Most corporate jobs include a defined structure for salary and benefits like health and life insurance, paid vacation and sick time, company stock options, 401K (with matching), and more.  Many businesses also have policies in place concerning annual bonuses to coincide with company (and employee) successes over the course of the year.

While a nanny is not a corporate employee, these benefits can make a substantial difference in their lives and their integration into the family unit.

While a nanny is not a corporate employee, these benefits can make a substantial difference in their lives and their integration into the family unit. Since your nanny will become an integral part of your household, and in many cases, a beloved member of the family, you will likely want to do all you can to ensure that your nanny feels appreciated.

While the potential for annual bonuses may not come up during the interview process when discussing pay and extras like expense reimbursement and vacation time, it’s something you should definitely consider, especially if you’re happy with the service your nanny provides.  Do you really need to offer your nanny bonuses?  Here are a few things to think about:

Do Bonuses Matter?

The answer is a resounding yes—bonuses absolutely matter.  In any job, a bonus is an indicator of performance, signifying that an employee has met or exceeded expectations.  While employees may not count on bonuses, they certainly appreciate them. This is not just because of the extra cash, but because the bonus shows that an employer recognizes their effort and resultant successes.

Your nanny should be a critical component of your daily family life and most nannies provide several valuable services.  Above and beyond caring for your children, which includes supervision, cooking meals, doing laundry, light housekeeping, and often chauffeuring, they also help to provide a loving and stable home.

In addition, many nannies are an integral part of an organized home.  They may provide some amount of personal assistant-type services, such as booking appointments, grocery shopping, and travel, just for example.  In many cases, their services go far beyond what is expected in the average office job. For these reasons, you should strongly consider a bonus to show your appreciation.

Why Offer Bonuses?

Your nanny is a professional, likely with significant education and experience in the field of childcare.  In most professional settings, bonuses are expected for outperformers and in the field of childcare, an annual bonus is fairly customary. 

Bonuses do more that just show you appreciate your nanny and respect his/her professionalism and performance.  They provide additional income that your nanny may rely on.  

In addition, high quality nannies are usually in competitive situations and may often be approached or recruited by others. If they feel appreciated and well compensated, you are more likely to be able to retain them over the long term.  A qualified nanny who loves your kids and is loved in return is an ideal situation worth attention and effort.

Reasonable Bonus Amount

A customary bonus for a nanny is generally one to two weeks of pay, but can go all the way up to 10% of salary. This can also be contributed as paid vacation, contributions to healthcare benefits, or educational expenses.  It’s a good idea to discuss possible options with your nanny to find out what he/she prefers.  

There are many factors affecting bonus amounts including:

Overall Performance: Performance should be the main factor in deciding if and how much to bonus your nanny.  If you are happy with your nanny, he/she is an eager and committed member of the family, then definitely show your appreciation in the amount you bonus. If he/she is not performing well in certain areas, that should be communicated. It is important that your nanny understands your perception of his/her performance, so there are no surprises when it comes to bonuses. 

Salary: Naturally, the amount of salary your nanny earns will affect the amount of his or her bonus as a percentage of pay or weeks of salary.  The more a nanny earns, the more their bonus, both from an actual dollar amount as well as a percentage of salary.

Time: A nanny who has been with a family longer should be bonused more than a newer nanny.  If you’ve managed to retain your nanny for a few years, consider increasing the annual bonus as a way to reward outstanding performance and reflect the appreciation and affection you feel for this essential member of your household.

Number of Children: The number of children in the household is a major factor.  If you have another child during the course of the year, this significantly increases your nanny’s duties. It will likely increase his or her salary, making an increased bonus appropriate.  You also need to consider the amount of time your nanny spends with the family.  A live-in nanny is often on call and may spend most of his/her time with the family, thus earning a larger bonus than a live-out nanny that is on a relatively set schedule.

Above and Beyond: Things like taking the kids for the weekend, or attending after hours events and celebrations, or introducing new techniques, doing research on specific challenges and helping the family in unexpected ways are all factors in considering a bonus. If a nanny travels with the family without charging overtime for extra babysitting at night, etc…, then it is worth considering when determining the total bonus amount. 

 A Note on Taxation

Any wages, including bonuses, are considered taxable income, even if you pay in cash.  This means you can and should include the amount in your own annual tax filing and you should advise your nanny to note it as income in his/her tax filing to avoid any trouble with the IRS.

Lest you think you can simply give your nanny a tax-free gift in lieu of a bonus, think again.  Because your nanny is your employee, any item of cash value is deemed compensation, and is therefore taxable.  If you wish to avoid taxation, you could choose to pay directly for schooling, medical expenses, health insurance, a cell phone, or other tax-free gifts instead of offering cash as a bonus, but considering your nanny may rely on that extra cash around the holidays, you may just want to add it to his/her final check each year, regardless of taxation.

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