The new year isn’t just the time to make new year’s resolutions. It’s also a great time to check in on the mundane but important financial issues within our employment agreement. Remember employers and nannies don’t have an HR person to provide important updates and make sure things are as they should be. It’s up to each employer and nanny to work together so both sides are informed and making the best financial decisions for their unique situation. Here’s a rundown of the top issues you should take the time to look at going into 2017.
Having health insurance coverage is important for everyone, especially nannies. Caring for kids means lots of kisses and hugs so nannies are exposed to more than their fair share of germs and illnesses. Add in the fact that most nanny employers don’t have a back-up caregiver readily available to cover sick days and it’s easy to see why it’s critical that a sick nanny can see a doctor and get medication when she needs to.
A survey I did of 545 nannies showed that 62% of full-time caregivers currently have health insurance and 22% of employers pay for all or a portion of the monthly premium. I’m hoping both those numbers go up in 2017.
As many of you know, nanny employers can offer health insurance as part of their benefits package and neither the parent nor the nanny pays taxes on those health insurance premium costs. Over the past several years, more and more many employers have chosen to offer this benefit and a new law has made it even easier to do so, especially for employers who employ more than 1 employee (e.g. a nanny and a housekeeper). The details are outlined in a new article by HomeWork Solutions. It says “Beginning on January 1, 2017, an employer with fewer than 50 full-time employees who does not offer a group insurance plan can reimburse employees’ for purchasing individual health insurance as if it were directly paying the premiums on a group health policy. This means that the the employee won’t have to pay taxes on the employer’s contribution, and the employer doesn’t owe payroll taxes on it, either. There are some conditions for this new benefit. For household employers the salient point is that the employer must make the reimbursement available on the same terms to all of their household employees. The law limits annual reimbursement to $4,950 for individual insurance (412.50 monthly), and $10,000 for a family plan ($833.33 monthly), amounts that are indexed for inflation.”
Let’s do some quick math. If a nanny’s health insurance premium is $300 a month, including it as a benefit means the family saves $30 each month on employer taxes (assuming the average tax cost of 10%), and the nanny saves $75 each month on employee taxes (assuming the nanny pays a combined 25% in Social Security / Medicare, federal and state income taxes) so the monthly cost drops down to $195 a month. That’s over $100 in savings each month! Nannies who are in a higher tax bracket will save even more.
So how does the payment part work? Does the family have to pay the insurance company directly or can they just cut a check to the nanny? Tom Breedlove of HomePay ends the mystery. “They (the family) can write a check to the insurance company OR reimburse the employee. In the event of an audit, paying the insurance company directly is more desirable because it’s easy to demonstrate that the money did not go to the employee. If they reimburse the employee, I would advise having the employee print out a copy of the bill/receipt each month so there’s a paper trail proving the money was going to insurance.”
If you’re an employer and not currently offering a health insurance benefit, this is the perfect time to consider adding it. Open enrollment for nannies to purchase health insurance ends January 31st, 2017. Until that date, anyone can sign up for a new policy. After that date, your nanny won’t be able to sign up unless she has a qualifying event like aging out of her parents’ policy or having a baby. Think you can’t afford to add to your benefit package? Many families offer the benefit in lieu of a raise. The nanny has a net gain (remember the math above!) but it doesn’t cost the family anything.
In many states, a nanny is legally entitled to the IRS mileage reimbursement rate for every mile she drives on the job when using her own car. And in all states, it’s a standard benefit of the industry. This reimbursement covers the full cost of operating the car including gas, regular maintenance, and repairs. The rate decreased from 54 cents a mile to 53.5 cents per mile beginning January 1st, 2017.
A survey showed that only 67% of full-time nannies and 30% of part-time nannies received mileage reimbursement. That means lots of nannies are absorbing the cost of driving their charges around and doing household errands. Using the new rate, a nanny who drives just 10 miles a day (easy to do when you’re going to and from school, Gymboree, play dates, or other outings like the zoo) is losing $107 a month or $1,284 a year in mileage reimbursement. Ouch.
If you don’t currently provide mileage reimbursement to your nanny, 2017 is the year to begin. Just like meals, classes, and other child-related expenses, transportation is an expense parents should take on when hiring a nanny.
Business Use Rider
When a nanny uses her own car for work, she needs a business use rider in addition to her personal car insurance policy. A rider ensures that if she’s in an accident while on duty, she’s covered. A business use rider in relatively low cost, usually less than $300 a year, and is generally paid for by the employer. Considering the employer is the most likely person to be sued in case of an uncovered accident, it’s a smart investment.
The time to figure out Workers’ Compensation is not when a nanny is hurt on the job. The time to figure it out is now. 62% of nannies said they didn’t know if their employers had a Workers’ Compensation or similar policy (e.g. private policy, home owner’s rider) in place to cover them in case of injury on the job. That means over half of caregivers are unsure about this important protection.
If you’re an employer and don’t have a current policy, put this on the top of your to do list. If you don’t provide adequate coverage for on the job injuries, chances are you’ll be paying your nanny’s medical bills and lost income directly if she slips on an icy driveway, trips over a toy, or falls victim to the many hazards of working in a private home. The cost of an insurance policy is much cheaper.
Adjust Your W-4
Nannies, if you want to have more or less taxes taken out each pay period now is the time to adjust your W-4 form. This is the information your employers or payroll company uses to determine your withholdings.
I discovered that 28% of part-time and 78% of full-time nannies had a retirement account. Bravo to those great planners! We all know we should be contributing to our retirement account each year but we often don’t do it. Retirement savings is one of the easiest things to put off because it’s not an immediate need like your car payment or rent. Unfortunately time passes faster than we’d like so if you don’t have a current retirement savings plan, 2017 is the perfect time to start. Unfortunately there aren’t any retirement accounts that allow household employers to offer tax-free matching contributions. Start one anyway! A Roth IRA is usually the best solution. You put in after-tax dollars and then it grows tax free.
Wishing all of you financial health in the new year!
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