What Does a Nanny Really Cost in NYC?– A Dual Perspective Guide for Families and Caregivers with receipts ;)
What does a nanny cost in NYC? The most infamous of all childcare questions that has one of the most complicated answers….
Historically, in the domestic work sector, including nannies and babysitters, compensation discussions have predominantly centered around “take-home pay,” largely influenced by the industry's exclusion from many labor protections and a traditional focus on net earnings. This perspective has often overshadowed the nuances of hourly wages, guaranteed hours, and the full spectrum of employment costs, leading to a lag in the overall understanding of how pay is structured in this industry. However, with the evolving recognition of caregivers as professionals, there's a significant and necessary shift towards discussing gross pay. This transition is vital for accurately reflecting the true value of a caregiver's work. In an industry mandated to provide hourly pay and guaranteed hours, comprehending the dynamics between gross pay and take-home pay becomes crucial, especially for caregivers targeting specific financial goals and budgets. Furthermore, this shift underscores the need to delve into the often-overlooked aspect of the total cost to employers, highlighting a more holistic approach to compensation in the caregiving profession. To aid in this transition, we will include practical tips on how to optimize pre-tax money for healthcare and other benefits. These strategies are key in offering competitive positions that stand out from under-the-table dealings, ensuring both compliance and attractiveness in the caregiving job market.
Defining Key Terms
Gross Pay: The total earnings before any deductions.
Take-Home Pay: The net amount received after deductions such as taxes and withholdings.
Total Cost to Employers: This encompasses all expenses related to employing a nanny, including gross pay, employer's tax contributions (FICA, FUTA, SUTA), workers' compensation insurance, and other potential costs like health insurance, paid time off, and bonuses.
Gross Pay Vs. Take-Home Pay — A Nanny's Perspective on Earning $35/hr
Understanding the difference between gross pay and take-home pay is essential for caregivers aiming for specific earning goals and budgets. Many Nannies in Brooklyn and Manhattan are seeking higher than average hourly pay to account for recent inflation. As an agency owner, I have witnessed the average hourly rate increase from $25/hour in 2019 to between $30-$35 in the last two years.
What a nanny “takes home” depends on the their filing status, number of dependents, and tax credits. A Nanny who files as “Single” with no dependents might be taxed closer to an effective tax rate of 22%, while a Nanny who files “Married” with four dependents will be taxed approximately at 20.5%. Therefore the “take-home pay” for a nanny making $35/hour could be anywhere between $24-$28/hour. If this feels low to you as a nanny, take into account that this number does not include overtime at 1.5x your hourly rate! If you are scheduled for 50 hours a week, the extra 10 hours of overtime will “net” you approximately $27,000 dollars a year! This of course will change the rate that you are taxed but it could result in an average of $2-4/hour extra.
As a nanny , it is extremely important to consult a tax professional before filling out your W4 form. Filing incorrectly or not claiming available tax credits could drastically effect your “net” or “take-home pay”. If you think you have made an error already, do not fret! You can always ask your employer to amend your w4.
The Employer’s Perspective: What is The Out of Pocket Cost.
Employers must account for additional expenses beyond the nanny's gross pay. For instance, hiring a nanny at $35/hour involves not just the hourly wage but also contributions for FICA, FUTA, SUTA, and possibly workers' compensation insurance.
Detailed Breakdown of Employer Costs
For a nanny making $35/hour:
FICA Taxes: 7.65% of $35 = $2.68/hour.
Federal Unemployment Tax (FUTA): 0.6% on the first $7,000 of earnings per year.
State Unemployment Tax (SUTA): Approximately 2% of $35 = $0.70/hour.
Workers' Compensation Insurance: Estimated at 1.5% of gross pay = $0.53/hour.
Adding these to the gross pay gives a more accurate picture of the Total Cost to Employers. The total additional annual costs for the employer, including FICA, FUTA, SUTA, and Workers' Compensation Insurance, amount to approximately $8,159.20. When added to the base salary of $72,800.00 The employer can budget for an approximate cost of $39/hour not including any overtime or annual bonuses paid to the nanny.
But wait! Our Budget is $35/hour total cost! How can we compete with these cash paying families?!
As a family looking to hire a nanny in NYC, competing with cash offers can be challenging, especially when working within a strict budget. Here’s how you can strategically structure your offer to be both competitive and compliant, with a total cost of $35/hour.
Calculating Gross Pay for $35/hour Total Cost:
To make a compelling offer within your budget, consider the gross pay, additional employer costs, and the value of healthcare benefits.
Total Employer Budget: Your budget is $35/hour.
Healthcare Benefit Value: Let's say you offer healthcare benefits valued at $2.50/hour. This is a significant addition as it’s a tax-free benefit.
Remaining Budget for Gross Pay and Employer Costs: After deducting the healthcare benefit, you have $32.50/hour ($35 - $2.50) to cover the gross pay and other employer costs.
Estimate of Additional Employer Costs: Assuming these (FICA, FUTA, SUTA, and Workers' Compensation) total about 10% of gross pay, calculate the gross pay that fits this budget.
Solving for Gross Pay:
If X represents the gross pay, the equation accounting for additional costs becomes X + 0.10X = $32.50.
Solving this, 1.10X = $32.50, we find X = $32.50 / 1.10, which equals approximately $29.55/hour.
By offering a gross pay of around $29.55/hour plus healthcare benefits valued at $2.50/hour, you can keep the total cost at $35/hour. This package is not only financially competitive but also includes the added security and benefits of legal employment.
Highlighting the advantages of legal employment — such as eligibility for unemployment, workers’ compensation, and contribution to Social Security and Medicare — can further emphasize the value of your offer compared to under-the-table cash deals.
ATTN** Disclaimer: Please note that the information provided in this article, including the calculations and examples, is based on data obtained from NYC tax calculators and is intended for general informational purposes. I am not a tax professional, and these figures are estimates meant to provide a basic understanding of nanny pay and costs in New York City.
Tax laws and financial circumstances can vary greatly, so I strongly recommend consulting with a professional tax advisor or accountant for personalized advice and accurate calculations. For those seeking a reliable and efficient way to manage nanny payroll and taxes, I personally recommend GTM Payroll Services. GTM offers expert solutions tailored to the unique needs of household employment, ensuring compliance, ease, and peace of mind. Reach out directly from bman and have your set up fee waived!
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