The Nanny Tax Blueprint for Agencies featuring HomePay’s Kelsey Wesley

Danny (00:45)
Hey Kelsey, thanks so much for joining us on this show. Thanks for coming.

Kelsey Wesley (00:49)
Thank you, thank you so much for having me.

Danny (00:52)
Yeah, it’s totally my pleasure. Could you just dive in and tell me a little bit about your background and how you got to where you are at HomePay?

Kelsey Wesley (00:59)
Sure. My name is Kelsey. I’ve been with HomePay for nine years. I my anniversary is in like four days. So it’s almost exactly nine years.

Danny (01:07)
No,

happy anniversary almost.

Kelsey Wesley (01:11)
Thank you. Thank you.

Yeah, it’s been a journey. I’ve, I started when I was still in school, so finishing college at Texas State University. And I’ve just kind of moved around with different roles at HomePay. I was an administrative role, an operations role on the sales team for several years, and then now found my home on the partnerships team. And I’ve been here for about three years now.

Danny (01:35)
Wow, what do you do specifically in partnerships?

Kelsey Wesley (01:38)
So I work with, kind of there’s like two branches. So we have our partners, our nanny agency and senior care agency partners, where we work directly with them who ⁓ refer their clients over to us. And then we help them get any kind of household employees set up on payroll and work with clients directly. And then there’s another bucket where we work with our accounting and financial advisor partners. Same thing, just as their clients with getting payroll set up. So I kind of do a little bit of

both. I a little bit more of my focus has been on the accounting side. Alyssa, who I work very closely with, works with a lot of our agency partners, but we still work very closely together. So that’s kind of my role is managing both sides.

Danny (02:23)
Tell me more about what is HomePay?

Kelsey Wesley (02:26)
Yeah, so HomePay is a tax and payroll service that exclusively works with household employers. So if you hire a nanny, a senior caregiver, even a private housekeeper, anyone that was working in your home, we support their payroll and then we make sure that families are compliant with all the different taxes that are required.

So some people don’t realize you know when they have somebody in their home, They think sometimes of just a babysitter and you know babysitters back in the day, you know, you give them, you know I’m learning much at the end of the day and then that’s it. You don’t necessarily think about you know I’m an employer now and I need to do taxes and that’s true, you know, perhaps if it’s just a one-time sitter, you know, you’re paying, know, usually just know hundred bucks Maybe at the end of the night and that’s it. But when you’re hiring somebody that has a recurring

schedule where they’re coming back to the home on a regular basis.

more than likely you’re kind of crossing the different tax thresholds to where you are really an employer and you have to get the wages reported. So our system assists with that. But we exclusively work with household employers and we’ve been in business since 92. So definitely ⁓ are the industry kind of experts in this and really make it easy for families to make sure that they’re paying legally but also that it’s still really easy for them to do so.

Danny (03:47)
is there anything to be worried about? Or like, what kind of is the sell to this?

Kelsey Wesley (03:52)
sure. I feel like the worst part is just the fear of the unknown, right? Like I think families think

You know, it’s complicated. You know, I’ve never been an employer before. I have no idea where to start. And it’s super, super common. You know, most people, you know, are usually like, let’s say in the childcare space, if we just look at that, are, you know, a lot of times first time parents, they’re having to navigate, you know, the ins and outs of just having a child in the home for the first time, let alone having to figure out this next piece of being an employer, right? So I think it’s mostly fear of the unknown. And

just not having a lot of time and thinking that it’s going to be a big to do to kind of get things in place and not knowing where to turn, especially if you’re not working with an agency, right? If you’re just trying to kind of hire on your own, there’s not a guidebook necessarily out there. There’s so many resources. And now, you know, with AI and all the things like they try to make it easier, but it’s just information overload. So the great thing is that you are working with an agency.

Agencies have resources to point their families in the right direction of saying, this is required. Here’s some easy solutions to get it taken care of for you. And then once we’re able to connect with families and give them a consultation and explain that, yes, these are all the things that are required, but assure them that

here’s your portion of how you have to handle that. Let us handle the rest. It’s usually a huge sigh of relief for families and they’re willing to then go forward to make sure that you know, they are on the up and up with their caregiver. And then we can kind of go over you know, what the benefits are because there are benefits of paying on the books, right? Obviously, you know, compliance wise, you’re paying above board. That’s always great. but just you know, different tax breaks that are available for families to offset, you know,

this additional expense or even a benefit through your employer. can usually take dependent care FSA that again offsets some of this additional cost. And then of course for the nanny or for the household employee, there are benefits of just having pay stubs as proof of income and W-2s. When you go to get an apartment or a car or any loan, you have to have proof of income.

⁓ And this would you getting paid on the books will get you all that kind of documentation and then of course there’s other things about you know being able to qualify for potentially unemployment if you were ever to be let go for no fault of your own if your state has any like paid leave benefits as you’re able to qualify for Just overall having those social security Medicare benefits. So definitely benefits on both sides. And again, it’s just more of

getting the information to the family in a digestible manner. And I think that really is like the first step in both sides of making sure that you’re.

Danny (06:46)
how do even pitch this to a

Kelsey Wesley (06:48)
I think that the transparency is key and making sure that when we’re talking about coming up with budget and coming up with the nanny’s salary or hourly rate, that the family is factoring in this additional cost. So explaining that when you hire somebody and you pay them over the, usually just kind of touch on the federal threshold. So if look at that, if you pay somebody over $2,800 within the calendar year,

and we’re talking for 25, it usually goes up a little bit each year. We’re looking for 25. If you cross a $2,800 over the whole course of the whole year, then you are required to report the wages. So obviously with an agency, even if someone’s working part-time, you’re gonna cross that threshold pretty fast. So explaining to family is that you are required to report their taxes and we have a partner that we can recommend to you that makes that process super simple. But on a high level, just

you know, kind of bullet points, you do want to factor it’s about 10 % is what that additional cost is going to be for you as an employer on top of what you’re going to be paying your employee. So that’s kind of like the magic number to kind of set into families minds when they’re coming up with budget, because that way they know, you know, if I’m going to pay my nanny $30 an hour, I really need to mentally think 33 if I’m tacking on that 10%, right?

Plus, then if they’re going to be working with a payroll service like HomePay or others out there, they’ll need to factor in that additional cost. And then if there’s additional costs like workers’ compensation, which is required in almost all states, not all though, obviously highly recommended, that would kind of be the additional cost. letting families know that this is a requirement, there will be additional things you need to budget for and just setting that expectation as

early as possible in the hiring process and then that way you have that transparency throughout and then it doesn’t come as a surprise at the end and jeopardize the placement.

Danny (08:51)
Yeah, that’s fantastic.

if anyone is not doing taxes totally on their own, like that’s probably the way to go is like a service is probably what you need, right?

Kelsey Wesley (09:02)
I believe so. So, I mean, I’ve worked here, like I said, I worked here for nine years. I know more than the average person when it comes to household taxes. I wouldn’t touch it myself. I would 100 % go on payroll. Just because it’s not my area of expertise, there are deadlines that you have to meet in order to avoid penalties. And you just don’t wanna mess with it. You you pay, let’s, you

What is it 20 bucks for Netflix now you pay $75 for your phone like there are additional costs that we don’t think about right like and it’s a no brainer of course I’m gonna have a phone payment 75 bucks a month or you know, whatever it might be. And so to me to have peace of mind to pay for a service where I don’t have to deal with that the liabilities on the service to make sure that they take care of what’s required for me to me is a no brainer. And especially if it’s something that you’re doing you know, like you said if it’s not

what you normally do on a day to day. Definitely recommend it at least at first maybe do it for a quarter to maybe do it for the first year and then at that point, if you feel like you know you are could take over the filings yourself, at least you’re in a better position to do so if you ever wanted to do it on your own. But usually by the end of that quarter year, you know you understand the value of a payroll service and what they bring and it’s usually something that families keep however long they end up needing care.

Danny (10:26)
like all of the things that a family has to do, whether it’s elder care or childcare, just now a lot on your plate because you are officially an employer. So doing this, the maybe the least fun part, unless you love doing accounting.

Kelsey Wesley (10:31)
Mm-hmm. Right. Right.

And who does?

Danny (10:42)
Like this is, yeah, you just try to take this off your plate.

Kelsey Wesley (10:42)
Let’s be honest. Right.

Danny (10:46)
You said something really interesting about the budgeting process. And now I’m thinking at what point should I loop you in about like, hey, I’m thinking about getting a nanny or I’m very close to the hiring process or I want to make them an offer. Like what point should I be like thinking about like, oh, I should contact one of these services like HomePay.

Kelsey Wesley (10:52)
huh.

Danny (11:10)
to walk me through what it’s actually gonna look like in the end.

Kelsey Wesley (11:13)
Right. I mean, we have clients that either are coming to us directly or being referred over from agencies really at all stages. Ideally, I personally think it’s best to be as upstream in the process as possible just to get looped in to know, you know, what the basic requirements are, again, what are the things to budget for and then that way it’s just something to keep in the back of your mind as you move through the hiring process. And then you have more of that

full-blown consultation of actually crunching the numbers and talking through how the service works and kind of what to prepare for once everything is up and running, once you are getting ready to officially make that offer. And then that way, we can kind of feed in different things to be thinking of. For example, we’re coming up in, we’re mid-October now on open enrollment is coming up in November.

So if you were to have a conversation early on and just know that I’m hiring a nanny, not even until next year, not even until January. But if I know that I’m hiring now and I communicate that to an agency if I’m working with one, or if I contact a payroll service knowing I’m hiring a nanny later, it’s great to know that I can sign up for the dependent care FSA through open enrollment now to prepare me.

to have that ready for me to use that next year. So it’s never too early in my opinion, if you know you’ll be hiring, just get as much information as you can upfront, you might not need it all now. And we can certainly revisit it once you get further along in the process. So that’s what I recommend. But definitely have had conversations where they’ve already made the hire, they start dates going to be on Monday, and they have no clue about taxes, and we’re talking about it, you know, within the 11th hour, and that’s completely fine.

Turnaround time for payroll is usually pretty quick. We can get things up and running, but it’s just a matter of the family being able to digest the information, have the budget for these additional expenses, and then be good to go for start date.

Danny (13:13)
So what I’m kind of hearing is this should just be part of that learning process where you’re reaching out to people in

This is also just one of those stops in that journey.

Kelsey Wesley (13:23)
Right, exactly. So again, we keep talking about childcare, but for childcare, I know that I am going to be needing care. And I know that I’m to go the private employment route versus a daycare. Obviously, if you’re going with daycare, we probably don’t have to have conversation with you. But if you’re leaning towards an option of, you know, employing somebody in your home, that’s just one of the boxes you’ll check off. So, you know, there’s obviously multiple options of where going to find that nanny or caregiver.

⁓ But then out of that there’s that separate bucket of how am I going to pay this person? And hopefully with a family that is either you know doing everything on their own or through an agency They get looped in or find out right away that there are additional requirements other than just here’s a Venmo at the end of the week or here’s a check And so that way whether they’re thinking about trying to tackle it on their own

or not, they see, you know, what the additional requirements are, they know what to budget, and they can try to plan that conversation. Ideally, like I said, as early as possible, just to make sure that all their boxes are checked off. And like I said, if there are things they could take advantage of when it comes to tax savings, they’re in a great position to do so and feel comfortable, you know, like I said, in advance as possible.

Danny (14:35)
This is good. I think I’m tracking like all of this. So a little bit of a rewind to that you had mentioned the 10 % like budget that in and then you also mentioned like there are benefits to this. Is there a way that I can claw back some of this 10 % to make it truly worth it?

Kelsey Wesley (14:42)
Yep.

Yeah. Yeah.

Mm-hmm.

Yes. So I’m just glancing over here. there’s basically for someone that’s hiring a let’s just kind of stick with me any someone that’s hiring a nanny there’s really two tax savings for families to take advantage of to offset a portion of that 10%. So the one I mentioned that would be to sign up for during open enrollment is getting a dependent care ⁓ flexible spending account set up with your employer.

So big mouthful, but basically if you have the option and if you’ve heard of an HSA through your employer, more than likely you have the ability to set up this flex spending account.

Families are able to basically set aside $5,000 of pre-tax income and stick it in this FSA account to then submit

receipts or proof of payment to their employee to get reimbursed from that $5,000. So for us, if you are set up on our payroll service, you’d be submitting your nanny’s pay steps. That’s showing proof that you pay the employee X amount. So you’re able to submit essentially $5,000 worth of pay steps to your employer to get reimbursed from that $5,000.

So what you’re doing is you’re saving the taxes that you otherwise would have been taxed on on that 5,000 of your income. So depending on what the tax rate is, generally families are saving around 21, $2,300 just from that tax break alone. So again, it’s gonna offset definitely the payroll service fees and then dip into that additional cost of 10%. It’s not gonna offset the whole thing, but it’s definitely gonna take a good chunk out.

So that really is the best tax savings a family has is utilizing that dependent care FSA. Now I mentioned the limit for this year is 5,000. Next year it’s going up to 7,500. So families will be able to save even more now, closer to now $3,000 to offset their taxes. So that’s really exciting. I don’t think there’s been a change since the 80s in the tax breaks, if I’m not mistaken for this.

So it’s been a really long time, long time coming. So that’s exciting. Now for individuals that maybe don’t have the ability to set that up, there is just the childcare tax credit that you claim at the end of the year when you’re filing a return. That one, it depends on how many dependents you have. So if you only, if you have two children, let’s say, the expense limit, and this is where it gets into numbers, but it’s $6,000 is your cap. You get a 20 % credit on that.

So save $1,200 at the end of the year if you have two dependents, $600 if you have one. So again, if you’re looking at both options, dependent care FSA is your way to

Can’t really stack them super cleanly. that’s probably a follow up question. Yep, yep.

Danny (17:53)
That was my next question. I want to like

that coupon stack that people try to do and they’re like, you can only use one.

Kelsey Wesley (17:59)
You can only use one I know

there is a way you can combine it just because like for this year. Remember I said the expense limit is 5000. But with that tax credit I said it was 6000 if you have to technically you could use 5000 with your FSA have $1,000 left over to save to get 20 % credit on so you’d save $200 at the end of the year with the tax credit.

So that’s really the only way you can stack it. If you have one dependent, then you have to pick one at the other.

Danny (18:30)
I also love, and I want to just highlight for everyone listening, this little part where you were like, you can kind of do it, and then you walked us through like a very nuanced way. They’re like, who is going to think of that? Or like, spend enough time to have figured that on your own. Like, that’s the type of thing where like, the institutional knowledge of working with a payroll service is really going to pay off.

Kelsey Wesley (18:41)
Mm-hmm.

right?

Right. Especially as things change next year, right? So like I said, it’s going up. Both the expense limit is going up from 5000 to 7000. And then for that tax credit, it’s changing and it’s going to be based on income. So it gets a little bit more mathy. So that’s where it’s best to just call in, get your consultation, see exactly what you’d be able to save. And then you still will be able to know which one makes the most sense for me.

Danny (19:18)
Amazing. So we talked a lot about like nannies. When it comes to home care or like, you know, we’re talking about our elder loved ones. ⁓ Is there a big difference with that and like how it works or things you need to think about or is it very similar?

Kelsey Wesley (19:27)
Sure.

very similar when it comes to the core like tax requirements, all the thresholds are the same. The deadlines are the same everything when it comes to that, that’s all the same processes, right? tax breaks are different, because this isn’t a dependent anymore. So there potentially are like medical tax breaks that

the individual that’s receiving the care would be able to take to offset a portion of this. That’s where I would consult more with like an accountant to see what specifically that person could qualify for. That’s really the main difference is gonna be more on the saving side. Now, obviously it’s great for…

everyone to have workers compensation coverage just in case there were to be an injury in the home just covers the employer from any liability related to the injury. It is required like I said before in most states. For states where it’s not required if someone’s thinking about having that or not the likelihood of an injury is more likely on the senior care side just because you’re having to help with you know more daily tasks depending on how know sturdy they are on their feet or how much

you know, what your job and necessarily responsibilities are. I would definitely say with senior care to make sure that you have the coverage, but generally for both, it’s best to have the coverage just to not worry about that. But I would say especially on the senior care side. But other than that, there’s really not any differences as far as reportings for both senior care and then for childcare.

Danny (21:07)
That’s again, that’s like that institutional knowledge of being like, here’s really why you should think about doing a workers compensation, which also sounds really scary. is it like a, how do, does somebody set that up if they weren’t using a payroll service? They have to like contact their state government, right?

Kelsey Wesley (21:26)
And so everything always depends, right? ⁓ But there, we have a third party that we work with very closely that anyone can go to regardless if you’re a HomePay client or not, that you can go through to have them set up the policy for you. So that would be one. Another one is you may contact your homeowners or renters insurance to see if you could add workers compensation to your policy. That might be more advantageous from a cost perspective.

you’re kind of bundling everything together. Some insurances won’t. So if they don’t allow you to set up workers’ compensation, you do have to kind of go through that third party. And then other states like Washington is the one that comes to mind, has to be set up through the state. So there’s kind of three buckets there. But yes, either your own insurance through a third party or through the state directly would be your

Danny (22:17)
if I was needing this service, I have a nanny or I have someone coming in to help me with family.

like how hard is it to actually be in the process doing it?

Kelsey Wesley (22:28)
Sure, so it really depends on how consistent the caregiver’s schedule is. So if you have someone that you have basically like kind of guaranteed hours, you know for sure that you’re paying them for let’s just say 40 hours a week.

the with our system, you can set it up to where payroll will automatically run every week at those whatever that default hours are. So it would automatically run every week in this example of 40 hours. So as long as they work that consistent schedule, it’s pretty hands off for the family or for the ⁓ individual, the employer to keep things running. payroll will automatically go out every week, do the direct deposit for the caregiver, taxes are automatically withheld, and then email reminders go out before taxes are

collected, notifying of course the client of what’s due, when the taxes are coming out, when any service fees are coming out. And then other than that, there’s no manual requirements for an employer to take care of payroll.

unless there were to be a change. That’s only the time where you would have to go in and obviously make sure that we have the correct hours. So if it’s a super consistent schedule, it’s just a one time change, you go in and update it for that pay period, the payroll is adjusted, the following week it would go back to the default.

Now, if you have someone that has an inconsistent schedule, we do have time sheets that are included with our service to where the employee can fill out their start and stop time for each day. And then at the end of the pay period, they would just submit that time sheet to the family for approval. And then it’s just a simple approve button for the family. Or if something’s incorrect, they could send it back, get it corrected.

have it resubmitted and then approve it. And then again, payroll would just run based on those submitted hours. And then they continue to do that each week. So usually it would just be like a one time weekly involvement or bi-weekly depending on how often you choose to pay your employee. And then depending on how consistent their schedule is, you might not even have to go in it.

Danny (24:26)
What I’m getting from this whole conversation is if I’m going to use payroll, which instinctively I feel like I should do is it’s really important to feel like you’re using a company that you feel like is on your team with you. Like, I feel like I’m asking you kind of crazy questions, but they’re probably not. These are probably things that you kind of go over often with families and that they have questions with or agencies that you work with.

Kelsey Wesley (24:49)
Absolutely.

Danny (24:54)
This is kind of just some of that standard stuff that you need to feel comfortable asking someone.

Kelsey Wesley (24:59)
Absolutely right. And like you said, like in the beginning, it’s more of

what is being an employer mean? What are their requirements? How much is this going to cost me? You know, and then we kind of we we we come down from that we answer the questions we get comfortable. And then it’s okay, I’m comfortable being an employer. But how much work is this really going to be for me going forward? You know, hopefully I have my employee for a year or hopefully even longer depending on what the situation is. So how much work is it going to be for me? And like I said, it really it’s just a matter of making sure that we know that we have the correct hours in the system to process payroll.

Other than that, you’re pretty hands-free. Good thing is, is that your employee with HomePay can also go in and access their pay stubs on their own. They can call in and contact HomePay if they have any questions. They obviously aren’t able to make any changes without you being involved, but if they just have a question on, you know, how do I find my pay stub or I want to change my withholding elections, how do I do that?

HomePay can also talk with your employee directly. So you’re not necessarily always having to kind of be the middle person between the service and your employees. So we do kind of act as that HR kind of high level to where we’re able to talk with your employee directly, I know, get them the documentation that they need to where they feel confident in the service as well. And then that way, that’s even one last thing that hopefully you’re having to do.

Danny (26:22)
You, I, before you wrap up on this,

hopefully you have them for like a year or longer depending on the situation or anything like that. I’m thinking with my home care hat on that maybe I’m thinking that doesn’t even go a year in the most tragic sense of things. Is it still worth it to use payroll?

Kelsey Wesley (26:40)
Mm-hmm. Mm-hmm.

Yeah, no, great question.

So like I said, towards the beginning, that federal tax threshold, it’s only $2,800 within the course of a year. So if you’re planning to cross that threshold, even if you’re only planning to have your employee, say for the summer or a few weeks, if you’re paying someone $20 an hour, $30 an hour, which seems to kind of be the average, even upwards of that, you’re going to hit that threshold pretty quick.

So even though you might only have an employee for a month, a quarter, a summer, half a year, I believe it still makes sense to work with a service to get all the Xs and Ys and Zs taken care of for you. So you don’t need to do it even if it’s super short term because all the requirements are still there. You still have to do some filings. You might be crossing two quarters depending on what time of year you’re looking at. So it’s not just as simple as one quarter filing.

And then you have all the documentation you need at the end of the year to be able to file not only with your return as the employer, but that individual needs a W two to be able to file with their taxes. So I do think even if it’s something that short term, if you’re planning to be over that threshold, definitely makes sense to use a payroll service or at least be aware of it for you to potentially try to tackle on your own, which we talked about that. But and then with HomePay it’s very simple. If you do end up using our service,

to be able to close out your account because things happen, plans change. Maybe you only hired a nanny until you’re able to get into daycare and it’s super short term. Maybe you hired care for a family member and unfortunately that didn’t work out and they have to do another solution. So you can close out your account anytime. Again, make sure everything’s wrapped up for you for whatever quarter that you’re in as far as filings and then all of your documentation you receive at the end of the year. Great question.

Danny (28:39)
feel great about this.

I feel like this is not a heavy thing to worry that it’s on your back. Using payroll like HomePay, it’s just there to simplify things for you. It doesn’t have to be a long thing that you’re locked into. It can be something much shorter. It’s just that extra helping hand with experts to trust.

Kelsey Wesley (28:52)
Mm-hmm.

Exactly. Yep. It’s to make sure that you’re not having to read through pages of publications to figure out exactly what you’re needing to pay when you’re needing to pay it. What kind of documentation am I having to give my employee? Do I have to provide any notices up front or at the end? You know, there’s just all kinds of little things that could just easily be missed to where whether it’s short term or long term.

at least just have the consultation, right, at least get the information and then make you know, your educated decision based off of whatever you feel comfortable with from there, you know, right, like, maybe it’s not in the budget, but at least you have all the information to make that decision. So I at any point in the hiring process, I would give any, you know, any kind of payroll service a call, get the information and then to see what what’s the best fit from there.

Danny (29:54)
Kelsey, thank you so much for joining us and sharing all of this. I know you could probably answer even more questions that I feel like are bubbling up in my head. But how does somebody learn more about you and HomePay or what are their next steps?

Kelsey Wesley (30:10)
Sure, so you’re gonna visit us anytime online. So be partners.myhomepay.com and my contact information’s on the website too. Our team email will have it, I’m sure, up somewhere, but the partner’s at myhomepay.com.

And reach out and our phone numbers on the website. Like I said, that’s going to be your best place to start is just getting a call in whether you’re an agency that’s looking for more information to be able to provide to families, whether you’re a family or a nanny that’s hearing this or a caregiver that just wants to get some more information as well to pass along or to have reach out to us by phone contact us over email, look at the information on our site. And we’d be happy to talk with you and answer any questions on your specific situation.

Danny (30:54)
Perfect. Kelsey, thanks again. Once again, thank you.

Kelsey Wesley (30:57)
Yes, thank you so much for having me.