The CPA or accounting professional is often the first resource a family consults when hiring a nanny or senior caregiver. Families have questions about their tax responsibilities and the myriad rules and responsibilities that surround their new role as a household employer. You of course are knowledgeable about household employment taxes (the so-called “nanny taxes”) and have probably assisted many families to report and pay these taxes as part of your personal income tax practice. While you and the family can of course refer to IRS Publication 926 for specifics about Federal household employment tax reporting, your experience tells you this is not the end of the story.
Most families don’t have the expertise, time or inclination to address these obligations properly. All too often, you are consulted after mistakes have been made, deadlines have been missed and the family finds themselves in a dubious pen-pal relationship with one or more taxing authorities.
You can help your clients avoid some very common mistakes by coaching them on key elements of their caregiver’s compensation agreement. A family that covers these bases at the time of hire not only solidifies the employment relationship with their caregiver, they also establish a framework that helps them avoid costly wage disputes down the road. Clear communication on important aspects of the financial relationship is essential.
1. Always state wages in gross pay terms!
Many household workers have never worked ‘on the books’ and have no working understanding of payroll taxes. It is common for the caregiver to state their salary requirements or hear a job offer in net wage, or take home pay, terms. Your client and their caregiver are often not speaking the same language; it is imperative that your client take the time to explain what the wage offer is, as well as what taxes they will be deducting from the paycheck. Suggest they use an online payroll calculator to prepare a sample paycheck calculation and go over this in detail.
2. Detail payroll tax deductions!
Your client, as a household employer, is responsible for Social Security, Medicare and unemployment taxes. Household employers, however, are not legally required to deduct income taxes from their caregiver’s wage. Your client may tell the caregiver that they are “deducting taxes”, and when a W-2 form is prepared the caregiver realizes no income taxes were deducted and they owe what is to them a substantial tax bill. A best practice is to provide a pay stub with each paycheck with clear itemization of wage calculations and tax deductions. The household worker who may have been paid cash under the table in previous jobs may need some extra hand holding to help them understand.
3. Pay by the hour, and don’t forget the overtime!
The Fair Labor Standards Act classifies household employees as non-exempt workers. Non-exempt workers are hourly employees, and they must be paid for every hour worked. Many families will offer a fixed weekly wage that they guarantee. It is imperative; however, that this wage be documented at its proper hourly rate, including an overtime rate if required. Anytime a caregiver works extra hours outside the weekly guaranteed schedule, the family must pay for those extra hours. It is illegal to offer compensatory (comp) time or to bank hours. A work week is defined as a fixed 7-day period, and hours over 40 must be paid an overtime differential of at least 1.5 times the regular hourly rate in accordance with state and federal law.
State regulations increasingly are expanding domestic worker rights and protections – household employees in California, Hawaii, New York, Maryland, Massachusetts and Minnesota all enjoy workplace rights that exceed those established at the federal level. Many other states are considering proposals that expand domestic worker rights. Labor law enforcement has stepped up nationally, and household employees increasingly are encouraged to file wage and hour grievances when they believe their payroll is not being properly calculated.
Special Rules for Live-In Caregivers: Federal law does not require a family to pay an overtime differential to live-in caregivers, but these workers must be paid their hourly rate for every hour worked. Bear in mind, however, that many states have stricter standards and your clients are bound by the rules and regulations in their state.
4. Document paid time off, including sick and holiday pay!
Your client is not required by federal law to provide any paid time off for vacation, sick or holiday pay to a household employee. Most household employers offer some basic paid time off to help attract and retain the better workers, and state and local ordinances are in place across the country to provide a minimum suite of paid time off benefits to household workers. Your client may wish to pay for certain federal holidays, for example. These should be specifically identified in the written compensation agreement. Family policy for vacation and sick pay, including accrual, must also be articulated.
5. Get Ahead of the Curve!
All too often clients will wait until tax time to mention that they hired a household employee, thinking that, as their accountant, you will take care of their obligations with their personal tax filing. While this is true for Federal household payroll taxes, they don’t realize that state requirements, such as new hire reporting, quarterly unemployment tax filings, worker’s compensation insurance requirements, etc., are issues best addressed at the time of hire and not months later during tax season.
For this reason we recommend that you include a friendly reminder in your periodic communications to your high net worth clients reminding them to contact you if and when they hire a domestic employee and not wait until tax season so that you can get them setup correctly from the get go.
If your firm does not specialize in household payroll, refer to a trusted partner that specializes in household payroll that can assist your clients with expert advice at the point of hire. A household payroll service like HomeWork Solutions will help the family address all of the issues above, including obtaining worker’s compensation insurance. Proactively addressing the issue with your clients will save you time and valuable resources during critical tax season. Furthermore, you strengthen the relationship between you and the client because it demonstrates that you and your practice are dedicated to looking out for their best interests.
By Dr. Lindsay Heller, Psy. D.
Working with a nanny can be one of the most rewarding options your family chooses in their lifetime. The key to a successful relationship with your nanny is without fail having a clear and open communication channel. In light of recent events in the news showcasing untraditional situations portraying nannies in a negative light, I wanted to take a moment to acknowledge that these families failed to implement the following things. Let’s use this as a learning tool to move forward and do things the proper way!
Have A Formal Work Agreement
It is way too often that I see families taking on new nannies and just starting to pay them under the table because things appear to be “working out just right.” Inviting someone into your home on such a frequent basis requires deliberate care and decision-making. Yet despite how intuitive or excited you might feel about your new nanny, it’s imperative that you have a written work agreement outlining duties expectations, rates, holidays etc. – anything and everything that you would see in a formal contract of any nature. If and when expectations change in the future from either you or your nanny, you will want to have everything cleanly and neatly written down to avoid disaster down the line!
Establish Preferred Mode(s) of Communication
The way that each mom or dad prefers to be contacted will of course vary from family to family. I have and always will stand by that in-person communication trumps all! There is nothing like face-to-face connection in order to get your point across or to set guidelines clearly and efficiently. Be sure to set-up with your nanny how you would like to be contacted on a daily basis. Are you looking for daily text check-ins? Do you prefer a weekly e-mail summary of updates, photos, or thoughts? What is the most appropriate form of communication in your household? Decide before hiring your nanny and then set the expectations. A new popular idea is that nannies are keeping written Kid Logs, kind of like a journal, only it’s made specifically for the parents with weekly updates. This is a great memento for the kids down the line, too!
Address Conflicts Immediately
While in an ideal world, everything in our household would run smoothly 24/7, as parents, we know that this is often far from the case. If and when conflicts arise or you see something that your nanny is doing you’d like done differently, do not hesitate to reach out and gently acknowledge the issue at hand. Tip: Do wait until the children are in another room, or are sleeping etc., as they should not be exposed to witnessing the conflict. But I encourage you to reach out to your nanny right away. Use a firm but caring voice, ask questions, and offer suggestions as to how the situation can improve. Holding in your feelings will only prolong the situation and make things worse. Nip conflicts in the bud and you’ll feel happier and more relaxed, trust me!
Dr. Heller is a mother of two sweet girls. When she’s not playing “tea party,” she’s a professional nanny consultant known as The Nanny Doctor. She blogs, tweets, and Facebooks endless nanny wisdom. Check her out here at TheNannyDoctor.com or on Twitter @thenannydoctor.
Thank you Dr. Heller for sharing your wisdom with HomeWork Solutions' followers.
Massachusetts’ Domestic Workers’ Bill of Rights (DWBR), S.2132, passed the MA Senate on May 8, the MA State House on June 18, and signed into law by Gov. Duval Patrick on July 2, 2014. The bill goes into effect April 2015.
The MA DWBR is largely modeled after similar laws in California, New York and Hawaii. It expands upon the other states' laws by including job protection for maternity leave and defined notice of termination. It will guarantee a nanny, housekeeper or senior caregiver in Massachusetts:
- Day of Rest: Domestic workers must have a minimum of 24 hours free from duty in every 7 day work week, and at least 48 consecutive hours off once per month. A nanny, housekeeper or senior caregiver may agree to waive their day of rest, however this agreement must be in writing.
- Sick Pay: Massachusetts domestic workers will earn 1 hour of sick pay for every 30 hours worked, to a maximum 40 hours per year.
- Paid Time Off: A nanny or senior caregiver, after one year of service, or 1250 hours of work with an employer, whichever comes sooner, will earn 5 days of paid time off. An additional day of paid time off is added after every three months of full-time work or after every 310 hours of work, whichever comes sooner.
- Sleep Time: Consistent with federal law, a domestic service worker who is required to be on duty for more than 24 consecutive hours may agree with the employer in writing to exclude up to 8 hours of bona fide sleep time from their compensable hours.
- Notice of Termination: For a nanny or senior caregiver who lives in the employer’s residence, the employer must provide either 30 days advance notice of termination or 2 week’s severance pay in lieu of notice. “Neither notice nor a severance payment shall be required in cases involving good faith allegations that are made in writing with reasonable basis and belief and without reckless disregard or willful ignorance of the truth that the domestic worker has abused, neglected or caused any other harmful conduct against the employer, members of the employer’s family or individuals residing in the employer’s home.”
- Limits on Deductions for Food, Beverages and Lodging: The bill strictly defines and limits the terms and conditions under which a domestic employer may make deductions from a domestic worker’s pay for food, beverages and lodging. These deductions must be agreed to in writing and may not exceed the actual cost of the food, beverages or lodging to the employer.
- Written Work Agreement: When a domestic worker is employed 16 or more hours per week, the employer must provide a written agreement to the worker that defines “(i) the rate of pay, including overtime and additional compensation for added duties or multilingual skills; (ii) working hours, including meal breaks and other time off; (iii) if applicable, the provisions for days of rest, sick days, vacation days, personal days, holidays, transportation, health insurance, severance, yearly raises and, whether or not earned, vacation days, personal days, holidays, severance, transportation costs and if health insurance costs are paid or reimbursed; (iv) any fees or other costs, including costs for meals and lodging; (v) the responsibilities associated with the job; (vi) the process for raising and addressing grievances and additional compensation if new duties are added; (vii) the right to collect workers’ compensation if injured; (viii) the circumstances under which the employer will enter the domestic worker’s designated living space on the employer’s premises; (ix) the required notice of employment termination by either party; and (x) any other rights or benefits afforded to the domestic worker. Failure to comply with this paragraph shall constitute a violation of paragraph (3) of section 19 of chapter 151.”
- Job protection for maternity and adoption leave.
The MA DWBR also expressly codifies in state law several domestic worker rights and domestic employer obligations addressed in the Federal Fair Labor Standards Act (FLSA). The FLSA already covers all Massachusetts domestic service workers such as a nanny, housekeeper or senior caregiver. That means domestic workers in Massachusetts do not need to wait for the MA DWBR to become effective to have these protections. These include:
- Overtime: A domestic worker who does not live with the employer must be paid overtime of no less than 1.5 times the regular hourly rate of pay for all hours on duty over 40 in a work week. This includes meal and rest breaks when the worker is required to remain on the premises.
- Employer Recordkeeping: Employers must maintain accurate and contemporaneous records of hours worked, the rate of pay, and the calculations of all wages and deductions.
Household employers in Massachusetts have until April 2015 to complete the necessary paperwork and insure that their employment arrangement meets the minimum requirements of the MA DWBR.
HomeWork Solutions simplifies the "nanny taxes" and household payroll for thousands of families nationwide. We love talking with our clients and other families - for more than 20 years we have provided free telephone consultations.
Call Us Today!
I spoke to a prospective client today on the phone. She just hired a senior caregiver - a woman she calls "Mom's helper" - to come in daily to assist her mother around the house. Her mother has had a series of falls recently, none serious, and needs basic help and companionship at home during the day while her daughter is working. As a sandwich generation daughter of a mother with similar issues with aging, I completely understood why she took this step and the challenges she faces trying to balance her Mom's needs and her own professional and economic needs.
The senior caregiver used to work for a big national senior care chain, one that advertises on TV all the time, and she is accustomed to regular payroll. My caller never thought of payroll taxes until the caregiver questioned her when she was written her first "paycheck." Like many of our callers, she was looking for a way out, a way that she could feel justified in treating Mom's helper as an independent contractor.
The reality is that the caregiver IS an employee. Employee's receive instruction or direction on the job, the employer has the right to tell them what to do, how to do it, when to do it. The caregiver also is paid a wage - she has no opportunity for profit or loss. My caller can also discharge or fire the caregiver for an reason, or no reason at all, without penalty.
I explained to the daughter that this is not ALL negative! No one likes paying taxes or the paperwork of course, but there are some particular benefits to the family here. Unemployment insurance is a big protection for the family and the caregiver. Should the caller's Mom need to transition to more managed care in a facility and no longer need her helper, the worker can file for unemployment benefits. I reminded my caller that these transitions often come with little or no warning - a fall or serious illness can change mom's care needs overnight. I also encouraged the daughter to quickly obtain Workers' Compensation insurance (HWS has a partner who works with our clients on this!). There is a real risk that the caregiver could actually become injured 'helping' Mom, and this is important protection of the daughter's assets should there be an un-insured workers' compensation claim.
My caller enrolled for HWS' NaniPay full payroll service - and completely outsourced the bi-weekly payroll and all tax filing and remittance to us. At the end of the call she remarked that she had been so worried about how to proceed and was so grateful that HWS took the time to counsel her, guide her and point out the relatively easy steps she could take to protect herself and Mom's helper. This client can now focus on what is important to her - the well-being of her mother and helping her realize her desire to age in her own home safely and well cared for.
Hiring elder care is complicated enough balancing the wishes of the aging parents and the risks and responsibilities of becoming a household employer. HWS understands the dynamic. Do you have questions about senior care and aging in place? Call HWS - we are happy to offer you a free telephone consultation.
Employee v Independent Contractor Wizard
Video: Employee or Independent Contractor
The Bracamonte family and their former "nanny" Diane Stretton put the term "Nightmare Nanny" into our vocabulary this summer. The Bracamonte family "hired" Ms. Stretton to care for their children in exchange for room and board, and when the relationship fell apart Stretton refused to move out. That is when the Bracamonte's nightmare nanny story began.
This scenario is so rare and so frightening it became a cause celebre on the news, including such prime-time shows as ABC's 20/20. So exactly what went wrong and how do you avoid this risk when you hire live-in caregivers?
#1 - HIRE AN EMPLOYEE. DON'T EXCHANGE LODGING FOR SERVICES!
An employee is paid a wage for work performed. Household employees such as a nanny or senior caregiver are entitled to some basic labor protections such as pay at no less than the hourly minimum wage, unemployment coverage, and workers' compensation protections. The nanny or caregiver may be provided room and board, but it must be contingent on continued employment (a lawyer can help you here!). The Bucamonte family essentially rented a room to Stretton in exchange for some childcare - establishing a tenancy arrangement that had nothing to do with employment. Stretton paid her rent with childcare.
#2 - A SOLID, WRITTEN WORK AGREEMENT IS ESSENTIAL.
Household employment experts all agree, a written work agreement between the family and the nanny or caregiver is a best practice. This memoralizes the employment agreement, including compensation, benefits (lodging and meals) and other factors that establish the relationship between the employer and the worker. A properly written work agreement (and legal pay) would have precluded Stretton from claiming tenant rights. Tenancy laws vary by state - consult a legal expert in your state for help if you don't feel comfortable going it alone in this area.
#3 - PROPER BACKGROUND SCREENING WILL RAISE RED FLAGS!
Any familiy who is hiring a nanny or caregiver to care for their vunerable family members - whether they be children or seniors - must do thorough pre-employment screening of anyone they wish to hire. All too often a family will 'follow their gut' based on an interview and neglect this important part of the hiring process. Minimum screening should include:
- SSN Trace to verify applicant identity
- Verification of address history
- Criminial records trace using all names used in the prior 7 years
- Sex Offender Registry screen
- National Criminal Records Locator service screen
- Driving records check (optional)
- Civil records check (optional)
- Drug screening (optional)
The news media was quickly able to find detailed records of prior civil court cases involving Stretton - the Bracamonte family could have learned about this in advance too.
#4 - REFERENCE CHECKS SHOULD NEVER BE OVERLOOKED!
Checking an applicant's references can be a tedious process, and families are often in a hurry to staff that caregiving vacancy. No matter how rushed the process, how urgent the need, DO NOT hire a nanny or caregiver without having a detailed conversation with their references, particularly former employers. Keep calling, texting, emailing until you can talk to the reference. A former employer who will not make themselves available for even a brief phone call may be avoiding a situation where they are asked questions they prefer not to answer.
DO YOU HAVE MORE SAFE HIRING TIPS FOR READERS? SHARE BELOW!
Are you a nanny caring for young children or a senior caregiver caring for a frail adult? Do you employ a nanny or senior caregiver? Does this caregiver know how to reach important parties in an emergency? Every caregiver should be provided with an Emergency Contacts list at the start of employment.
Consider the story of our clients Mike and Maryanne. Maryanne is an elementary school teacher. Mike is retired, and is living with early-onset dementia and diabetes. Maryanne and Mike hired a daily caregiver to keep Mike company and supervise his day while Maryanne is at work.
The caregiver's duties include helping Mike take his medication every day at lunch. Maryanne prepares a weekly "pill box" for the caregiver. About a month after the caregiver began working, she noticed that the pill box was not in its ususal location on top of the refrigerator. She looked around the kitchen and living areas and could not find it. She knew that Mike's diabetes medication was very important, and that he needed to take it with his meal. She asked Mike and he didn't know where it was. She then asked Mike where she could find Maryanne's work number to call her. As a teacher Maryanne's cell phone is turned off during class time. Mike became agitated, he (and the caregiver) knew she taught 2nd grade but he could not remember the name of the school. The caregiver knew Mike often remembers information when prompted, and had the presence of mind to pull up a list of county elementary schools on her phone. She calmed Mike down and began reading off the names of the different schools. She worked her way about half way down the list before Mike recognized the school.
This story has a happy ending - the caregiver called the school office and was able to reach Maryanne and resolve the medication issue. The situation did, however, drive home to both Maryanne and her employee the importance of drawing up and communicating emergency contact procedures.
Maryanne called HomeWork Solutions and a team member emailed her an Emergency Contacts Worksheet. The team member also reminded Maryanne that she needed the same information about her employee - who would Maryanne call if the caregiver had an accident or medical emergency?
HomeWork Solutions works with families in all types of household employment situations and has many resources to help families in areas outside payroll processing. These included:
We welcome your phone calls. Don't hesitate to call us at 800.626.4829 if you have a household employment question and we will do our best to connect you with the appropriate resources.
Emergency Preparedness for Nannies and Senior Caregivers
Quality senior care is a challenge millions of families are facing as our aging family members require increasing amounts of personal care services.
Key considerations include:
- A strong desire to age in place
- Limited financial means
- Increased longevity
- Adult children are in the workforce and unavailable to provide care
- Safety, companionship and limited personal care needed
Families decide to hire a senior caregiver to help Mom or Dad, and find themselves faced with yet more challenges including:
HomeWork Solutions' has senior care payroll services, as well as tax compliance services, that are tailored to specifically provide senior caregiver payroll in a simple, family-friendly manner.
Best of all, HWS has trained household payroll specialists who understand the challenges, specialists who have worked with thousands of families in the same circumstances, and these specialists are available to your for a free telephone consultation at 800.626.4829.
Give us a call today, explore your options, and save yourself countless of hours investigation and research!
School is out, and families nationwide are turning to summer nannies to provide safe, individualized caregiving for their young children over the summer holidays.
Most summer nannies will earn enough over the summer to obligate the family for payroll tax payments and reporting - the so-called "nanny taxes."
HomeWork Solutions is here to help! We will cheerfully prorate our summer nanny payroll or payroll tax-only service fees so you only pay for the services you need. You have a short-term need for services for a short term summer nanny and HWS can make this both easy and affordable.
What you need to know:
- If you pay your summer nanny $1900 or more, you are subject to the "nanny taxes"
- If you privately hired your summer nanny, a nanny background check is a recommended practice
- Workers' Compensation Insurance may be legally required - HWS can help, our preferred vendor will issue this insurance for our clients with no application fee
- Your summer nanny is due a W-2 form in January 2015, be sure you have a permanent address
HWS' nanny payroll specialists are available to answer your questions, provide you guidance, and help you estimate your payroll tax expense and your employee withholding. Best of all, this is a free telephone consultation! Call 800.626.4829 today.
Outsourced summer nanny payroll ... important peace of mind for your family!
Free gift! Download our ABC Nanny Hiring Guide today!
Nannies and other household employees, with limited exceptions, are covered under the Fair Labor Standards Act and must be paid no less than the greater of the Federal or state/local minimun wage.
Effective for work performed July 1, 2014 and forward, you must:
- Pay your California household worker at no less than $9.00 per hour. Note there are higher minimum wage ordances in some cities such as San Francisco ($10.74) and San Jose ($10.00).
- Pay your District of Columbia household worker no less than $9.50 per hour.
Clients who employ foreign household workers in the District of Columbia with a G-5 or A-3 visa must begin paying this higher minimum wage for work performed on July 1 and forward. As of 19 June 2014 the July 1 change to the prevailing local wage has not been published by the US Department of Labor.
To confirm the minimum wage where you live, click here.
The D.C. law firm of Seyfarth Shaw, specializing in Wage & Hour Litigation, reports that Federal lawsuits for unpaid wages and unpaid overtime - know as Wage and Hour Complaints - rose last year to an all time high of 8,126 cases.
This marks the 7th consecutive year that these Federal suits have risen, and they are up 438% since 2000. Richard Alfred, chair of Seyfarth’s Wage & Hour Litigation practice, reports that these numbers "would be even higher if wage and hour lawsuits filed in state courts under state pay practices, data which isn’t readily available, were added.”
For individuals, state wage and hour complaints are typically the first step taken to recover unpaid wages or unpaid overtime. Every state makes these services readily available to individuals, and there are support staff to assist with completing the paperwork and pursuing these matters.
Household employers can protect themselves from costly errors, as well as the embarassment of dealing with a formal complaint, by taking the following simple steps:
- Always have your household employee's compensation IN WRITING and stated in hourly rate terms. HomeWork Solutions' free Hourly Rate Calculator will translate your desired weekly wage to your household worker into the appropriate hourly and overtime rates for you.
- Maintain time and attendance records - either electronically using any number of available smart phone apps, or in paper form using tools such as a week at a glance calendar.
- Always pay for overtime. Families often think they can just offer compensatory time off (comp time) and avoid the extra expense. Don't go there, it is not legal under the FLSA.
HomeWork Solutions' staff is available at any time for a free telephone consultation to help you understand these rules. Give us a call at 800.626.4829. Nanny unpaid overtime complaints have risen noticeably in the last decade, and an ounce of prevention can help you steer clear of this hassle.