Frankly, I would guess she is benefiting greatly from your willingness to pay off the books. I would tell her you will pay mileage per IRS for 200 miles a month max, but that you are going to change her pay back to being fully on the books. But I am mean, and hate hearing about tax dodging nannies.

If you don't want to do that, then I would work out the total amount she is getting from you now vs. fully taxed and 50 paid miles per week and present her with a choice:

Nanny, we have run some numbers, and are willing to let you choose what you prefer regarding your off-the-books pay and mileage money.

We can either continue to pay you $XXX per week gross with 25% untaxed and give you $10/week for gas, which would be $ZZZ/week total take home, or we can put your wages back on the books 100% and pay you IRS mileage rate for no more than 50 miles/week. That would give you $AAA weekly take home money.

What method would you prefer?

And I would also suggest you discuss a "petty cash" fund, limited to what you feel is reasonable for activities and meals out per month, and institute a receipt based reporting method.

IOW, if she takes out $30 for X, she returns the change and the receipts in order to get her petty cash replenished.

And FWIW, I have taken my NK out to eat less than 10 times in 4 years. We pack our lunches whenever possible.

Good luck!

I say stick to the IRS mileage rate + compensate her only for that. That is enough in my opinion.

Also, if she chooses to go other places or have lunch out w/her friends and family, then you shouldn't have to pay for the extra mileage incurred for that.

I would say you are only responsible for mileage costs to where YOU require her to go.

As for the $10 lunch expense, it sounds to me like your nanny is taking full advantage here.

When my old nanny used her car to bus kids, I had a chart (small table) hung on the fridge with frequent destinations (preschool, library, zoo, etc.) and an empty field for othe destinations. Nanny would put a chechmark of where they went (or wrote down destination), and I paid her IRS rates every 2 or 4 weeks depending on the frequency of rides. If nanny wanted to go our for lunch with kid in tow, well that was her decision and she NEVER wrote it down. When a nanny mentioned that her car needed repair, well, I did not feel bad about it or felt that I owed her anything, because by that one I probably paid her more than $1000 for mileage.

Currently I provide the car for my nanny. I think it works better, but it partially is because we are upto 3 now, and not all cars fit 3 car seats in back.

Probably cheaper to just add the nanny to your car insurance and have her drive your car for work purposes. I would do that, or reimburse only for the activities I instructed the nanny to drive to. We're in a very walkable neighborhood, so one or two driving outings a week would be plenty for our kids.

OP, does your nanny do this type of thing frequently? Bring up contract items after the fact or every few months? That can get frustrating.

At this point, you could switch to IRS mileage for all trips or all non-class/non-2 mile trips, pin the numbers based on Google Maps mileage, put in a $10 or so limit per week, and factor these additional costs into her total comp package going forward and any raises.

If you have another child you could run the numbers on having an extra car just for the kids, that the nanny could drive. This would eliminate the IRS mileage issue, which we all know at the highest tax-free rate of $0.57/mile, is extremely generous and a profit center for a nanny.

Your toddler doesn't "want" to do all those activities.
She does.

Have her arrange some at home or nearby playdates.
Toddlers don't need all those activities- just a little socialization. Isn't there a walkable park she can go to?
MB here

Just pay her $50 less per week and $50 more per week as IRS mileage.
Then you'll find out what she is really after. And it's not $2.50 per gallon gasoline to drive 10 extra miles a week while on the clock.

Of course you pay IRS rate, but you limit the amount of miles you will reimburse her for. Also, set up petty cash for her to use as she sees fit, but you obviously decide what that amount is.

I think you do have to reimburse her (or provide a nanny car, which is what we do), but you have control over where and how far they go. Also, why are they late to classes, which you are also paying for?

It sounds like your nanny may be bored with childcare. Driving eats up lots of time, and if she can get paid and see friends while doing it, then it's a win for her.

I would eliminate the cash compensation for mileage, and do IRS only. Tell her that you can afford a max of x miles a week, or preapprove where they go. Also, the IRS rate increased to 57.5c/mile for 2015.

I'm very surprised at how many parents who are implying that don't pay their nanny IRS mileage rates reimbursment. My employers offered this without a question. I can't imagine just receiving a gas stipend or less with how much driving I do and the wear and tear my car receives now!

We pay our full-time nanny on W-2s and were clear that driving the older child to/from pre-school is included in her basic duties and weekly salary.

If she wanted to carve-out her trips to the store, school, trips on school days off and charge us for miles it would be a retrade of her contract. If she was adamant, then we would re-write her contract entirely and she could add all the components up however she wished. But the budget and market stand.

Likewise, when we just needed an after school driver, we paid hourly but did not tack-on IRS mileage.

Why are you overthinking this so much. Pay her like a normal nanny, no extra fluff, no bonuses, no cash payments, no milage and if she doesn't like it hire one that does. Why are you letting her bend you over a barrel and have the upper hand? That is absurd.

Maybe she's been offered a better paying job.

We have given our nanny 4-7% rate raises for 2 years each now, and we pay $5/week cash for driving the toddler 5-10 miles week to nearby classes, the library, etc. as she and the toddler like to get out of the house.

In January she asked for a cash pay component of her pay. We thought about it, didn't ask questions and agreed. This was ~25% of her weekly comp and effectively another raise because it is unlikely to be taxed.

Today she asked for the IRS mileage rate "because summer is coming up and we will want to do lots of things each day." That's fun but we need a system that is fair, she named some places and they will be $5-10 a pop each day to drive to at $0.56/mile. At those numbers it is essentially another $50/week pay and now we will have to re-examine our budget and raise assumptions for next year.

At the same time, we've noticed they are frequently late for class, some trips are for her to have lunch with her friends/adult children, and other items we are usually lax with (coming 5-10 mins late, time off for appts, skipping downtown class fieldtrips, sometimes providing advances, not following diet or nap times (mainly do to driving or playdates, ironically), etc). We will have to google map the classes for mileage and other boondoggles to the mall, or the zoo, or far away parks or playdates. And approve where they go, I frankly don't think lunch at the mall is worth $10 in extra pay, that is more than my lunch!

Any better systems out there? Could we pay her car payment instead of the cash component, or maybe her monthly healthcare premiums?