Using an Agency vs. Independent Caregiver

Hiring Household Employees: Caregiving Agency vs. Independent Caregiver

Life has gotten busy, and you’ve determined that your household could really use another set of hands. Whether you’re searching for a nanny, elder caregiver, maid, gardener, or another household employee, there are a couple of ways to go about it. Not sure if you should use an agency to provide additional help or hire somebody directly on your own? Here are some things to think about. 

Using an Agency

Pros:

You’ll save time.  Using an agency will take care of the hiring process for you. Finding a household employee, getting references, performing a background check, and checking out certifications is a time-consuming process.  

You’ll have backup. If your household employee calls out, needs time off, or ends up leaving, an agency will have other employees they can send you as a replacement. 

The agency handles the nanny’s taxes. Because the agency is the nanny’s employer and not you, the agency – not you – generally is responsible for handling the nanny’s payroll and employment taxes.

Cons:

You’ll have limited input into the caregiver you are sent.  Using an agency, as opposed to hiring a nanny directly, removes you from some of the burden of the hiring process, but also limits your ability to determine if the nanny or caregiver is a good match for your family.  

You may not receive the same employee every day.  Frequent changes by the agency in the caregivers you are sent can cause stress for families, especially those with children and those with Alzheimer’s . 

Limited flexibility.  Employees working for an agency often set their own hours, and sometimes they may not align with what you need.  Moreover, the caregiver’s loyalty may not be to the family but to the agency.

It’s expensive.  Although the agency may handle the payroll and nanny taxes, an agency is going to tack on hefty fees on top of the employee’s salary, which will add up quickly. 

Hiring a Nanny Independently

Pros:

You’re in control.  Hiring a nanny or other household employee directly keeps you in control of the process and of the person who comes into your home.  By finding, interviewing, and hiring the nanny directly, you ensure the nanny or other caregiver is a good match for your family and will have your best interests in mind.  Moreover, you maintain the exclusive ability, as the nanny’s direct employer, to set the employee’s schedule and duties.   

More stability. By hiring a nanny or eldercare giver directly, you have the opportunity to develop a long lasting relationship with the people who will be in your home day in and day out. This is especially important if you are hiring a caregiver who will be spending time with your children or other loved ones.  

More flexibility. If you have a schedule that’s always changing, you’ll need someone who can work around it. 

You’ll save money! By hiring a nanny or other household employee directly, your employee’s salary will be determined by you, without a profit markup that an agency will impose. 

Cons:

Time-consuming process. You’ll need to take the time to find the right employee, conduct interviews, gather references, and perform background checks. For information on how to conduct your own background search please visit our recent blog.  Nevertheless, because this person will be coming into your home, the time spent in finding a trustworthy, competent household employee is a top priority and well worth the time spent.

Find your own backup. A situation may arise where your employee can’t make it to work, and you’ll need to find someone on your own to fill in. On the other hand, if your schedule is flexible enough at your own job, many families’ backup plans simply involve having one parent stay at home that day.

Paying wages and the “Nanny Tax”. You will be considered an employer and will need to pay your nanny yourself, including paying the nanny taxes and other employment contributions that may be imposed by your state government. 

For example, if you independently hired your household employee you will need to pay the federal “Nanny Tax” if paying over $2,700* a year in wages to any one person. This also applies to an employee you found through an agency, but whom you pay directly (if the agency is paying the employee’s salary the agency will be responsible for the “Nanny Tax”). 

How to Pay the Nanny Tax

Although first-time household employers may think that the nanny tax laws are too complicated and hiring a nanny yourself too time-consuming, neither is true and affordable help is available. NannyPay is a DIY payroll software that will help keep you legal and save you time and money. At just $199.95 per year (for up to 3 employees), NannyPay calculates the appropriate withholding taxes for you and generates a detailed pay stub.  At no additional cost, NannyPay will even generate year-end IRS Forms W2/W3 and a Schedule H, which is the form most household employees must file to report and pay their federal employment taxes each year.  

NannyPay provides domestic employers with a more cost-effective alternative to expensive agencies or other household payroll services AND is available for both Windows and Mac computers.  A free, fully-functional 30-day trial is available.

*Updated February, 2024