The end of the year is quickly approaching. As the holidays draw near, it’s time to think about the people in your life who traditionally receive a holiday bonus. You are thinking about that, aren’t you? Of all the seasonal holiday tips and bonuses you distribute, there’s probably nobody more deserving than family employees such as your nanny. After all, they’re the unsung heros of your household.
If you haven’t been giving your nanny a bonus, we’ll explain why you should start and show you how. If a holiday bonus has been part of your end-of-year routine, we’ll let you know if you’ve been doing it properly. So read on as we cover the ins and outs of how to give a bonus.
To Give or Not to Give
Your nanny cares for your children and makes your life a lot easier. Your nanny is important in your life. So, unless you’re facing a financial hardship, you should consider giving your nanny a holiday bonus — it’s the right thing to do. A recent study showed that 9% of families didn’t reward their nannies at all at the end of the year.
Three Reasons to Give Your Nanny a Holiday Bonus
- A Bonus Says Thank You. Nannies provide an important and sometimes thankless job. They look after your kids, and, let’s face it, taking care of even the best, most well behaved children can be trying at times. Nannies also perform a range of tasks not listed in their job descriptions and they may have to adjust to last-minute schedule changes. A holiday bonus is a good way to thank your nanny for a job well done.
- Nannies Count on Bonuses as Part of Their Income. Many count on it to supplement their incomes. While a nanny shouldn’t necessarily expect a bonus, you should factor in an annual bonus as part of a nanny’s compensation.
- You Want to Keep Your Nanny. We’ll be frank here: Nannies that don’t get a bonus in an area where a holiday bonus is expected may take the lack of a bonus to start looking for another position. If you’re happy with your nanny, a bonus is one way to ensure they’ll stay.
When Not to Give a Bonus
If you’re planning on letting your nanny go because of poor performance or for personal reasons, it’s acceptable to skip a bonus. In this case, it would send the wrong signal and raise your nanny’s expectations.
What to Give
Now that you’ve decided to give a bonus, the question remains: what to give? There’s really only one answer to this question: cash. While it may not seem like a personal gift, a poll of nannies showed cash was their number one choice for an end-of-year gift. Their second choice was a gift card from a place where it could be used for multiple types of items, such as Amazon.com or American Express.
How Much to Give
If you’re planning on giving your nanny a bonus but are unsure how much to give, the short answer is to give at least one week’s salary. A number of variables may determine the appropriate amount of money to give, however.
- The Nanny’s Base Wages: Needless to say, the more a nanny earns, the higher their bonus should be. The standard amount is one to two weeks’ earnings.
- Geography: The amount of the bonus can vary depending on where you live: more in large cities and less in rural areas. When in doubt, you can ask other parents you know what they are giving their nannies.
- Scope of the Job: The rule here is the more demanding the job, the larger the bonus should be.
- Number of Years on the Job: Nannies who have been with a family for many years should get a larger bonus than those who have not.
- Your Financial Situation: If you’re watching your budget to make sure you can afford to pay your nanny a decent wage, they may be understanding if you can’t give a large sum as a bonus. On the other hand, if you’re spending extensively, your nanny will notice, and won’t be happy with a small amount. If at all possible, be consistent. A sudden drop in the end-of-year bonus may send a signal that you’re unhappy with your nanny’s work, which could damage your relationship. Try to factor the bonus into your annual budget to avoid being caught short at the end of the year.
What to Do if You’ve Had a Bad Year
If economic circumstances prevent you from being able to pay the standard bonus, the important thing is to explain this to your nanny, who will most likely understand. Instead of giving the payment all at once, you might try breaking it down into smaller amounts over a period of time.
If you can’t afford a bonus due to financial hardship, here are some suggestions for gifts you can give in lieu of cash:
- Spa services
- A gym membership
- Concert tickets or tickets to a show
- Frequent flier miles
- A tuition payment
- A timeshare week
- A gas card
- Help buying a computer
- Paid time off
If your nanny has developed a strong bond with your child, you may want to consider a personal gift, such as photo book, a scrapbook, or a keepsake such as a locket with your child’s photo that reflects their relationship.
Your nanny’s holiday bonus is considered to be taxable income, and you must pay taxes on it along with annual income. Since you’re an employer, your bonus doesn’t qualify as a gift. A full discussion on the tax issues surrounding nannies and bonuses is outside the scope of this article, so make sure you talk to a nanny tax expert to review the tax ramifications.
A Win-Win Situation
An appropriate cash bonus will let your nanny know they are appreciated. It’s a win-win situation. You’ll be letting them know how thankful you are for the fine job done, while at the same time, you’ll be giving them an incentive to continue working for your family.
Author: Kathleen Webb Co-founded HomeWork Solutions in 1993 to provide payroll and tax services to families employing household workers. Kathleen has extensive experience preparing ‘nanny tax’ payroll taxes. She is the author of numerous articles on this topic and has been featured in the Wall Street Journal, Kiplinger’s Personal Finance, and the Congressional Quarterly. She also consulted with Senate staffers in the drafting of the 1994 Nanny Tax Law.
Webb is a magna cum laude graduate of Boston College. She currently serves as Co-President of the International Nanny Association, the leading professional association in the in-home childcare industry.