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To tell or not to tell, that is the question. For some people, it might not make sense to tell the nanny that there's a nanny cam in the house. However, that doesn't mean you have to tell her where they are, or when you'll have them turned on. Rather than being a secretive spy, talk to your nanny about the fact that you'll be periodically doing nanny cam checks. To follow up, you could have monthly meetings with the nanny to say “job well done!” That's right; nanny cams don't have to be used primarily for negative feedback. It's not unusual for new office workers to have to complete a three month, six month, or one year probationary period, so why not negotiate the same kind of probationary period for your nanny? Since you won't be there watching everything the nanny does all day, installing a nanny camera is the next best thing.
Being open and honest about the fact that you're using a nanny camera (for the probationary period only) you'll show that you're an ethical employer and that you value your nanny's dignity. If the nanny has something to hide, she won't get as far as signing the contract, let alone allowing you to video record her!