@Glatt: I was just wondering if you are married or have male child(ren) over 13, isn’t there the issue of Yichud?
Also, if you do use a W-2 as oppossed to a 1099 find out if you have to pay Unemployment Taxes for the Nanny. Also, check with a labor lawyer and an accountant to make sure what you are doing is on the up-and-up. The IRS don’t play. They are serious.
Will you also expect her to work the major Yom Tovim and if she doesn’t will you pay her for those days off? Will these days off counts towards her vacation days?
cshapiro suggested vacation after 6 months. I would suggest 3. A full-time Nanny position is very hard and exhausting.