Considerations for Lending Money to Your Nanny

Mar 3, 2023 | Employing a Nanny

Occasionally a nanny or other household employee might find themselves in need of cash and may ask you, as their employer, for a loan. Is lending money to your nanny a good idea?

Lending money to your nanny can be a tricky and delicate situation. On one hand, you may feel like you want to help your nanny out if they are in financial trouble, but on the other hand, you don’t want to create a situation where you feel uncomfortable or taken advantage of.

For a nanny asking to borrow money, information about borrowing against future wages should be provided to the nanny and included in your employee handbook. If you decide that such activity is permissible, then you should detail what needs to occur to necessitate loaning money to your nanny, what process your nanny needs to follow to request an employer loan, and what steps will be taken to obtain payment of the loan.

Here are some things to consider before lending money to your nanny:

Your relationship with your nanny

If you have a good relationship with your nanny, lending them money may be less of an issue. However, if you don’t know your nanny well or don’t have a close relationship with them, lending money can create a lot of tension and awkwardness in your working relationship.

Your financial situation

Before lending money to anyone, it’s important to consider your own financial situation. If you are struggling financially, it may not be a good idea to lend money to your nanny. However, if you are in a stable financial position and can afford to lend money, you may feel more comfortable doing so.

The amount of money involved

Consider the amount of money your nanny is asking to borrow. If it’s a small amount, you may be more willing to lend it than if it’s a larger sum of money. Also, think about the impact that lending the money will have on your finances. Will it cause you any financial strain or make it difficult for you to pay your bills?

The terms of the loan

If you do decide to lend your nanny money, it’s important to be clear about the terms of the loan. Will you charge interest? When will the loan be due? What happens if your nanny can’t repay the loan on time? Make sure both you and your nanny understand the terms of the loan before any money is exchanged.

When considering granting a loan, you should take into account the length of time that is considered reasonable for the employee to repay the loan.

Employers should obtain a signed promissory note from the nanny for any significant amount of money loaned (such as $25 or more). This note should include:

  • date of loan;
  • loan amount;
  • payment method (i.e., loan payments taken directly from paychecks*);
  • payment schedule; and,
  • the employee’s and the employer’s signatures

* Some state laws, including New York’s, do not allow this.

The promissory note should be filed in the nanny’s personnel file, and a photocopy of the note should be provided to the nanny.

Alternatives to lending money

If you are uncomfortable with the idea of lending money to your nanny, consider alternative options. Can you help your nanny find other sources of financial assistance, such as a low-interest loan or financial counseling? Can you offer to pay your nanny in advance for future work instead of lending them money outright?

In conclusion, lending money to your nanny is a personal decision that should be made with careful consideration. It’s important to weigh the pros and cons and make sure both you and your nanny are comfortable with the terms of the loan. If you do decide to lend money, make sure to document the agreement and keep a record of all payments made and received.

For questions and more information, please contact us at (518) 348-0400.

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