Why is my nanny an hourly employee? I want to pay her a salary and not worry about tracking hours each week.
Nannies and other 'domestic service employees' are classified under the Fair Labor Standards Act (FLSA) as non-exempt workers. The term non-exempt employee refers to a worker who IS subject to the terms of the FLSA regarding such issues as overtime compensation and minimum wage coverage, contemporaneous time tracking recordkeeping, as well as how frequently the worker must be paid. In simple terms, the household employee is required to be paid an hourly wage and is entitled to overtime pay per the provisions of the FLSA. When your household employee receives a "salary" that covers a work week of more than 40 hours, your employment agreement must explicitly state the regular and overtime rates of pay. See our exclusive Hourly Rate Calculator for help.
It is important to note that the FLSA specifically calls out domestic employment (housekeepers, maids, nannies, etc.) in the statue as non-exempt employees, covered by the rules and protections of the FLSA. This is not a grey area, subject to individual interpretation.
Exempt employees are paid a salary and exempted from these FLSA rules. Typically, only executive, supervisory, professional or outside sales positions are classified as exempt employment. Exempt employment will also include highly skilled computer-related employees and licensed professionals, such as doctors, lawyers, architects, engineers and certified public accountants. Many nanny employers are professional workers, are exempt from FLSA protections, and unintentionally try to craft compensation for their nanny in the same manner that they are compensated.
Employers often believe, incorrectly, that the act of paying a salary makes the employee exempt from overtime rules. However, just as applying the labels "employee" or "independent contractor" in a work agreement doesn't determine a worker's actual status in the eyes of the IRS or the law, the same is true for exempt and non-exempt employees in the eyes of the Department of Labor. The FLSA legislation was designed to cover, and protect, as many workers as possible and there is no doubt that nannies are covered under the act.
The Department of Labor is vigorous about protecting workers' rights under the FLSA. The DOL has, for example, created and published free smart phone apps to help workers independently track the days and hours they work, helping them create their own time and attendance records. Using GPS technology, the records created by these apps are strong evidence when filing a wage and hour claim. New York household workers have a toll free hotline they can consult when they feel they have a grievance over unpaid hours or overtime. These workers are assisted in filing wage and hour complaints. 75% of these complaints settle for cash payments that in 2012 ranged from $5000 - $100,000 - payments the household employer must make to the employee. Wage and hour complaints are also a powerful payroll tax enforcement tool used by state governments to collect unpaid unemployment taxes. Twelve states, including California, New Jersey, New York and Virginia have formal information sharing agreements with the Internal Revenue Service to facilitate collection by the federal government of unpaid Social Security and Medicare taxes.
Why does this matter? There have been many high profile wage disputes involving nannies and failure to make overtime payments and/or to maintain accurate time tracking records. Nannies in these disuptes have been awarded large sums of back pay - simply because the employer failed to correctly classify and compensate the nanny in the first place. Google "Daniel Snyder Nanny Overtime" for a real life example.