How it works
Generally, reducing your caregiver's pay should be a last resort. If you absolutely can't reduce her hours and have no one else to turn to for a share care or free help, then this option may be on the table—but you must be fully prepared for your caregiver to bow out of the arrangement so she can find a job that does pay a standard rate.
If reducing your sitter's rate is something you must do, think about what you can reasonably afford and whether or not it's a significant difference from what she earns already. Try not to reduce her current salary by anything more than 20 percent, otherwise you may risk offending her and burning that child care bridge for the future.
For example, if you pay a sitter $10 per hour for a 40-hour week, just reducing her rate by 5 percent can save you $20 each week.
What to do
When you are talking with your sitter, be completely honest and explain that the economy is affecting your family and that you simply must offer lower pay in this job. Notice how you don't say that you're offering her lower pay (assuming she'll stick around). Tell her that you completely understand if she can't continue working for the reduced rate, but you wanted to at least give her the option.
Creative Tip: Since you can't offer financial incentives, do other things to make the job more appealing. Perhaps you make it clear that there are no light housekeeping duties, you always include the sitter in the meal plans, let her use your car to drive the kids instead of her own, etc. Whatever you can do to compensate for the pay cut may make her consider your offer more seriously.