Q. I plan to hire a full-time caregiver for my husband, and I want to make sure that I handle everything legally. Do you have any suggestions as to how I handle payment or anything else?
A. Yes. There are specific rules about handling the payroll, tax and employment law aspects of hiring household help, especially a caregiver. Here are some tips:
1. Classify Your Hire Correctly: one of the most common mistakes is to treat the hire as an independent contractor, when they are really an employee. If you have the right to control how, when and in what manner your caregiver handles the job, the individual is an employee and should be so treated. As such, you must make proper payroll deductions when you pay her, and furnish a form W-2 Wage and Tax Statement to her each year. Knowingly mis-classifying your hire as an independent contractor could be viewed as tax evasion and could subject you to penalties and back tax payments.
2. Do Not Confuse Gross Pay with Net Pay: gross pay, less payroll deductions, equals net pay. Make sure that both you and your hire are on the same page. At the time of employment, prepare a sample payroll stub which shows gross income, deductions, and net pay and discuss this. Doing so can go help avoid misunderstandings. Both the IRS and the Franchise Tax Board have easy-to-follow publications to assist you. You might ask your tax preparer to show you how to do this once, so you can do it yourself each payroll period thereafter. He or she can also prepare quarterly reports for you to send to the IRS and FTB. You might also handle this by using an online payroll service (e.g.Payroll.Intuit.com, or Care.com/HomePay) to do it for you.
2. Pay Overtime Correctly. A new California law will take effect in 2014, called the Domestic Worker Bill Of Rights. It will require the payment of overtime to a person employed to assist with domestic work (including caregiving) if they work more than 9 hours in any single day or more than 45 hours in the work week. Overtime is at the rate of 1.5 times the regular hourly rate. This requirement cannot be circumvented by offering a fixed salary: fixed salaries are legal for “exempt” workers (generally white-collar professionals), but are illegal when employing a nonexempt work such as a caregiver.
3. Secure a Workers Compensation Insurance Policy. Protect your hire, as well as yourself, in the event he or she is injured on the job. Families who do not have workers compensation coverage expose themselves to significant financial liability. You may be able to do this by purchasing a special endorsement to your homeowner’s policy, often at modest expense. Be sure to tell your insurance agent that you are seeking an endorsement for an employee performing domestic work in your home on a regular basis, and not for someone performing occasional work on your premises.
4. Confirm “At Will” Employment in Writing. You should prepare a simple employment agreement which recites that the employment arrangement remains “at will” and may be terminated by either party with or without cause. This affirms basic California employment law, but may spare you a lawsuit in the event the relationship sours.
Handling the employment relationship appropriately can be mutually beneficial: you will be complying with law, protecting yourself from financial surprises, and may find that your payments to your caregiver are tax-deductible. At the same time, you will create benefits for your employee in the form of contributions toward Social Security, Medicare, unemployment and state disability, and provide a documented source of employment income to enable her to apply for credit. Following these basic guidelines will help foster a long-lasting relationship.