I think your best bet at this point is to sit down with her and discuss how much she is making GROSS, and how much of that comes out of YOUR pocket. Then offer to either start paying her in GROSS dollars minus taxes and base her raise on that, or offer her a MUCH smaller raise if she wants to keep being paid NET.

IOW, if she wants to begin being paid her GROSS wage minus taxes, she gets a typical $1/hour raise, or if she chooses to keep being paid NET, her raise will be .25/hour.

Do the math with your accountant so that you only offer as much as you can afford in either case. And be prepared for her to choose to leave rather than have her pay reflect reality. Then, NEVER offer to pay another nanny's tax burden for her. ALWAYS discuss pay based on gross wages.

Thanks, 15:14. Yes that makes sense. If my math is right and we change how we calculate this, she'll basically net an extra 400/month and her end of year windfall (refund) may go down. I'm comfortable with that because this end of year big refund was never part of the deal or came up (because we weren't thinking about it) so if she really gets upset about that, I'm willing to say its out of my hands if she is unhappy and wants to leave over it. I'd hope that she would be grateful she had a good thing going for that long and be ok with everything else she gets. Especially since she will still likely get a refund though, just smaller.
Thank you though. Very helpful perspective. I'm just feeling stupid I wasn't more on top of this sooner! Hope it all works.

PP here, sorry OP didn't see your updated response. That changes my original opinion.

I think you should give $1.50 at the least. I say this because she's not only been commited to your children for three years, but will be taking on an infant. Let her no that $1 extra an hour is for your new child, an the extra 50 cents (or whatever you give her) is an appreciation raise. I'm surprised she hasn't gotten a raise in three years, which is why I think a little bit extra, if possible, would be generous. It's entirely up to you. Look at her pros and what she has offered you. Is she an asset? Could you see yourself losing her if a better paying job comes along? If she knows she's appreciated she will be happier with her job.

15:14 again. Like I said, I don't know her, so I hate to be too cynical. But to answer your question, she is taxed on her gross income, not the net. If she adjusts her withholding while maintaining the same net, her gross income will go down, so that your raise doesn't push her into the next bracket. She will take home more, but her refund will be less. Obviously, check with your accountant, but that's how I interpret what you are saying. If she's right up against the next tax bracket, but this adjustment keeps her out of out, it's a reasonable assumption that the loss of this refund will be close to a wash with her raise.

Not sure I understand, 15:14. Her yearly tax "windfall" shouldn't be changing unless I am missing something.
To your other points, I'm not feeling great now that I realize how much she is getting at the end of the year (the windfall) but we did negotiate this deal with her and it is within our (initial) budget and we are thrilled with her job performance so it doesn't seem worth it to upset the arrangement.
Good food for thought though. We were so new when we started this we just didn't think it all through. And her salary is what we planned to pay someone so it didn't seem to be a problem until (potentially) now.

Not to be cynical, but just wanted to point out that if she is at all financially savvy, she's going to realize that her yearly tax windfall is going away, so she's not really getting much of a raise at all.

OP knows her nanny best, but, from what you've said, if she has been yearly getting a large refund from this deal, that would leave a really bad taste in my mouth. I don't think net agreements are a good idea, but, as the employer, I would hope you would step up if she owed taxes. As an employee, she should at the least correct overwithholding as soon as she sees it happening (if not return the refund to you outright if she is being very honest)

Thanks, that is really nice. She is just great and we are also totally at her mercy! We both have incredibly stressful jobs and she pretty much is the glue that keeps us together, which is why we totally overextend these few early years to pay her and cut back elsewhere, like long term savings. Not sure if thats thoughtful or really stupid!

Anonymous wrote:Thanks everyone. We talked to our accountant again today and it seems like there is a way to rework the structure that we raise her gross salary by $2 and she changes her allowances and we can arrive at something where she gets a bump and we don't feel the pain too much.

You sound like a great MB for trying to make it work. If only all families were as thoughtful as you are- there wouldn't be so many spiteful nannies blasting their negativity on here.

Thanks everyone. We talked to our accountant again today and it seems like there is a way to rework the structure that we raise her gross salary by $2 and she changes her allowances and we can arrive at something where she gets a bump and we don't feel the pain too much.

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:I have always gotten a $1.00 to $1.50 raise when a new baby comes along. I think $16.50 is fair.

OP is talking net, not gross

Well I was paid under the table so it didn't matter.

It does matter. $15/hour under the table means you net $15 and its cost your employers $15. Paying legally, and your nanny netting $15/hour means it costs the employers closer to $18-$19/hour. OP I think your nanny is being paid very well for 2 children at her current rate, but unfortunately this is the rate you negotiated and after 3 years she certainly is due for a raise. I would suggest increasing her benefits in lieu of a monetary raise. Most nannies share part of their vacation with their employer, perhaps if this is what you do, you could offer to give her control over the full amount of her vacation.

Anonymous wrote:

Anonymous wrote:I have always gotten a $1.00 to $1.50 raise when a new baby comes along. I think $16.50 is fair.

OP is talking net, not gross

Well I was paid under the table so it didn't matter.