Beware of Cheap Rates for Caregiving…

Before You Place Your Family's Estate at Risk Read What you Need to Know about the Rules for Home Employees

Because of the dramatic increase in the payroll costs of operating in California and the lack of any licensing requirement, a number of companies that provide non-medical care in the home are operating in a very shady manner. By classifying their workers as “Independent Contractors” they can save 30-50% in required payroll deductions and insurance costs. It is Important to know that household workers and caregivers rarely, if ever, qualify as independent contractors.

The Social Security Domestic Employment Reform Act of 1994, was passed by Congress as media reports of high profile individuals noncompliance increased which was known as “Nanny Gate”. This act was designed to make it easier for individuals who employ household help to report and pay taxes on those workers. When hiring a worker in the home, the following rules now apply:

• Employers may not hire an illegal immigrant.
• Beginning Jan. 1, 1994, Household employers must withhold Social Security taxes, and pay a matching share of Social Security taxes as well as unemployment insurance payments, pay worker's compensation and withhold state income tax for workers whose wages exceed $1,000. Household employers must report and pay withholding taxes and payroll taxes on their personal income tax return.
• Household employers must provide the employee a Form W-2 at the end of the year documenting wages earned. A copy must be filed with the Social Security Administration and the State and Local taxing authorities.
• Workers under the age of 18 are exempted unless household service is the individual's only employment. For example, if you hire a 16 year old as a baby-sitter on Saturday nights, you would not have to report and withhold taxes. However, if the 16 year old is hired to care for your elderly mother, or to do household cleaning you would have to withhold and report.
• Household workers, regardless of age or type of work performed, must report all payments on their personal income tax return. Many people believe that it is an option to let the worker account for his or her own taxes, so that you do not have to do withholding. This could not be farther from the truth. And, the taxes could be the least important issue!

Any company that does not treat their caregivers as true employees puts you at great potential risk because you, not just the company providing the worker, assume the full liability of having an independent contractor in your home. If you or the company providing the worker misclassifies an employee as an independent contractor, Worker's Compensation may be after you as well as the IRS. For example, suppose your household worker is injured while working taking care of your elderly mother. Is this worker going to just say "that's O. K.?" Not likely. The worker could be filing a Worker's Compensation claim against you and/or your mother, and what if they find you have been misclassifying this worker as an independent contractor? The IRS, the Department of Labor's Occupational and Safety Administration (OSHA), the State of California State Income Tax, Unemployment Insurance and Worker's Compensation will be knocking on your door. Even if the worker wants you to treat them as an independent contractor, you can not do it! Workers will often want you to pay them in cash so that there is no reporting to the IRS. Don't do it! You could quickly find multiple government agencies coming after you to pay both uncollected taxes and penalties plus any unpaid State required insurance premiums. And, there are still possible caregiver lawsuits and claims against your personal liability insurance plan. Household employers should check with their homeowner's insurance agent to see if household employees are covered (most do not cover this!).

When you add it all up, hiring a "independent contractor" could mean putting your Families Estate at risk.

Is it really worth it?