Traditionally, an employee who is paid a “salary” instead of an hourly wage is an “exempt” employee under the Federal Fair Labor Standards Act (FLSA), meaning that this employee is not eligible for overtime pay required by that law. Nannies, housekeepers and most domestic employees who work in your home do not qualify as “exempt”, meaning you must pay those employees at least the prevailing federal minimum hourly wage rate and one and one-half times their normal hourly rate for all hours worked in one week over 40 hours.
So, can you legally pay your nanny a salary? The answer to that question is – maybe, kind of, and it depends on how you define the term “salary”.
You may not pay your nanny and most domestic employees a flat salaried rate for all hours worked in any given week if that flat compensation figure is not at least equal to the minimum prevailing hourly wage times the number of hours she worked that week (up to 40), plus one and one-half times that rate for all hours over 40. But parents who have a consistent 40+ hour work week, and want the convenience of paying their nanny a set “salary” figure each week, can calculate and base that “salary” on a specific agreed upon hourly rate. For example, if your nanny will work 9 hours each day for you, or a consistent 45-hour work week, both you and the nanny can agree to a set salary of, say, $950/week, by agreeing to pay her an hourly rate of $20. A pay rate of $20/hr. would pay your nanny $800 for the first 40 hours worked each week, plus $150 for the 5 additional hours she works each week above 40 at the rate of time and one-half (i.e., $30/hr x 5 hrs). As with any employment arrangement, it’s best to clearly outline in writing the terms of compensation so it can’t be questioned later on whether you were indeed paying an overtime rate for those extra 5 hours each week.
If your nanny will routinely work more than 40 hours a week for you, but the amount of her overtime hours will vary and not be the same each week, be sure to itemize for each week the rate and amount you are paying for all hours over 40. And by the way, NannyPay software includes a combined salary/hourly pay option that permits you to conveniently pay a set “salary” each week for the first 40 hours, and then calculate and add any number of overtime hours that week, all of which will be itemized on the pay stub NannyPay generates.
Whatever method you use, be sure to properly pay your nanny as required by law, and to properly document all her hours and payments. Although the expectation is that your family will always have a wonderful relationship with your nanny, the failure to be paid overtime properly is a common complaint filed with the Department of Labor by recently terminated or laid-off employees, and could lead to your family being faced with a very costly and unexpected bill for unpaid wages down the road.