“Always negotiate based on gross, not net, pay”
This reminder from California attorney Bob King at www.legallynanny.com:
“If you’re a family hiring someone in your home, always negotiate based on gross, not net, pay. Net pay agreements make it more difficult to calculate overtime and could allow the employee to overwithhold taxes at your expense. You can always determine the net pay, but any agreement should be based on gross hourly wages.”
Why is this important? Household staff are considered “employees” by the IRS (see IRS Publication 924) and as employer you have important tax & withholding obligations. As a result, the total amount that you spend in wages (the “gross” wages) will be greater than the net amount that your employee takes home (their “net” pay). Simple enough, but your employee is likely to think about his or her compensation in terms of what they actually get in their pocket, not the total that you as employer are spending. As employer, you are not in control of their tax situation (how many dependents? how many deductions? credits? filing single or jointly? etc), so there is no reliable way for you to calculate the “gross” amount that you would have to pay for your employee to achieve the “net” take-home that they are seeking.
It can be a difficult concept to navigate with the person that you are trying to hire into your home, but future problems – and expenses – are most likely going to be avoided if you leave your employee to handle their own tax situation and focus solely on negotiating the thing you can control, namely their “gross” wages.