We've had a nanny twice a week since I went back to work when my older daughter was 5 monhts, and I love it. She's amazing and its been so good for our family. If money isn't the deciding factor, then for me a nanny is the easy call for an infant. Socialization just doesn't matter or happen at this age, and one-on-one care is so great. And I don't really know that I agree there is more of a guarantee in terms of quality in day care. Just like nannys there are great and terrible day cares too. A few other benefits of nannys I'd add is that you don't have to do all the packing-up and getting the baby to day care, which can be a signifcant time suck, and the nanny can do a fair amount around the house, in terms of laundry, clean-up etc, which has been a lifesaver for us.
All that said, in the end its the individuals that matter. A bad nanny will be worse than a great daycare no question, so finding a good fit is important. If you go the nanny route, I'd make sure to interview a number of people before deciding, and do half-day trials with your top two or so. This should give you a pretty good sense of whose the best fit. And speaking of fit, personally, I'd pay a lot of attention to the intangables--who you feel comfortable with, whose parenting philosophies line up with yours, etc--not just how much experience they have.
In terms of paying, technically you do need to withold taxes and SS and pay payroll taxes as soon as you pay them more than about $1000 a year. But, at least in California, most people seem to pay nannys under-the-table, i.e, in cash with no taxes withheld. As lawywers, we pay over-the-table though, and use a service to handle the taxes, which is called Breadlove. There are also some web based programs you can use to help with this that are less expensive though, which I probably should switch to. (I can dig up the name if you want), and really you can do it yourself if you just take the time to figure out all the rules.
Good luck. While I'm a fan of nannies, I know plenty of people who have been extremely happy with day care for infants too, so in a lot of ways it comes down to personal preference. If you are undecided, you may just want to start looking at both and see what feels right.