From the January 2008 issue of Wealth Manager Web • Subscribe!

Upstairs, Downstairs

For most of us, a weekly house-cleaner or a nanny for a two-career couple is as far as we get to hiring domestic staff. Butlers, housekeepers and cooks seem more like something out of a Masterpiece Theatre costume drama than a modern reality. But for your wealthiest clients, the hiring, supervising and management of numerous household employees is a part of their lives. For them, the "servant problem"--as Victorian matrons used to call it--still exists, although in a radically different form.

The potential list of household helpers can seem never-ending: nannies, drivers, chefs, house managers, personal assistants and so on. And because each provides a valuable service to someone or everyone in the affluent family, they must be selected carefully--and treated well.

More than ever, high-net-worth individuals rely on household staff to help with every aspect of their increasingly complex lives. In most high-income families, you will find a team of people employed to perform valuable roles in daily operations. Almost every successful person depends on people working behind the scenes to keep his or her busy life--and high-maintenance household--running smoothly.

Be Prepared for the Expense

Katie Facey is founder of the Katie Facey Agency, which specializes in domestic staff placement in upscale areas like Greenwich, Conn. She says the cost of household help can be shocking to those who haven't done their homework. Those costs escalate in direct proportion to the size of the home, and bigger homes are definitely in vogue among the upscale crowd these days.

"Huge homes are the norm now, and these big houses don't run themselves," Facey points out. "Typically, these families may have a domestic staff of anywhere from six to 10 people on a daily basis. On an annual basis, they may spend $500,000 to $600,000 or more just on salaries for domestic help." Factor in the cost of taxes and liability coverage--as well as health coverage and other standard fringe benefits--and the cost to staff an upper-income home can easily approach the seven-figure mark.

Even the best employee can only do so much, Facey warns, so staffing needs increase in proportion to the size of the house. "Generally, if you're talking about a home over 5,000-square-feet or so, you'll need a second housekeeper," she says.

And it's not just the homes that are getting bigger. The families inside them are also growing. "The trend with upscale families, especially in the suburbs, is to have more kids," Facey adds. "Many of our clients have five or six kids, which means they need more than one nanny."

A Typical Client?

It's not uncommon today even for middle-class professionals to have some form of hired help--if only a part-time nanny. But agencies like Facey's tend to work exclusively with people in the upper income brackets. "Our typical clients are high-net-worth, have two or three homes, and the wife doesn't work," Facey says.

Christian Paier, founder of Private Chefs, Inc., also caters to a high-end clientele. "We primarily deal with clients who have a net worth of $50 million and up." He keeps clients happy by helping to meet their needs, no matter what's on their wish list when it comes to the perfect chef or other employee.

"We can fulfill any requirements they may have. Perhaps they'd prefer someone who is single, or who has expertise with a specific specialty cuisine," he says. Flexibility is key in keeping clients happy. "Many of our clients have homes all over the world, so we can accommodate them wherever they will be. If their regular chef can't come with them to their home in London, we can provide them with a chef there."

And since these employees will be in the client's home, Paier says the employee's personality is very important. "You need a diplomatic person who presents well. Someone in this position will be interacting not only with their client and their family, but generally with guests, as well. It's not like a restaurant where the chef is back in a kitchen somewhere."

Facey echoes that sentiment: "Personality is crucial, especially with live-in help. They may have a great resume, but if they don't click with the family, it won't work."

Aside from the obvious, certain "wish list" qualifications are popular among today's client. "When it comes to nannies, multiple languages are a big request," Facey says. "Many clients don't care which language it is; they just want their kids to be bilingual."

Finding Good Help

Domestic employees must be chosen carefully.

Before embarking on a search, make sure you know what's involved in the hiring process, advises Wendy Sachs, president of The Philadelphia Nanny Network, Inc. "The biggest misconception is that the job is not structured, and that these employees don't need the same things that the business world spends millions of dollars on such as job descriptions, benefits packages, orientation and training for the job and performance reviews."

Experts warn against scouring online ads, since the type of candidate high-income clients want isn't likely to be trolling CraigsList help-wanteds. "Clients are more savvy and selective. It can take two months or longer to find someone," Facey says. "Clients often have lots of criteria on their wish list. They may want someone who speaks French, has 15 years experience, has been to at least three different countries and so on. But they need to realize that their perfect person may not exist. My advice is to be picky--but be reasonable."

So how do you find a qualified, competent domestic employee? Fortunately, there are firms specializing in exactly this sort of thing.

Paul Viollis is CEO of Risk Control Strategies, a security firm that provides in-depth background investigations of domestic employee candidates. He said clients must think about background checks from the very start of the hiring process. "What's key is that the hiring entity inform all potential applicants from the beginning of the process that a thorough background investigation will be conducted prior to an offer being extended. Once the employer has completed interviews and decided on their top one to three candidates, the background check should be initiated."

This type of thorough investigation can cost anywhere from $500 to more than $2,000. If an international search must be done, the fee can go much higher. But it's a worthwhile investment, given how common it is to discover something troubling. "Approximately 50 percent of the resum?s we examine have either exaggerated or false information," Viollis says. "Typically, one out of three backgrounds indicate information that requires either additional investigation or consideration for disqualification."

Viollis warns against taking a chance with cheaper online services. "Online is just that. It relies solely on public information which is only as reliable as the venues reporting in. Additionally, these services typically have a clerk- level employee running the search, then transporting the information onto a boiler-plate report. The key to conducting a background investigation is the ability to gather information from public and proprietary sources, and then have all the intelligence analyzed by a tenured investigator who can assess gaps and holes in the person's life. This also may require second interviews conducted by a skilled interviewer."

Clients who aren't diligent about background checks can face unpleasant consequences, Viollis adds, rattling off a laundry list of scary possible scenarios: "Hiring illegal aliens and getting a visit from ICE; hiring a young woman to work in their home who has been brought to the U.S. under a human trafficking scheme; hiring someone that is connected to a kidnap group overseas; hiring someone to work on their grounds that is a convicted sex offender; hiring someone who has a history of filing claims against former employers, and hiring someone who is deep in debt and susceptible to compromise."

Viollis sums it up this way: "There is a blatant difference between a background 'nanny' check and a thorough background investigation. My advice is simple: Absolutely never try to save a buck when it comes to deciding who you allow near your family, business and assets."

Keeping the Staff Happy

Once you have found a great domestic employee, how do you keep them happy? First, of course, you must pay a decent salary (Salary Snapshot on page 23). A qualified professional employee will also generally expect a standard benefits package, including health coverage and a retirement plan. When hiring through an agency, this is typically part of the arrangement.

Next, employ some basic courtesy. "Treat them with respect," Facey says. "Be considerate of their time."

Never try to pinch pennies by asking a domestic employee to do double-duty. "Combo positions--such as asking someone to be a nanny/cook--just don't work," Facey says. Sachs agrees: "A nanny can't fulfill her job responsibilities to the fullest if she is busy making sure the home is sparkling from top to bottom."

A nice salary goes a long way, but extra perks are also appreciated. Nannies with lots of experience are looking for three weeks vacation, instead of the standard two weeks. Small gestures can also help. Facey strongly recommends gestures such as treating your nanny to a spa visit on her day off. "Anything that lets the employee know you appreciate them is a good move."

"Cars are also a big issue," says Facey. "You should have a nanny car. Nannies don't like to use their own cars, due to liability issues as well as the expense and wear and tear."

Live-In or Not?

Should your staff live with you at your home? That's an individual call, but there are issues to consider before adding a live-in employee to your household. They will not only be interacting with the employer's family around-the-clock, but also with the other staff members. That makes for lots of potential clashes if everyone doesn't get along.

If you do offer the employee a live-in arrangement, you must be mindful of the fact that she is now a member of the household. "This involves the marriage of two concepts," Sachs says. "First, your home is now the employee's primary residence, and he or she is a human being and has human needs."

Problems frequently arise if an employer hasn't completely thought through the live-in situation. "For example, say the nanny lives in, works Monday to Friday and doesn't have her own kitchen facilities," Sachs says. "The employer needs to understand that she will need to use 'common areas' of the home for her needs during her off hours."

Privacy is another big concern. "If privacy is paramount in the family, a live-in nanny doesn't work unless there are separate quarters with food-prep facilities," says Sachs. "Remember, room and board is seven days per week."

The live-in issue isn't such a concern when it comes to chefs, says Paier. "Of our clients, 95 percent want live-out staff. That's with the main estate. If they travel from one home to another, then the chef would probably stay at the residence."

Tax Issues

Important tax issues come into play with the hiring of domestic staff. "The employer should obtain a Federal Identification Number and do a registration with the state for unemployment insurance," says Stewart Berger, a CPA with Rosen Seymour Shapss Martin & Company LLP, based in New York. "The employer should give the nanny a W-4 as to number of exemptions to be claimed for withholding tax purposes."

Employers should also be prepared to deal with a considerable amount of paperwork related to household help. "The employer is to file annually Schedule H of Form 1040 which is based on a calendar year, and pay both the employees' and employer's share of Social Security and Medicare tax, and any federal withholding tax deducted from the nanny's salary," Berger says. "The employer is also required to pay Federal Unemployment Insurance tax on the first $7,000 of each employee's wages at the rate of 0.8 percent. These taxes are in addition to their regular individual tax. To avoid penalties for underestimation of tax the employer should include these Schedule H taxes as part their quarterly estimated tax payments."

Alan Straus, an attorney and CPA in New York, adds, "The major tax concern that I see is not the extra tax to be paid--it is the compliance issue that no one wants to be bothered with. Each state has different requirements but in New York, for example, there are still quarterly filing requirements you must comply with for a domestic employee. Also, you must get the proper workman's compensation and disability insurance in place before you can hire a domestic employee. It's not expensive, but it's just a hassle to deal with, and most people who don't know about it never think to get it. They hire the nanny and then find out they're in trouble because they don't have the required insurance."

Straus says employers must be aware of all types of required paperwork related to household staff, such as the "new hire" form. "There is a form to fill out and send in to your home state every time you hire someone," he explains. "The form is due within a certain number of days after the employee begins work and, like everything else, if you don't comply, you could face a fine (usually around $50)."

"The biggest 'horror story' has to do with not having the proper Workers' Compensation insurance in force for a domestic," Straus says. "That is something that will only happen if you've properly treated the employee as an "on-the-books" employee. If that domestic employee should happen to trip over your kid's toy or fall down the steps because of some laundry left lying around, and there is no Workers' Comp insurance in place, you can face one heck of liability issue there."

And there in lies a lesson: Having a good domestic staff can make life a lot easier. But it doesn't make it perfect.

Bobbi Dempsey is a freelance writer and the author of several titles in the "Idiot's Guide" series.

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