A job like your wife had is too much in the gray. That is what sucks. I really feel compassionate for her situation.
Maybe she was a SHITTY nanny. Maybe she was a GREAT nanny.
It is the same in any "service" industry. There are too many loopholes for the employer(but at the same time, so many loop holes for the employees) to maneuver around employment laws.
YES!! every restaurant and service worker loves the idea of being able to make a lot of income outside of "the box" and not have to pay taxes. So do the employers in this industry.
The problem that they both face is when one of them "the employer or the employee" gets in a situation where they need to file a claim or utilize the resources of their state/federal labor laws, these fun and games under the table become not so much fun anymore.
The US is basically the ONLY country that has laws in place that religiously fights unions and fights workers coming together to form even the most BASIC unions that protects them from the "best interest of their employer."
I know a bunch of Hannity fans will flame this statement but...
Take in to consideration WalMart. They are the largest retailer on the PLANET and in the U.S. one of the largest employers. At the same time they are a private (non traded) corporation. Basically they can do WTF they want to do. Because they have exercised their power to an amazing degree, and in many instances destroyed the great small business market that many towns and small cities relied on for DECADES, WTF.
This is not capitalism, and the rational to regulate them is not socialism.
I love being an American but am embarrassed again and again by the general ignorance and regular but unfounded nationalism, and even "uneducated douchbaggery" that I see every day, in the world and on the forums.