October 25, 2007

Can You Talk About Paying The Nanny Off The Books Without Sounding Like A Total Ass?

Because if I had to go by Mijka Samora's blog post, "The Nanny Arbitrage," I'd have to say no.

Samora makes the argument--what used to be called "self-serving rationalization"--that paying a nanny off the books is not only awesome, the very existence of New York City depends on it:

But if a parent ignores the laws on employment and immigration, the nanny arbitrage becomes significantly more profitable. If social security taxes are not paid for the nanny (if the nanny is paid 'off the books' in usual parlance), and if the nanny is an illegal immigrant, the arbitrage becomes compelling to many people who would otherwise never dream of breaking the law. There are sufficient dollars at stake for many to make the jump. And there is solace and comfort in the widespread, if misguided, notion that 'everyone else does it', and in the conflicted satisfaction of helping an illegal make a living.

More than that, the New York economy would get into serious trouble if everyone started to respect the letter of the law. Consider the following. A nanny expects to take home between $12 and $15 per hour. If a nanny is illegal, she will be more compelled to accept the lower end of this range.

Yes, please let me feel satisfaction for "helping an illegal make a living" AND for totally ratcheting down her rate by exploiting her status.

By Samora's calculations, an off-the-books nanny will run you $31,200 [$12 x 50hrs x 52 wks], or $48,000 before taxes. A legal nanny "will want to take home $15 per hour," unfortunately: [$15 x 50 x 52wks = 39,000 x 1.2], $72,000 before taxes:

1- Hiring an illegal nanny off the books puts a cool $16,000 in after-tax dollars in your pocket every year. This can accumulate quickly if you keep a nanny for a decade, resulting in $160,000 in savings (or more if you invest it well), a sufficient amount to pay for a college education, an SUV, a lavish vacation etc.
As it happens, there's a special 33-mo. lease offer on a Mercedes GL450 right now: just $699/month. Figure $600/mo parking [$500+ the 20% SUV surcharge], and that illegal nanny could put you behind the wheel of a new Mercedes for just the cost of insurance, a couple of hundred bucks a month. Less than your cell phone bill.
3- The New York economy is dependent on the perpetuation of the nanny arbitrage. If every parent decided to respect the law and to only hire a legal nanny on the books, all earners with an income between $48,000 and $72,000 would forgo the hiring of a nanny as it would be more financially advantageous to stay home with the children instead. Because this income range ($48,000 to $72,000) probably includes a very large number of parents, the stay-home decision could lead to a shortage of workers in New York City.
I'll let someone else tackle the assumptions that the only factor to go to work is to pay for child care, or that the only consideration to stay home is financial [Comment lines are open, operators are standing by].

The idea that New York will experience a shortage of professional workers is ludicrous. Especially if those positions are currently being subsidized, in effect, by the hiring of illegal nannies or the out-of-pocket childcare expenses of employees. If parents suddenly disappeared from NYC's $48-72k job tier, some would get replaced by child-free workers. But it's also likely that wages and benefits would rise to keep parents happy. Employers would provide more flex accounts for child care and more flex time, etc.

But that's not going to happen because that's not really the issue Samora's addressing. The "hedge fund manager, every director of an investment bank, every private equity whiz, and more than a few lawyers, ad executives and other partners in lucrative businesses" Samora ID's as nanny arbitrageurs all make at least mid-six figures, with plenty of seven-figure bonuses. None of them is realistically trading off an illegal alien nanny and a G-Class; they can have both.

In this situation, paying a nanny off the books is purely about cutting a deal, offloading an expense you don't want to pay, and exploiting someone less powerful than you. Notice that neither health care nor vacation time is even mentioned in Samora's nanny calculation. Since I've never met anyone who with a non-agency nurse or nanny who provides either benefit, I can't say I know how much it improves the quality of your kid's child care, or how it affects the nanny-family dynamic.

But I do know the New York City economy is already taking an inefficient hit for the cost of that nanny and her uninsured dependents' medical needs. If Samora were serious about improving the strength of the city's economy, he'd factor that in. What he's actually doing, though, is using the challenges faced by families with two mid-range incomes to prop up a system that exploits them so that a bunch of self-justifying, lawbreaking bankers can upgrade their week in St. Barth's.

The Nanny Arbitrage [reality journal via gawker]


And we wonder why Congress'(either party) immigration views are so out of touch with the rest of the citizenry. I have a feeling this is why enforcement will always be a pipe dream.

[meanwhile, as wildfires rage towards them, migrant workers refuse to evacuate from the fields because they don't want to lose their jobs. The casual exploitation of these people is an embarrassment. -ed.]

if my daycare cost more than my salary my logic wouldn't be to just quit my job, it would be to find a better paying job. if we quit who the hell pays the mortgage?

My wife pays me off the books, nudge nudge wink wink say no more say no more!

Sorry, I couldn't resist.

What an asshole. How do you reconcile wanting good care for your children with treating the caregiver like crap? No retirement benefits, no sick days, no disability, taking advantage of someone who can't effectively protest: he'd freak out if his nanny had the same attitude toward his kids that he shows toward her. It disgusts me that so many people casually perpetuate an underclass. All this so he can take a really nice vacation.

When we left France I never thought I'd miss it, but I'm reconsidering. The French may be xenophobic, but that's a world away from treating people like serfs.

[don't worry, dorothy, they're learning. -ed.]

I've observed that with childcare, you get what you pay for.

I read the MSRJ blog and I think you missed the point in your irresistible lunge to make a couple of holier-than-thou wise cracks. Samora is not condoning this behavior, he is making an academic point. He is not saying exploiting illegals is ok. He is talking about the reality of what people are doing. Learn how to read, then we'll talk.

If you have a specific criticism to make about my points, Billie, bring it on. As an MBA-carrying, ex-private equity-dealing member of the exact privileged class Samora is addressing, I'm more than happy to address the substance of the self-serving, self-justifying, and incomplete view of the neo-trickledown "reality" he lays out.

At first, I thought your claim that Samora's just "making an academic point" and was "talking about reality" was a reference to the editorializing tag at the end of the post: "This reality is an unfortunate consequence of our lax interpretation of the law."

But then, I don't know what that means. Whose lax interpretation is in question? And is it really lax? Is it ICE who's lax for not raiding playgrounds? The IRS for not investigating child care-related tax crime? Are states or the city somehow lax for not enforcing immigration laws and facilitating these illegals? Or are parent employers lax by not caring about an unenforced law because they figure they'll never have a Senate confirmation hearing anyway, and they'd rather have "an SUV, a lavish vacation etc."? But then, except for ICE, none of these is "lax"; they're all self-interested or even politically or ideologically driven decisions.

But now I realize that since yesterday, Samora has added a disclaimer to the beginning of the post:

Note: The following is meant as an academic exercise and is not meant in any way to encourage illegal behavior. We trust our readers will always obey the letter of the law.
So he gets to make a biased case for the choice to act illegally and in an exploitative manner, and then he gets to bracket it in "academic" disclaimers and tut-tutting conclusions? I don't think so.

Samora's depiction of "reality" is only the reality--or the perception of it--that supports the banker-parents' continued exploitation and flaunting of the law:

  • there's no mention of the legal nanny's POV or economic role, only her existence as a cost center or taxable event.
  • "Hiring an illegal nanny off the books puts a cool $16,000 in after-tax dollars in your pocket every year."
  • the "large consequences on the New York economy and on its real estate market, as parents would have less money for consumption or housing" and "a shortage of workers" as professional parents decide to stay home.
  • the political/ideological complaint that "a large portion of this money would be paid in taxes to the government."
  • Taking this last complaint first, in fact the roughly 20% parents pay, or about $7800, goes to social security, workmen's comp, and unemployment insurance, all of which provide bare minimum social safety net benefits for the employee. Should these be tax deductible or creditable for childcare? Maybe, but Samora doesn't get within a mile of making that point.

    The rest of the increased cost, though, goes to the nanny as increased wages: [$39,000-31,200 is a $7,800 gross increase]. Assuming a 10.5% effective tax rate--wow, look it up, and you find out your poor employee pays even less than the 15% capital gains rate you pay on your carry!--that's $4105, for a takehome increase of $3695.

    What percentage of that do you think is "going towards saving and consumption"? 100%? Perhaps the proper conclusion to draw from the marginal impacts of Samora's numbers is not how "unfortunate" this "structural dependence" on "illegals" is, but that they should be paid more and taxed less? Because 10% salary increases, plus the benefits of SS, etc., plus legality, would seem to be of far greater good for the city at large than families on Carnegie Hill reinvesting 0.01% less come bonus season.

    It is possible to point out an abuse perpetrated by someone without agreeing with that abuse. I think this is where you got lost. Samora doesn't say he agrees with this behavior. Your reaction is to shoot the messenger. maybe YOU have an illegal nanny. Sure touched a raw nerve with you. Or maybe you just hate i-bankers in general.

    [I know it is possible, but I still don't see what evidence there is that this was Samora's intent, unless it's the ex post facto backtracking. In his observing, Samora only "points out" the "reality" that constitutes an apologia for the behavior in question. I don't know or care about the messenger, only that his argument smacks of an attempt to excuse unethical and unfair and exploitative behavior. Your repeated attempt to personalize this with unsupported slams is really kind of annoying. -ed.]

    "Samora only "points out" the "reality" that constitutes an apologia for the behavior in question."

    AND scene.

    But I argue it is possible to employ an illegal nanny and cover your ethical bases, even if you are benefitting from the arrangement. Or rather, I feel one can be a conscientious illegal-employer.

    [I'd love to hear that case made; Samora's example of "compelling" illegals and dealing with "demanding" legals, though, ain't even close. -ed.]

    Not that I ever believe Greg needs someone to come to his aid, but when I read the link I didn't get any indication of an academic exercise. What I did get was a wink and a nudge accompanying the "The following is meant as an academic exercise and is not meant in any way to encourage illegal behavior. We trust our readers will always obey the letter of the law." It would go well with the NFL's official "Competition is for entertainment purposes only. Please, no wagering," and then requiring the teams to report their injury status (bookies can't open lines without them).
    Though Samora has every right to argue this point, he lacks anything resembling a moral foundation. I'm sure his children will be delightful.
    I find it all exasperatingly sad.

    "I'd love to hear that case made"

    Well, I have these friends in LA...

    First off, it's difficult to determine a fair-market rate for nannies in Los Angeles. The asking price for a legal nanny would plummet if equally qualified illegals were suddenly legalized, and so we can't really compare apples to apples. It's not a functioning market.

    So you have equally qualified folks distinguished only by cost and legality. Now, the legality issue is a non-starter for these friends; they believe illegal workers should have been legalized yesterday, and they have no problem breaking the (bullshit) law to hire them. I'm assuming, Greg, that your issue is neither "hire American" nor "obey the rules" (if I'm wrong, I'll come for the design geekery and leave for the politics). The remaining issue, then, is "are my friends exploiting the labor?"

    I'd have to say no. They put their nanny on a salary, with paid vacations, and sick leave. They paid well above the going rate (for illegals) in LA to the point other couples called them insane. Are they exploiting the market? Perhaps, but again we can't crunch the numbers without an open labor market. My suspicion is that their nanny's wages approach what a fair market might provide.

    From an alternate point of view, what would be the purpose of hiring a legal nanny in this situation? To boycott a system others abuse? That's an empty gesture. You're not exactly making a statement about the rights of illegals by hiring a 25 year-old au pair who graduated from Cal State Dominguez Hills with a degree in childhood development and a Honda Civic. Vote for representatives who support immigration reform, treat your illegal employee like a human being with whom you've entered into a contract, and get a good night's sleep.

    Nannying is a skilled position. We wouldn't even be having this conversation if we were talking about software engineers - they would already have been made legal and their rates would settle according to supply and demand.

    And for what its worth (nothing, in the realm of ethics) these two friends are school teachers who would not be able to live in the city without an off the books, south of the border team-member. Perhaps the only right course of action would be for them to move to a place they can afford, but there are no good restaurants in Riverside.

    I'm agreeing with Garth. I'm always happy to pay my childcare person on the books, but I don't want to take anyone out of the running just because they aren't. My current babysitter is off the books. She has five kids. She's trying to get her green card. What would be ethical about not hiring her just because we have a stupid immigration policy? And if everyone subscribed to the non-hiring of green cardless nannies what would she do? I didn't hire her because it was cheaper. I hired her because I think she's awesome. The first thing I asked her was do you want to get paid on or off. And if she does get her green card, I'll happily pay her on the books—if she wants to be. I think that's more ethical than not hiring anyone who's not legal (but I do agree that the economic justification is disgusting.)

    [wait, there are factors besides money in choosing a sitter? -ed.]

    You can hire someone who is in the US without a green card and pay their taxes. We discussed this extensively with one of the businesses that arranges employer IDs and so on when we very briefly considered hiring a nanny who may or may not have been legally able to work in the US (we didn't do it). (1) Fill out the INS form that says you checked their ID and SSN, which is kept in your files and never turned in. (2) Pay all taxes and social security, which are reported, plus the benefits you would want as an employee. You are then not the kind of asshole who is cheating your nanny of benefits like Social Security (especially valuable if you are poor) but you are also not breaking the law or "agreeing" with the INS about their appalling (I agree about this part) immigration policies. I wouldn't do it, but I wouldn't call it immoral either.

    I think asking the nanny whether they'd like to be paid on or off the books is bs, though. Most of them don't know what they're giving up, even though you do, they just see the paycheck. I say this after talking to someone who gave monthly classes to off-the-books nannies explaining what the benefits meant, always oversubscribed, and none of them ever had a clue. Offering the "choice" is taking advantage of other people's ignorance.

    Actually, I'm not taking advantage of anybody's ignorance because I didn't know that was an option. I do know that some people want to get paid off the books because they don't want to pay taxes. But thanks for the info (even though I don't think you need to communicate it in such a hostile way). I'm going to talk the nannytax person I used when I had an "on the book" situation and get all the details and offer to do this for her (without deducting from her salary). Cause even though you might think I'm a jerk, I'm actually pretty much not.

    Seriously, in LA, I know people who don't pay the Nanny Tax so they can afford to buy THE NANNY A CAR! Plus a cell phone and pay the cell bill. Plus interest free loans. Plus, plus, plus!

    A good Nanny is hard to find and you will do ANYTHING to keep one in this town.

    But I think the Nanny Tax ethical debate is right up there with the Napster ethical debate.

    [there are two debates, as you point out very well: 1) taking care of the nanny, or at least not exploiting her and "compelling" her to work for less because of her status, and 2) following the various letters of the tax law. -ed.]

    I'm not sure that's the case. You can pay social security taxes to an illegal's ssn - an ssn that will never generate a claim because the illegal is not a citizen. Plenty of illegals have ssns, and they'll never see a check.

    [I think that's similar to the point made above about going on the books vis a vis the IRS and letting the nanny make her own decision about being on the books herself. -ed.]

    I have reread your posts to see if maybe I was unfair to you. But no, my inital reaction was right. You completely distorted Samora's angle, (he never said hiring an illegal was "awesome") to show what a swell compassionate guy you are. BTW what part of the word "illegal" do you not understand? As to personal and annoying, don't dish it out if you can't take it. Poor baby, stick to recommending teddy bears.

    [you're right, I completely misunderstood his gloating about $16,000 after-tax dollars in your pocket, enough to buy a "luxury vacation, etc." to be "awesome." Anything of substance you care to refute? I didn't think so. And just because Samora's a self-centered, exploitative dick does NOT mean I'm a "swell compassionate guy." Not taking greedy pleasure in out-negotiating a powerless servant is a pretty low rung on the compassion ladder. As for taking it, I'm not the one who keeps whining back about my criticizing Samora's analytical onanism. Funny that he doesn't seem to care too much about account for the shortcomings of his argument, but you seem to be pretty uptight about it. -ed.]

    [I think that's similar to the point made above about going on the books vis a vis the IRS and letting the nanny make her own decision about being on the books herself. -ed.]
    Nope. That's not a choice, it's a gamble. The actual senate bill states that illegals will gain access to their social security funds upon becoming citizens. Anyone care to offer odds on that happening for the typical Guatemalan nanny?

    "BTW what part of the word "illegal" do you not understand?" Did this guy just expose himself or what? Is there a worse argument on the planet than "because it's the law"?

    And "Poor baby, stick to recommending teddy bears." is easily the funniest sentence I've read this week. You slay me.

    [by "Senate bill" are you talking about the immigration reform legislation going nowhere at the moment? Because right now, if you pay your undocumented nanny on the books, you can also put "SSN requested, but unknown". How this affects ICE going after your nanny, how it affects her chances for going legal, or how it exposes you to liability for not confirming your employee's immigration status, are three other, giant questions. -ed.]

    "SSN requested, but unknown"
    I would LOVE to see the look on your Guatemalan nanny's face when you tell her you're paying money into her ssn account - the same ssn account she'll be able to access around the year two-thousand-never.

    Greg, as long as you keep the mid-century nursery magic coming you can do no wrong in my eyes. But, are you seriously suggesting I pay a nanny "on the books" when no possible benefit to her (barring serious immigration reform) exists?

    And the answer to "How this affects ICE going after your nanny, how it affects her chances for going legal, or how it exposes you to liability for not confirming your employee's immigration status" is (respectively) who knows, not at all, and in no way that will survive a pr campaign. So what's left? I'm sensing a tendency towards conformity that might lead to your "edgy" card being revoked. Please tell me I'm wrong?

    And by senate bill I am referring to CRA (http://thomas.loc.gov/cgi-bin/query/z?c109:s.2611.es:). The shortcut to reading that mess is: pay into a fake sssn as an illegal, and you can collect when your a citizen (read: never if you're from central ameriaca).

    Because right now, if you pay your undocumented nanny on the books, you can also put "SSN requested, but unknown".

    May I correct this - the Federal govt. created ITINs in the late 90's and no longer accepts returns without a valid SSN or an ITIN. This is a $#$^%* recognition that some wage earners are not legally authorized to work (hence no SSN), are paying taxes (really millions do), and the govt. needs a way to track this stuff for when (if?) reform is enacted and they get a path to citizenship.

    Illegal nannies can - and will in some circumstances - sue for workers comp benefits, unemployment benefits, and file wage and hour grievances against abusive employers. California, New York, Washington DC - domestics organizing and profiling abuse by high profile community members - it is happening.

    Yes you can pay an illegal worker on the books - it is done all the time. http://4nannytaxes.com/faq/NannyTaxIllegalImmigrant.cfm

    Thanks for such a spirited discussion on the topic - hope I am not too late to the party!

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