The Cost of Hiring a Nanny – Budgeting and Expectations

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Families hiring a nanny should consider the extra costs involved. Some costs include full or partial health insurance, mileage or gas reimbursements for nanny-related transportation and parking expenses, cell phone bill reimbursement, and more.

Families may also want to offer paid holidays, paid vacation, and a retirement plan with pre-tax contributions.


In addition to paying a salary, families must consider other expenses associated with hiring a nanny. For example, many nannies require additional compensation for certifications like American Red Cross babysitting and CPR training, which cost money. Additionally, some nannies may expect to be paid for their meals on duty. Families who hire a live-in nanny should also consider the value of room and board. Depending on the location and quality of the living space, this could be a significant additional expense.

If you choose to use an agency to help find a nanny in London, be prepared to pay an agency fee, ranging from $600-$10,000, depending on the number of children and level of services required. In addition, you’ll need to cover the costs of background checks for current and past employment. Many agencies offer a background check service that is updated on an ongoing basis, while others charge a one-time fee.


Depending on the level of care you require, your nanny may need to have a variety of benefits. These can include:

Many families will offer to pay for the nanny’s health insurance, similar to what small businesses often do. This will cost you some of your payroll, but it’s important to present this option when negotiating with candidates, and it can also be attractive to potential nannies.

Other family-provided benefits include a cell phone bill allowance or reimbursement (if they use their phone for work), parking expenses, and mileage reimbursements. 

Some families will also cover the nanny’s car insurance and provide a vehicle for her to drive when running errands. In addition, some families will cover the nanny’s expenses for taking the kids to activities such as the zoo, museums, pools, or movies.

It’s a good idea to have comprehensive background checks on any nanny you hire. This will usually cost a couple of hundred dollars, including sex offender registry, criminal records, driving record, Social Security number verification, credit history, and professional licensing checks. If you are using an agency, they will likely perform these checks on all their candidates, saving you the cost and time of performing them yourself.


A nanny is an employee, so she must pay income tax on her earnings. You’ll also be required to withhold employment taxes for Social Security and Medicare (FICA) from your nanny’s paycheck. Including these costs in your budget is a good idea so you won’t be surprised later.

Other expenses to consider include the cost of a background check or nanny reference checks, any training your nanny has received (American Red Cross babysitting certification, CPR and early childhood education experience, for example), and any additional compensation you’re offering to compensate her for special skills, like infant care. You may need to provide a car for your nanny, or you can reimburse her for gas and tolls (if driving is a part of her job). If your nanny travels to other families’ homes for childcare, workers’ compensation insurance is an important requirement that can cost you a nominal fee annually.

If you’re hiring through an agency, you should expect to pay an agency fee, which covers the recruitment and screening process. In addition, some families hire a bookkeeper or accountant to manage the payroll and nanny taxes. You should also set aside money to cover any activity expenses your nanny incurs and to give her a cost-of-living raise or end-of-year bonus.


Once you’ve found a qualified candidate, creating a formal legal contract with clear expectations and compensation is important. You can hire a payroll company to assist you with creating this document for an additional fee, which Flanders notes is a good idea because it helps ensure “you’re doing everything you need to do legally employ this person.” For example, some states require workers’ compensation coverage for household employees; this can cost a few hundred dollars annually.

Your nanny will likely need to pass a background check, which can be costly depending on the checks’ scope. A full background check includes a criminal record search, driving record, professional licensing, and drug testing. An agency can handle these costs for you, saving you time in the hiring process.

Whether you decide to pay your nanny on the books or off, be prepared for the added expense of taxes. If you pay her more than $2,100 a year, you must withhold social security and Medicare taxes, which will cost about 10% of her wage. Additionally, you may incur additional expenses if you choose to make her eligible for your health insurance plan or retirement program. Fortunately, these benefits often provide significant tax savings for your family. Be sure to speak with your accountant about the specifics of each option.