Daycare Tax Tips


What is the cost of two part-time employees?

A provider asks questions before hiring helpers

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A family child care provider writes:

> I am paying my incoming part-time assistants $10.00 per hour. What extra expenses do I add? This is a big cut on my income to have helpers. I'm willing to use your payroll service, but I hesitate to sign up without knowing the whole cost. I just want to make sure first how much I'm going to spend if I have somebody with me. Also, my assistants are asking me, how much will be their take home pay (after taxes)?

You are asking good questions. As you say, it is a big cut in your income to hire an assistant, so it's best to have an idea of the cost ahead of time.

Please read the rest of this article. You will see that the wages you pay will be the major cost when it comes to hiring helpers. The taxes and other overhead costs do factor in, but not as much as you might think.

This should be good news for child care providers out there paying for help and incorrectly treating the worker as an independent contractor. The cost of converting to employee treatment is not that much, compared to the wages you are already paying...especially when compared to the risks of going the 1099-route.

Here are the costs associated with hiring helpers

Wage and tax cost:

If your two part-time assistants each work 15 hours per week, your weekly cost comes to:

Wages of $10.00 x 30 hours = $300, and

Employer taxes (the taxes that you have to pay) = $35.25 (approximate amount; does not include annual FUTA credit reduction tax)

Other employer costs:

Besides wages and taxes, there is the cost of payroll service and insurance.

The lowest FCC Payroll Service fee is currently $50 per month, or about $11.50 per week.

I have seen the annual premiums for workers' compensation insurance of $1,500 to $2,000. Let's say $1,500 for this example, which is equivalent to about $30 per week.

Total cost:

Your total cost comes to about $376.75 per week ($300 for wages and additional costs of about $76.75). This is equivalent to about $1,633 per month.

See my employee cost article for further information and a breakdown of the employer-paid taxes.

Employee take-home pay:

Your assistants will pay these taxes from their wages:

1. Social Security tax at 6.2%
2. Medicare tax at 1.45%
3. California state disability insurance at 0.9% (the rate for 2015)
4. Federal income tax (will vary)
5. California state income tax (will vary)

This adds up to 8.55% for items 1-3 and something for income tax. Part-time workers generally don't have a lot of income tax withheld from their paycheck. For a 15 hour week, I estimate $8 for federal income tax and zero California income tax. Depending on how the worker fills out her Form W-4, the income tax withholding could be less than that.

For a 15 hour week, the wages come to $150 (15 x $10) and the employee taxes come to $12.83, resulting in net pay for one week of $137.17 ($150 - $12.83).

Our FCC Payroll Service calculates paychecks every two weeks, in which case this employee's paycheck amount would be $137.17 x 2 = $274.34.

Overall

Your estimated cost for wages, taxes and insurance for the two part-time employees in this example comes to $1,635 per month. If your assistants work less than 15 hours per week, the cost will be less.

On the plus side, all wages and other costs can be deducted as business expenses on your income tax return and having helpers will lessen your workload. If the help lets you care for more children, you can also bring in some extra income.

For more detailed payroll tax info, please refer to my Payroll Tax Guide.


Last updated 18 March 2015

Posted on 2011-08-19 01:15:40

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