Understanding Nanny Payroll, Overtime, PTO, and Holidays

Hiring a nanny means more than agreeing on an hourly rate. Because a nanny generally works in the family’s home under the family’s direction, the nanny is usually considered a household employee—not an independent contractor. Families must understand their responsibilities for payroll, overtime, paid time off, holidays, and accurate record keeping. This is not always fun, but it is crucial to being an excellent employer. 

While federal law establishes basic requirements, state and local employment laws may provide additional protections. Families should always confirm the rules that apply where the nanny works.

Nannies Are Usually W-2 Employees

A nanny is generally a household employee when the family controls what work is performed and how the work is completed. This remains true whether the nanny works full time or part time, is paid hourly or weekly, or was introduced through an agency.

A household employee should generally receive a Form W-2 rather than a Form 1099. Treating a nanny as an independent contractor simply because the family does not want to manage payroll can lead to unpaid taxes, penalties, interest, and corrected tax filings for you and your nanny. 

For 2026, a family that pays one household employee at least $3,000 in cash wages during the year generally must withhold and pay Social Security and Medicare taxes. The combined rate is 15.3%: 7.65% is the employee’s share and 7.65% is the employer’s share. Families may withhold the nanny’s portion from wages or choose to pay it themselves.

Families may also be responsible for federal and state unemployment taxes, workers’ compensation insurance, and other state payroll requirements. Federal income tax withholding is generally optional for household employees unless the nanny requests it, but state rules may differ.

A household payroll service can help calculate deductions, issue pay statements, prepare the W-2, and assist with Schedule H and state filings. Contact us at TLC and we can recommend a great company that can help with this part of the nanny experience. 

Overtime Is Based on the Workweek

Most live-out nannies are entitled to overtime pay when they work more than 40 hours in a seven-day workweek. The overtime rate must be at least 1½ times the nanny’s regular hourly rate.

For example:

A nanny earns $25 per hour and works 45 hours in one workweek.

• 40 regular hours × $25 = $1,000
• 5 overtime hours × $37.50 = $187.50
• Total gross pay = $1,187.50

Overtime cannot generally be averaged across two weeks. If the nanny works 45 hours one week and 35 hours the next, the nanny is still owed five hours of overtime for the first week.

Paying a fixed weekly salary does not automatically eliminate overtime. Families should identify the number of regular hours covered by the weekly compensation, calculate the regular hourly rate, and pay the appropriate overtime premium when more than 40 hours are worked.

Federal law does not automatically require extra pay merely because work occurs on a Saturday, Sunday, or holiday. The overtime requirement is generally triggered when total hours actually worked exceed 40 during the established workweek.

Live-in nanny overtime rules may be different under federal law, although state law may still require overtime. Families hiring a live-in nanny should obtain location-specific payroll guidance before establishing compensation.

What Counts as Paid Working Time?

A nanny must be paid for time when the nanny is required to remain on duty and be available to care for the children.

This includes periods when:

• The children are napping.
• The nanny is waiting during a child’s class or appointment.
• The nanny is traveling with the family while responsible for the children.
• The nanny has finished immediate tasks but must remain available.
• A parent arrives late and the nanny must continue providing care.

A nanny who is waiting for a child to wake up is still working, even if the nanny reads, eats lunch, or completes a quiet personal activity. Time may generally be unpaid only when the nanny is completely relieved of responsibility and free to use the time for personal purposes.

Guaranteed Hours

Guaranteed hours are a common and recommended nanny-industry practice, although they are not the same as overtime or a federal PTO requirement.

Under a guaranteed-hours arrangement, the nanny receives regular pay for an agreed-upon schedule as long as the nanny remains ready and available to work. If the family tells the nanny not to come because the parents are traveling, grandparents are visiting, or the family simply does not need care, the nanny is still paid.

For example, a nanny guaranteed 40 hours each week should normally receive 40 hours of pay when the family chooses not to use the nanny for part of that week. Guaranteed hours provide the nanny with dependable income while allowing the family to reserve the nanny’s regular availability.

The work agreement should explain:

• The number of guaranteed hours.
• The regular work schedule.
• What happens when the family cancels care.
• Whether hours can be shifted to different days.
• Whether unused hours can be carried forward.

Families should avoid “banking” unused hours from one week and requiring the nanny to work them during another week without additional pay. Each workweek should be calculated separately for wage and overtime purposes.

Paid Time Off

Federal law does not generally require private household employers to provide paid vacation, paid sick leave, or other paid personal time. These benefits are usually established through the employment agreement, although some states and cities require paid sick leave or other benefits.

A competitive nanny benefits package often includes:

• Paid sick or personal days.
• Paid holidays and paid vacation.
• Guaranteed hours.
• Mileage reimbursement when the nanny uses a personal vehicle for work.
• An annual compensation review.

The agreement should state how much PTO is provided, when it becomes available, how it is requested, and whether unused time carries over or is paid out when employment ends.

Families should also distinguish between the nanny’s vacation and the family’s vacation. If the family travels and the nanny remains available to work, that time is generally better handled under guaranteed hours rather than deducted from the nanny’s PTO.

A clear policy might provide two weeks of paid vacation based on the nanny’s regular schedule, with one week selected by the nanny and one week coordinated with the family. However, every family and nanny may structure the benefit differently.

Holidays and Holiday Pay

Federal law does not require private employers to provide holidays off, paid holidays, or premium holiday pay. Holiday benefits are generally determined by the agreement between the family and nanny.

The work agreement should list the exact paid holidays rather than using vague language such as “major holidays.” The agreement must also explain what happens if the nanny works on a designated holiday. Families may offer time-and-a-half, double pay, an alternate paid day off, or another agreed-upon benefit. Premium holiday pay is typically a contractual benefit, not an automatic federal requirement.

Paid holiday hours that are not actually worked generally do not count toward the 40 hours used to calculate federal overtime. For example, if a nanny receives eight paid holiday hours but physically works only 36 hours during the week, the nanny has not necessarily worked 44 hours for federal overtime purposes.

Keep Accurate Records

Household employers are responsible for maintaining records of hours worked and wages paid. Records should include the nanny’s identifying information, daily and weekly hours, weekly wages, and overtime compensation. Families may ask the nanny to submit a timesheet, but the employer remains responsible for making sure the records are accurate.

A written nanny work agreement should cover:

• Hourly rate and regular schedule.
• Payroll frequency and tax withholding.
• Guaranteed hours.
• Overtime procedures.
• PTO and sick leave.
• Paid holidays and holiday-work rates.
• Travel and overnight care.
• Mileage and expense reimbursement.
• Raises, reviews, and termination procedures.

Clear agreements protect both the family and the nanny. They prevent misunderstandings, support professional employment practices, and allow everyone to focus on what matters most: providing dependable, high-quality care for the children. This is a great deal of information, a lot to process. But we are committed to helping you succeed. Give us a call and we can offer help!

This article provides general U.S. information and is not legal or tax advice. State and local wage, leave, payroll, workers’ compensation, and domestic-worker laws may impose additional requirements.