Running payroll for a daycare: costs, taxes and software

Payroll starts with the time card: each teacher's and assistant's hours at their hourly rate.

The floor under that rate is federal — $7.25 per hour for employers covered by the Fair Labor Standards Act, the wage the U.S. Department of Labor enforces — and your state may set a different rate, so pull the current figure for your state from your state labor agency rather than from memory.

Employer Social Security and Medicare ride on the wages you pay. For 2026, Social Security tax is 6.2% each for employer and employee on wages up to $184,500 while Medicare is 1.45% each with no wage cap (IRS Publication 15).

The employee halves come out of the paycheck; the employer halves are your bill — together, 7.65 cents on each wage dollar under the Social Security wage base, and the Medicare side has no cap.

Federal unemployment tax is a per-employee line that is easy to miss. The 2026 FUTA rate is 6.0% on the first $7,000 of each employee's wages, and employers that earn the full 5.4% credit by paying their state unemployment contributions pay a net 0.6% (IRS Publication 15).

Your state unemployment account is its own line, with its own rate notice from your state workforce agency — that is the number to budget.

Workers' compensation is a separate purchase with rules of its own: daycare insurance covers what it is and what to ask an agent.

Bonuses are wages. Referral, sign-on and holiday bonuses are subject to employment taxes like any other pay, and employers may withhold federal income tax on supplemental wages at a flat 22% (IRS Publication 15) — which is why a bonus run belongs on the payroll calendar, not in an envelope of cash.

Two more payroll costs hide in hours rather than rates.

Required training — the state-mandated licensing courses your staff must complete — is generally paid work time under the FLSA, not an unpaid homework assignment.

And who can be salaried is its own question with two routes: the white-collar exemptions carry a $684-a-week salary threshold, the level the DOL restored after the 2024 increases were vacated, while the teaching exemption sets no salary minimum but requires a primary duty of teaching in an educational establishment — and whether a daycare center counts as one depends on state law. Overtime and breaks for childcare employers walks both questions — budget for the paid training hours either way.

Confirm the current year before you run January. The figures on this page are the 2026 numbers from IRS Publication 15; rates and wage bases move.

Check the current figures with the IRS or your payroll service, and take your state's unemployment and pay-date rules to your state workforce or labor agency.

The payroll job itself is mechanical: hours in, gross pay out, the employee halves of Social Security and Medicare and income-tax withholding come off, the employer halves go on, everything is deposited with the IRS and reported, and each employee nets a paycheck (IRS Publication 15).

Hand-running that in a spreadsheet is possible; the failure mode is a missed deposit or a mis-filed return.

That is the argument for handing the mechanics to payroll software or a payroll service and keeping the decisions — hours, rates, bonuses, new hires — with you.

What a center needs from payroll software that a generic small business might not. A center's payroll questions are hour-shaped — substitute hours covering absences, staff who start or leave mid-cycle, paid training days, and the occasional bonus run taxed as supplemental wages — so the time-tracking side matters as much as the tax side.

If you do salary anyone, the software has to apply the exempt salary test correctly — the overtime and break rules page linked above covers who fits it.

Payroll software is not the same purchase as your center software. The center management platforms are a different purchase — center software covers what they do — and where a platform exports attendance or timesheet data, that export can feed payroll instead of retyping hours.

Compare the two purchases separately and check any integration claim against a live demo of your own weekly workflow.

Wherever the hours come from, someone has to schedule them first: daycare staff scheduling covers building the roster that feeds the time card.

Payroll share of revenue is one division: every payroll dollar your center paid out over a period — wages, the employer halves of Social Security and Medicare, federal and state unemployment taxes, paid training time, bonuses and any benefits — divided by the revenue the center took in over the same period.

Run it monthly or quarterly.

The trend matters more than any single month, because enrollment swings and subsidy timing move both sides of the fraction.

The nearest national figure is a share of expenses, not of revenue: a 2021 U.S. Treasury report, citing a Center for American Progress cost analysis, put wages at no less than 50-60 percent of child care expenses on U.S. averages, with labor's share larger for infant care.

Keep the two ratios straight.

The Treasury figure describes where the weight sits inside a center's costs — and it is a dated national estimate, not a target.

Your payroll-to-revenue number describes whether the tuition and subsidy revenue your market supports can carry your roster.

That one is yours alone.

Our research did not verify a payroll-as-share-of-revenue benchmark for childcare centers, so no industry target belongs here. The honest use of the number is internal: compute it, compare it against the budget you built, and watch the direction.

If the share is climbing, either revenue has to move — how to set daycare tuition rates covers that decision — or the hours behind the payroll line do.

It is also the number to re-run before you spend.

A raise or a new hire costs more than the sticker wage once the employer halves — 6.2% and 1.45% — and unemployment taxes ride on top, and every pay decision lands on profit margin at the bottom of the budget.

It is also a staffing decision, which is why the budget review belongs in the same sitting as your retention work.

Hire your first assistant and the payroll layer above arrives at your kitchen table.

If the FLSA covers your program, the federal wage floor of $7.25 per hour applies — your state may set a different rate, so confirm with your state labor agency — and the employer halves of Social Security and Medicare plus FUTA attach to the wages you pay an employee.

What changes from a center is scale, not mechanics: one employee on one schedule still means deposits, filings and records. Hiring a home daycare assistant covers the hire itself: qualifications, background checks and when you need a second adult.

The one decision to get right is employee, not contractor. The DOL's independent-contractor rule is mid-change: a proposed rule published February 27, 2026 would return to an "economic reality" test built on two core factors — control over the work, and opportunity for profit or loss — with the comment period closed April 28, 2026 and no final rule as of October 5, 2026, and the DOL has said it is not applying its 2024 rule in investigations in the meantime.

As a practical matter, an assistant who works your hours, in your program, under your direction has the profile of an employee under either version of the test — but that is analysis rather than a rule, state tests can be stricter, and it is a question to settle with a tax professional before the first paycheck, not after.

The same habits as a center, then: bonuses are wages, with the flat 22% supplemental withholding option; confirm with your state labor agency whether your state sets pay-date or final-paycheck rules; and keep the time records from the first shift.

One cost that stays out of payroll: food.

Groceries are an operating expense of their own — home daycare tax deductions covers how the IRS standard meal and snack rates for family daycare providers work.

This page is employer information, not licensing or legal advice. Payroll tax rates and deposits belong to the IRS and your state revenue agency; wage-and-hour rules belong to the U.S. Department of Labor and your state labor agency; staffing requirements sit with your state child care licensing agency. Confirm the figures and rules that apply to your program with those agencies or a tax professional before you run payroll.