-contractor workforce that needs to mind their p’s & q’s so both paying a high enough and on the books wage brings others into the market. I don’t know anyplace else where enough of the parents seeking nanny help would care so much…maybe pockets in Los Alamos and Huntsville AL?

  14. Fred – My nanny friend says its also partly due to those placement agencies. Often part of the deal is processing the payroll as they get their fee over time and they don’t want issues of their own.

  15. We met with a lot of reluctance to being paid on the books, period. Didn’t matter if the rate would be the same. In the end, it worked out, so it’s not like we pushed that hard. But I was surprised that candidates were so resistant to it. A lot of the responses we had were either people who I don’t think were able to legally work in the US too of course.

  16. Fred – it totally is unique. Practically everyone either works for the government or is a lawyer, so people usually comply with the legal requirements. I have no idea how you change how everyone does it in other cities.

  17. “The other thing I thought was odd, was even if a family pays on the books for their regular nanny care, they would pay off the books for weekend baby-sitting. ”

    To the same person? I didn’t do that, but we rarely had our nanny babysit outside of the regular schedule. (perks of having the only grandchild/nephew on both sides for 6 years – lots of willing & free babysitters!)

  18. Fred – we do have a unicorn now. Our nanny when she started still lived with her parents and wasn’t paying rent, then moved in with her bf (now husband). She also went from her parents’ health insurance to her husband’s (when they got engaged).

    For paying our first nanny, the one we had before this, we did gross up, but not quite equal to take-home of the “cash” pay because we were paying in unemployment, etc. She also cared more about getting social security, etc.

  19. Ivy – Yes to the same person. I think the issue was they didn’t want to pay the extra taxes. Her hourly over-time rate = hourly baby-sitting rate, so the only difference would be the taxes. Most people who just want a babysitter for a night or a weekend day here or there pay cash. I think the family saw it the same way….if they were paying the kid next door, they’d have paid cash.

  20. There were many reasons we used a daycare instead of a nanny, but this was part of it. It seemed so impossible to find someone who could be trusted and who also was willing to be paid on the books. Heck, even figuring out how to pay someone on the books seemed really hard.

    We sometimes used nannies from an agency that contracted with my husband’s company to provide temp nannies. This was usually when the daycare had a break. The last time we did this, though, the lady showed up, decided our house was too hot, and LEFT after two hours. Thankfully I was able to get home quickly because she literally just walked out.

  21. My experience paying a nanny 25 years ago in DC was that attorneys paid legally and no one else did. Zoe Baird was a wake up call but even then it didn’t percolate down to the nannies. Many of the women I interviewed wanted to be paid under the table.

  22. One of the things I like about Au Pair care is that we legally just pay cash. There is an explicit exception for J-1 visa holders because they do not qualify for any benefits, so they don’t pay into the system. It’s all very clean and above board.

    I’m surprised no one has mentioned legal status. You can’t pay above board if the person does not have valid work authorization. In many cities that is likely related to nannies, lawn service, etc. asking to be paid cash.

  23. We have a elder care person who we recently converted to legal payment. It was such a process. She fought every step of the way, even though she was being grossed up. She really had a very poor understanding of what she was gaining and losing with the changes. This goes back to Rhett’s refrain about executive function – often people in these positions don’t know the trade-offs.

  24. “I’m surprised no one has mentioned legal status. You can’t pay above board if the person does not have valid work authorization.”

    I did, but maybe we cross posted. We definitely had a lot of people who couldn’t legally work in the US respond to our ad. Some were international students of some sort and some were sort-of professional nannies since that was the only cash job available.

  25. You’ve covered the three standard answers: 1.) tax evasion (workers always bear most of FICA, given the inelasticity of labor supply), but the 15.3% on EVERY dollar earned by the working poor and middle class is patently obvious to the self-employed and taken directly from them; 2.) avoiding benefit reduction (thanks to our lovely welfare programs, those receiving benefits average a 80-90% implied marginal tax rate on benefits); and 3.) illegal status (if applicable).

  26. but the 15.3% on EVERY dollar earned by the working poor and middle class is patently obvious to the self-employed and taken directly from them

    You can claim 50% of what you pay in self-employment tax as an income tax deduction. For example, a $1,000 self-employment tax payment reduces taxable income by $500. In the 25 percent tax bracket, that saves you $125 in income taxes. This deduction is an adjustment to income claimed on Form 1040, and is available whether or not you itemize deductions.

  27. The self employment tax deduction doesn’t mean anything if you don’t end up owing federal income tax, as is true of many families with unadjusted AGI under 50K. There is a reason for being suspicious of gig economy lifestyles in which all of a working class person’s income is either under the table or 1099. There are worker protections and benefits that underlie the labor laws and rules that prevent employers from treating lower wage workers under their direction as independent contractors in the same fashion as independent CPA/atty LLC. Small businesses can deduct most expenses and set themselves up various fashions to minimize self employment tax issues.

  28. The self employment tax deduction doesn’t mean anything if you don’t end up owing federal income tax

    Would it increase your EITC?

  29. My nanny friend when through a rough patch when her on-the-books income went up enough to reduce the benefits she qualified for, but not enough to replace them. She ended up working more off-the-books sitter jobs to get over the hump and figure out how to adjust (both lifestyle and contract re-negotiation) to get everything back in sync. On top of that, she had always received a hefty tax refund and when that too was halved, it was a shock to her family finances as well.

  30. We hired a tutor for math and she only accepts cash. No venmo, or checks. I know how much she has to be earning because I know which kids she tutors from this class. She works hard, but it is still $100 an hour for one kid, and $150 for two kids.

    We did a one shot meeting with a former Earth Science tutor and she charges $200 an hour for two kids for a prep session for the lab portion of the Regents. I am friends with a guy that is a Physics teacher and he charges $175 and hour and people have to come to him. He said he paid for his whole wedding from his tutoring side business.

    There is a large underground economy for tutors and they’re making a lot more per week than a baby-sitter.

  31. Lauren, what’s the purpose of the Regents those kids are prepping for?

    I thought the NY Regents exams were just something to pass to graduate.

  32. A while back, DW looked into doing contract work for her former employer. The amount of paperwork to do so above board was fairly daunting.

  33. Similar to lawyers and government workers, we received the lecture at our employers (banks, investment banks) that if we wanted to rise in the firm we had to do all this stuff on the books. We paid our nannies salaries, room and board, 4 weeks paid vacation and year end bonuses. We had super professional, basically “2nd moms” who ran the household and took care of the children while we were at work. The first one was with us 9 years, and the second 8 years. They stay in touch via Facebook and always comment on the boys’ photos. I attribute much of my career success to these two ladies.

  34. I need to do some tutoring on the side.

    No kidding. NOW I finally see why you should stay on the Calculus track. It’s so you can make money off the next generation of kids struggling with the Calculus track.

  35. If your HS age kids had opportunities as tutors or babysitters, would you have them do it above board?

  36. Finn, the Regents were traditionally easy exams when I was a kid. It is a state wide test and it is sort of the NY state version of the SAT2 for a subject. The difference is that ultimately The Board of Regents is hoping that most kids will obtain a passing grade in the subject.

    Most schools will not have a final and a regents exam in a class. It is a Regents or a final. The Regents exam will replace the final so it might determine a large portion of the overall grade for that class. It also goes on a HS transcript. So, there are some kids that are happy to pass. There are other kids like my DD that are trying to get the highest score possible since it impacts her grade in the class. It is really difficult to find Earth Science teachers and we happen to have two terrible earth science teachers in the middle school. The lab portion of the test is something that most of the students didn’t know how to prepare for because our teachers are weak. The tutor took an hour and walked them through a mock test of how the lab portion works.

    My DD just used the review book for the regular part of the test. There are review classes now and I think the reason is that the exams are harder since the common core was introduced. I know they have to curve some of the exams such as Algebra because it is so much harder vs. BITD.

  37. I think in part, you have to look at how much they will earn in a year. $400 is the threshold for paying social security and $10,400 is the threshold for needing to file a tax return. I would suggest my kids do it above board. SS starts counting your quarters.

  38. AustinMom, you just answered the question I had.
    Back when I was a teen, I did a lot of babysitting. I was always paid in cash. I did not even have a social security number until my senior year when I got my first “real” job with an actual employer.

  39. I didn’t even know one could study for the lab section of the Regents. I am sure my kids never did. However, my son studied a lot for the regular part of the chem Regents, which he took today, because he wants that grade boost.

  40. Do a lot of HS seniors largely look at their last set of Regents exams as pass/fail, since they already have their college plans set?

  41. ” $400 is the threshold for paying social security”

    If your kid is getting paid cash for services such as tutoring or babysitting, can the SS/Medicare taxes be paid via the 1040?

  42. Finn, I don’t know, but a lot of seniors do not even have to take a regents exam in their senior year. Many seniors will finish the required regents exams in grades 8 – 11. For example, I know I took the French regents at the end of my sophomore year. It was the only time that I had to take a regents exam in a language, but I studied French for two more years.

    Regents Exam Requirements

    Comprehensive English
    Mathematics (Any one)
    Global History
    US History
    Science (Any one)
    Language other than English

    Regents Diploma with Advanced Designation

    Comprehensive English
    Mathematics (All three)
    Global History
    US History
    Science (One physical and one life science)
    Language other than English

  43. We pay our nanny on the books (and agree with all the comments that it’s hard to find nannies willing to work on the books!), but I do pay her cash for any extra babysitting. The primary reason is that I don’t want to redo all the tax calculations and have to continuously update my payroll file… I spend several hours in December/January each year updating the file for current salary, bonus, and tax tables, and I just don’t have the bandwidth to track extra babysitting hours and the impact on our required tax withholdings from her paychecks. I try to rationalize that if we used other babysitters, we’d be paying them cash.

    If the government wants more household employers to pay ‘on the books’, they need to simplify the process. The amount of paperwork and hoops to jump through is ridiculous. Federal is manageable, but the state of CT seems determined to make things as hard as possible…

  44. The IRS has made it pretty clear that anyone who works in your home is almost impossible to classify as an independent contractor. Therefore, your kids who are babysitting will need to get their employers to withhold taxes too. This probably isn’t possible for your casual Saturday night babysitting gig.

    Somehow, It seems if we [we = upstanding americans, not necessarily totebaggers] are up in arms about all of those terrible nannies dodging taxes, well we are complacent about the gigantic tutoring and psychiatry underground.

  45. Also, I did a ton of babysitting in high school. Of course I never paid any taxes. I was not unaware, however. My brother was constantly calculating the whistleblower reward for turning me into the IRS. Unfortunately for him, it was never very substantial.

  46. seniors generally don’t take Regents, at least not at our HS. Maybe if they had failed one earlier?

  47. Mooshi, I thought you were referring to your DS1 taking the Regents exam today. I now assume you were referring to your DS2.

  48. According to someone I know, every psychiatry resident in NYC has an evening cash practice for 5-10 hours per week. $150-300/hr. It’s a decent supplement to the regular resident income.

  49. Ada, I never heard of that. It is true that most psychiatrists and psychologists do not take insurance, but we still can get partial reimbursement by submitting to the insurance company. If we paid off the books, that would not be possible. And the price you are quoting is not cheaper than the standard on the books price so why would someone do that?

  50. Interesting about the evening cash practice. It makes sense that they might try to do this, but I’ve never heard of this in NYC. It is true that many psychiatrists, psychologists and social workers around NY metro do not take insurance. I think that most people do submit bills though because insurance will usually pay a bit after a large deductible is met.

    The only reason I can think of someone wanting to do this off the books is because then there would be no record that they visited a mental health professional. I don’t care because I think it is mental “health”, but some people might still think there is a stigma and not want their corporate insurance policy to see this type of visit.

  51. Here experienced tutors approach $75 per hour. Some are higher more like $100-$120.
    If you can get two kids to attend the price comes down. It is a good source of additional income especially for teachers and professors.
    The evenings and weekends are busy but such is the case for all the people who run their own businesses that cater to kids like music, dance and sports.

  52. Louise, I thought that article was interesting too. Here’s a link for non-subscribers:

    Your flight attendant wishes you happy birthday. Is that cute or creepy?

    Airlines know a lot about you, from date of birth and home address to travel patterns, vacation preferences, beverage purchases and whether your last flight was good or bad. Now the latest generation of hand-held devices used by flight crews has an overhead bin full of information about each passenger.

  53. to the one with the humorous handles…

    I keep getting spam emails from Lark Wellness. Will you please make it stop?

  54. OMG, that’s hilarious. What is Lark Wellness?!?! Maybe it’s time for a handle change altogether since “Lark” is obviously triggering something.

  55. I have SO many ads when I look at the Totebag on my phone. It used to be better on my computer, but there are a ton of ads.

    Any advice? I try to never click on the ads, but it doesn’t seem to help.

  56. I also got the Lark Wellness email. At the time, I thought it was a coincidence.

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