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HomeWork Solutions Inc. is the leading authority on household payroll and taxes - the  "Nanny Taxes." Since 1993 HWS has assisted tens of thousands of household employers with their payroll and tax compliance for their nanny, housekeeper, senior caregivers and other household employees.

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Kathleen Webb Household Payroll Authority

Kathleen Webb, the President and co-founder of HomeWork Solutions Inc. has worked with nanny employers to simplify Nanny Payroll and Nanny Tax Compliance since 1993.

Ms. Webb periodically updates household employers and nannies alike on issues related to household employment.

View Kathleen (Kathy) Webb (kathy@4nannytaxes.com)'s profile on LinkedIn

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New York City Paid Sick Leave Law for Household Employees

 

(October 1, 2014)

New York City's Paid Sick Leave Law DOES cover household employees. The coverage, however, is a bit different than for workers employed by commercial or public enterprises.


NYC Paid Sick Leave LawHousehold employees who have worked for the same employer for at least one year and who work more than 80 hours a calendar year earn
 two days of paid sick leave under New York City law. The two days of annual sick leave become available at the one-year anniversary of employment.  This applies to all household employees who work in NYC, regardless of where they live. The NYC-mandated sick leave is in addition to the three days of paid rest to which domestic workers are entitled under the New York State Domestic Workers Bill of Rights.

Household employers that already provide at least five days of any kind of paid time off (i.e., personal days, vacation and sick leave) would not be required to provide any additional sick time, either paid or unpaid, under the law.

Who is a household employee? 
New York State Law defines "domestic worker" (household employee) as someone who works in another person's home. A domestic worker's job include:

  • Caring for children or a sick or elderly person
  • Housekeeping chores
  • Other domestic duties performed in the employers' home

This law does not cover household workers who:

  • Work on a casual basis, such as part-time baby-sitters in the homes of their employers and work less than 80 hours in a calendar year
  • Are relatives of their employers or of the person(s) for whom they offer care

Upon termination of employment, the household employer is not required to pay the departing household employee for unused sick leave.  Employers can either pay out accrued but unused sick leave to their household employees annually or  permit employees to carry over accrued sick leave from year to year, up to a maximum of 2 days.

Example: A household employee has been employed for two years. In the second year of employement, the household employee was entitled to two days of paid sick leave. The employee used one day in the year. The employer may either pay out the additional day at the second anniversary date of employment, or credit the household worker with three days of paid sick leave in the coming year. 

How much does an employer have to pay an employee for paid sick leave? 
An employer must pay the employee the employee’s regular hourly rate at the time the sick leave is taken. Employees cannot be paid less than the full minimum hourly wage set by New York State law. As of December 31, 2013, the New York State minimum wage is $8 per hour. It will increase to $8.75 per hour on December 31, 2014 and to $9 per hour on December 31, 2015. 

Example: A household employee is regularly scheduled to work ten hours in the day. The household employee is ill and entitled to paid sick leave. The household employee must be paid for that day's regularly scheduled hours at her regular rate of pay.

What is the effective date for household employees? 
Household employees who began working for an employer on April 1, 2014 or earlier will accrue their first two days of paid sick leave on the latter of August 1, 2014 or their one year anniversary. 

10 Tips from the Best Nanny Industry Insiders About Nanny Job Satisfaction

 

Nanny Job SatisfactionWhen families hire a nanny, they enter the relationship with the best of intentions to establish a mutually rewarding long term relationship between the nanny and the family. You have gone to a lot of effort to locate this nanny, what actions can you take as the nanny employer to insure your mutual satisfaction? What are the keys to nanny job satisfaction?

HomeWork Solutions consulted with the most successful nanny recruiters and this is what they told us:

  1. Remember to acknowledge good performance! Katie Provinziano, owner of Westside Nannies, Los Angeles advises "A simple "thank you" goes a long way. Everyone loves a little positive affirmation and nannies are no different. Just because it's someone's "job" doesn't mean that we shouldn't acknowledge and appreciate their work. Give your nanny positive feedback and let her know when she's doing a great job or exceeding your expectations. Combining that "thank you" with a free massage or gift card to her favorite restaurant for a job well done will go a long way in employee satisfaction!"
  2. Document the nanny job details. "A nanny work agreement that precisely spells out the compensation, benefits, job description and specific household rules related to security, social media and confidentiality is a vital tool for both the family and the nanny to avoid misunderstanding and conflict in the relationship," advises HomeWork Solutions' Kathleen Webb. 
  3. Take the nanny employment relationship seriously and treat your nanny with respect. "Your nanny deserves to be treated as your peer, an equal. She plays a critical role in your household, a role that allows you to pursue other important interests secure in the knowledge that your children are in a safe and nurturing environment," advises Annie Davis, founder of Annie's Nannies in Seattle.
  4. Keep the nanny employment relationship professional. "Having an employee who works in your home can often be a slippery slope and you can fall from professional to too familiar very easily," suggests Katie Provinziano, owner of Westside Nannies, Los Angeles. "Refrain from asking your nanny about her latest date and, at the same time, don't over-share about your mother-in-law. If you wouldn't say it to a peer at work don't say it to your nanny. Keep the relationship warm, friendly, and professional - but don't overstep your boundaries."
  5. Respect working hours and relieve the nanny on time. "As an agency owner, working mom and nanny employer, I know as well as anyone how hard it is to be home on time. In the three years my nanny has worked for me, there have certainly been days when a timely arrival it's just not possible--I'm late, I call, and she understands--but I always try," share's Jami Dennis of ABC Nannies in Denver. "Being timely is respectful. Like any employee, it's important your nanny knows you that respect them, you respect their time, and you respect what they are contributing to your family. Treating your nanny with kindness, gratitude and a healthy dose of respect will go a long ways to ensure they are satisfied in their position for years to come."
  6. Always pay the nanny on time. "You wouldn't be happy if you had to remind your employer that today is payday, or if your employer forgot to pay you for your overtime," suggests HomeWork Solutions' Kathleen Webb. "Nannies particularly appreciate when the family uses a nanny payroll company with direct deposit payroll, as they don't need to run to the bank after you get home from work on Fridays to deposit the paycheck."
  7. Avoid micromanagement. "In any family/nanny employment relationship, there must be some flexibility and autonomy in order to foster a good long-term working environment," advises Marc Lenes, Placement Manager, Wee Care Nanny Agency, Stamford CT. "If you have an excellent nanny that is experienced, loving, proactive, reliable, trustworthy, etc., remember the adage, "one should not lose sight of the forest for the trees."
  8. Pre-fund a household petty cash jar, or provide your nanny a family credit card. Michael Girard, owner of Childcare Solutions, Beachwood, OH cautions "No wage earning employee should ever be expected to finance the costs of working for their employer. That goes double for wage earners who generally live from pay-check to paycheck to pay their own bills. You trust your nanny with your children – trust them with a check card or credit card to use to pay for the things you want them to purchase, whether it’s meals, groceries, activities or gas for the car they use to transport your kids. If you can’t provide a check card, make sure you leave them enough cash to cover all anticipated expenses – as well as the unanticipated things that tend to come up in the course of a week. Be sure to detail your expectations and agreements regarding expense in your work agreement so that there is no confusion and there are no misunderstandings."
    “I cared for my last employers three active children for a year and I loved both the kids and the parents. But I declined to renew my employment with them beyond the first year because every week it was humiliating to have to ask for reimbursement for the cash I had to pay to cover their child care expenses. They were always late in returning my own money to me – and I often had to argue about the reimbursement amount. Even getting reimbursed a fair amount for the use of my car and gas became a problem. I was very sad to have to leave the position but I needed to move on to a family that respected me more.” – Christina H.
  9. Give direction! "We have found that the family/nanny relationships that last the longest are those with consistent and honest communication," Mom's Best Friend's Kim Winblood, Vice President (Dallas/Ft. Worth TX), reports.  "The "daily download" is essential and should not be overlooked as it keeps both the parent and nanny accountable for realistic expectations and any correction that might be needed.  In addition, at a minimum, quarterly and annual meetings should be on the calendar to discuss any adjustments needed due to the child’s growth or other factors that might have an effect on the initial job description.  Nannies value and appreciate relationships with open communication."
  10. Maintain realistic expectations! ABC Nannies' Jami Dennis (Denver) advises "While you may feel like you've hired a Super Nanny, it's important to be realistic when it comes to what needs to be accomplished in a day. As a parent, if you couldn't get through the to-do list in 8 hours, it's unfair to expect your nanny to be able to do so. My advice, as a working mom with a full-time nanny, is to prioritize what's most important, show appreciation when your nanny does more than expected, and be realistic about what can be done in any given day."

     

A special thank you to the wonderful industry experts who have contributed to this post. These individuals have all assisted hundreds, if not thousands, of families in their careers and truly know what works and what doesn't. If you are searching for a nanny and want expert advice and guidance, HomeWork Solutions' recommends agencies who belong to the International Nanny Association or the APNA, industry professional associations that require members to adhere to a transparent code of conduct. These agencies are the crème de la crème and cannot be matched by do-it-yourself online options.

6 Things About Household Payroll Tax Every Caregiver Should Know

 

Payroll Literacy for household employeesNannies and senior caregivers who work in a private home, receive instructions and directions from the family employer and are paid by the family (either directly or via a household payroll company) are employees in the eyes of the IRS and US Department of Labor. As employees, many aspects of compensation and payroll are governed by payroll and labor law, no different than employees in a department store, factory or othr workplaces. Tax and labor law that covers household employees are often unique, and all too often neither the family nor the caregiver know the important details. Household payroll literacy on the part of a nanny or senior caregiver is important as they negotiate pay and benefits with their employers, many of whom don't understand these key points themselves.

  1. Employees receive a W-2 form at the end of the year, not a 1099 form. This is important! 1099 Independent Contractors pay 100% of their own taxes; employees are issued a W-2 form and the employee and employer both contribute to the taxes.
  2. There is a distinction between payroll taxes and income taxes. Payroll taxes include Social Security, Medicare and unemployment taxes, and are an employer responsibility. Social Security and Medicare are shared taxes; the household employer may deduct 7.65% from the nanny caregiver's paycheck to fund the employee portion, and the employer will match this amount and must send the entire tax (15.3%) to the IRS. Unemployment taxes are totally paid by the household employer. Income taxes are ultimately the nanny caregiver's responsibility; the household employer may agree to deduct income taxes for the nanny caregiver from her paycheck but has no legal obligation to do so. It is critical for the nanny caregiver to understand what taxes are being deducted from their paycheck and to make provisions, if necessary, to pay their income taxes independently.
  3. Household employees are hourly, non-exempt employees. Your compensation agreement should state your wage in a rate per hour, and you are entitled to be paid this rate for all hours worked.
  4. Household employees are entitled to a detailed itemization of paycheck calculations and deductions. In the commercial world, employees receive a paycheck that itemizes hourly and overtime rates, the number of hours being paid in the period, and itemized deductions for the Social Security, Medicare and federal and state income taxes (where applicable) being deducted. A household employee is entitled to receive the same information from their employer. 
  5. Household employees who do not live with their employer are entitled to overtime pay for hours over 40 in a 7 day work week, at no less than 1.5 times the hourly rate of pay. Many states extend the overtime benefit to household employees who live with their employer - it is important to familiarize yourself with the law where you work.
  6. The state where you work will determine your allowed pay frequency. Most household workers must be paid weekly or bi-weekly (every other week). Semi-monthly and monthly pay, where permitted, is discouraged due to the difficulty of tracking and paying overtime, which is ALWAYS based on a 7 day work week.
HomeWork Solutions has a short video tutorial - the Anatomy of a Paycheck - that can help the household employee and the household employer both understand the issues above.

National Nanny Recognition Week 2014

 

It is National Nanny Recognition Week - a time to recognize and acknowledge the positive contributions a nanny makes in the lives of the children she cares for. HomeWork Solutions is awed by the love, commitment, continuous learning, effort and passion of these women, professionally dedicated to the wellbeing of our children and to make this world a better one! 

NNRW


September 21 to 27, 2014 is Nanny Recognition Week worldwide.  This is a special week employers, children, colleagues and others have to celebrate the nanny in their lives.   This week, please take the time to recognize and acknowledte the dedication and professionalism of any nannies in your life.  This is a week of celebration and joy for the families, children, nannies and all of us somehow involved in the nanny community…

As a Nanny Payroll and Tax Company, we interact with nannies and their employers all the time.  We witness how life changing a nanny job can be for our children and their families.   

I cannot promise I'll be here for theHWS encourages you to take some time out of your busy schedule to say “Thank you” and to show your nanny how much you appreciate her work and dedication to your family. 

We have some ideas for you; but you know your nanny, acknowledge her in a way she will enjoy and appreciate.  And most importantly, get your children involved!

 

 

Ways to appreciate your Nanny:

Red CheckSay Thank You, Gracias, Merci, Grazie, Salamat, Danke, ...   a handmade note of appreciation in her native language with a picture of her and your children will make her smile

Red CheckSend her home early one day this week … and make it “paid” time

Red CheckTreat her to lunch or dinner out

Red CheckFinancially support her continued professional development through training offered by Nannypalooza or the International Nanny Association

Red CheckGet your kids involved, baking some goodies for her or selecting a gift card for her favorite store. Get creative with your children and get a special something for her … it will be special for your nanny and a lesson of gratitude for your kids!

Red CheckYou could find more ideas on the Regarding Nannies blog

Nannies not only work in your home, they’ve earned a special place in your children’s hearts.  Take this opportunity to make her feel special and appreciated. 

Nannies - This is an opportunity for you to celebrate yourself as well.  Plan something exciting, fun or memorable for you and your charges. Take them out for a movie, ice cream, anything fun?  Celebrate this week; make it memorable for you and your nanny family … just CeLeBrAtE!!  

HomeWork Solutions proudly supports the Nanny Community through educational sponsorship of NannypaloozaINA and more. HWS' financial support to nanny education enables them to receive highly subsidized training from such internationally known experts like Dr. Harvey Karp, Dr. Debra Gilboa, Dr. Jenn Berman and more.                                                       

Managing Trustee Risks wtih Privately Employed Caregivers

 

Manage Trustee Risks Household EmploymentDo you hire, manage and issue payroll to a beneficiary’s caregiver(s) in your capacity as a trustee? If so it is important to understand the legal and tax obligations this type of employment creates for both the trust and you personally.

As a trustee, you are “held to a high standard of performance, considerably higher than the performance acceptable for one's own affairs.” As a trustee you can be held personally responsible for actions you take that create risk to the beneficiary, and may be responsible financially for all monetary consequences of these actions.

Families that hire household employees, whether a nanny for their children or a caregiver for elderly or disabled adults, assume a host of legal and tax obligations as household employers. Trustees, including those managing Special Needs Trusts (or supplemental needs trust), assume similar obligations with the added risk that a legal or tax misstep can threaten their livelihood.

It is critical to address the following issues at the time of hire, before missed compliance deadlines create expensive fines and penalties.

  1. Worker Classification: The temptation to call the privately employed caregiver an independent contractor is great. Independent contractors pay their own employment and income taxes, and the persons hiring an independent contractor appreciate this convenience and reduced costs. However, it is rare that a privately hired caregiver fits the legal classification of independent contractor. In fact, in almost all cases a privately hired caregiver is an employee of the employer paying their wage. While the independent contractor designation may be the preference of the caregiver and trustee alike, this arrangement violates tax law and creates considerable risk to the trustee.

     If you are unsure of a worker’s status contact a tax employment professional.   You can also use our Employee or Independent Contractor Decision Tool which will step you through the key aspects of the employment relationship that the IRS uses to determine worker classification.  Note only the IRS can determine worker status.  To request the status of a worker from the IRS complete Form SS-8.
     
  2. Workers’ Compensation Insurance: Household employees in most states are required to be protected by the employer with Workers’ Compensation Insurance. State law may classify the failure to provide workers’ compensation coverage as a criminal offense. Caregivers to the elderly and disabled are at particular risk of personal injury due to the physical nature of the personal care services they provide. Workers’ Compensation Insurance coverage is vital because workers’ compensation is the “exclusive remedy” a worker has against his/her employer for damages resulting from an on-the-job injury.

    Many household employers have a difficult time locating a Workers’ Compensation Insurance carrier who will offer this insurance for caregivers in a private home. HomeWork Solutions has a relationship with insurance professionals who can and will secure this vital insurance.. It is important to secure this insurance at the time of hire as there are no “grace periods” for new employers.
     
  3. Household Payroll Taxes: Household employers have payroll tax responsibilities that are similar to those of business employers. Unfortunately, household employers do not typically have a payroll and HR department to provide guidance, advice and services to meet these responsibilities. Additionally, household payroll and domestic employment have many intricate and different rules and regulations as compared to business payroll and taxes that most large payroll companies understand or properly address.  For these reasons many household employers turn to companies that specialize in household employment, such as  HomeWork Solutions at the time of hire to insure that payroll, tax, insurance and legal matters are properly addressed.

    A household payroll expert will help you:
    • Define the caregivers wages in FLSA compliant terms: Most privately employed caregivers are classified under the Fair Labor Standards Act (FLSA) as “non-exempt” employees, meaning that they are hourly wage workers. Typically, privately employed caregivers are employed for more than 40 hours in a workweek, and the establishment of proper hourly and overtime wage rates is vital.
    • Verify work eligibility (optional): HWS can verify the legal work eligibility of the caregiver via the Department of Homeland Security (DHS) e-Verify system for a minimal administrative fee. This is important added protection for the trustee that insures that the caregiver is legally eligible to work in the U.S.
    • Perform statutory new hire reporting to the state.
    • Obtain all necessary Federal and state tax identification numbers.
    • Obtain workers’ compensation insurance coverage.
    • Calculate payroll tax withholdings and estimates of employer payroll tax obligations.
    • Process the periodic payroll and distribute pay stubs to the caregiver.
    • File and remit quarterly and annual household payroll tax reports and payments.

HomeWork Solutions brings more than 20 years of household payroll and tax experience to assist families, trustees, CPAs, attorneys and Geriatric Care Managers manage the financial and legal relationship they have with privately employed caregivers. Household payroll, as discussed, has many unique and often times intricate laws, specific regulations and exceptions and exemptions that differ from corporate or business oriented payroll.  Most payroll companies simply do not understand or handle household payroll issues effectively or efficiently.  At HWS we are focused solely on household payroll and domestic employment, it’s all we do, it’s all we have ever done.

Tip Sheet - Avoid Common Nanny Payroll Mistakes

Unemployment Insurance: A Nanny's Safety Net

 

Understanding the Employer's Role with Unemployment

When you hire someone to work in your home, you become a household employer. You are required to pay unemployment taxes, as well as other payroll taxes. Like thousands of other clients, you outsource all compliance activities to HomeWork Solutions - choosing a service level that best fits your needs. 

Nanny UnemploymentAll household employer's pay onto the unemployment system, which pools all employer paid taxes to fund unemployment benefits to workers who are discharged through no fault of their own. The average cost to an employer is $350 annually per employee.

Nanny and senior caregiver arrangements always end – either the child and family outgrow the need or the senior passes or is moved to a group care setting. You let your household employee go. Your role as employer is done. You reach out to HWS to finalize your tax reporting paperwork and to notify the state that you are “out of business”. 

Free Tip Sheet How To Let Your Nanny Go

Your former employee is now looking for a new family to work with and is not finding a job as quickly as she had hoped. She applies for unemployment benefits to help her during this job transition. She provides prior job information to the state's Unemployment Office. The Unemployment Office sends you a questionnaire to complete.

The state determines eligibility for unemployment benefits (sometimes referred to as unemployment insurance) and the payments are paid by the state to the former employee who is unemployed and activity looking for work. The state uses money from the pool of monies you have paid into the unemployment system – hence the term ‘insurance’. You, the former household employer, will receive statements of payments made to her. These are not billed to you, they are strictly informational and no action or additional payments are required.

Unemployment insurance is an important safety net for your former nanny or senior caregiver. You have done the right thing by paying your caregiver 'on the books' and now you can rest assured that, although your arrangement is over, your former employee has an income stream while she searches for that next position.

3 Critical Parts of your Nanny Work Agreement

 

Nanny Contract Work AgreementThe work agreement (sometimes called a contract) you negotiate with your nanny, housekeeper, or elder care provider sets the professional tone of the work relationship right from the start. A carefully thought out work agreement will help the employer avoid future problems and misunderstandings with the employee.

Hourly Pay Rate

Household employees are paid hourly by law. Realistically, most families agree with their nanny or senior caregiver on a weekly or daily pay rate. That is perfectly fine - so long as you do the necessary translation to state this, in writing, as an hourly pay rate. 

Why is this important? Your household employee is entitled to overtime pay when they work more than 40 hours in a week. Most nannies and eldercare providers work more than 40 hours weekly. In a dispute, the weekly salary you agreed to will be presumed to cover 40 hours of work - even though you intend it to cover 45 or more. Getting this detail down in writing will avoid unpaid wage claims and create the foundation for computing extra wages for those occasional times when you need your household employee for more than her standard hours.

describe the image HWS Tool: Hourly Rate Calculator 

Confidentiality Clause - Not Just for Celebrities!

Household workers are employed in your private home. They become privy to many personal aspects of your life, health, and household that you would prefer remain private. A confidentiality clause in the work agreement simply makes sense and provides an opening for you to have a frank discussion with your employee about respecting each other's privacy and keeping private matters confidential. 

Tenancy Clause

Everyone has heard the story of the nightmare nanny on the news - the California nanny who refused to move out of her employer's home after she was fired. If you have a live-in household worker, a tenancy clause is important protection from this dreadful (albeit rare) occurance.

describe the image HWS Tool: Sample Work Agreement Template 

 

Nanny Childcare WORK AGREEMENT  
Senior Home Care WORK AGREEMENT

Holiday Pay: How to calculate for a nanny/caregiver

 

Mary Crowe, FPC Client Care ManagerMonday, September 1 is Labor Day in the U.S. - a Federal holiday that many nannies and caregivers receive as a paid holiday. Families often struggle with how to calculate the employee's paycheck, especially overtime pay,  when a paid holiday is in the pay period.

HWS's Mary Crowe summarizes a few different scenarios of how to handle a holiday pay.  

Nanny Holiday Pay

Assumptions are the employee is paid weekly on Friday and the week runs from Saturday to Friday. The employee normally works 40 hours a week.>

  1. Paid Holiday, employee did not work. In this case, nothing is different.  Although she worked 32 hours, the employee would be paid for 40. A pay stub would reflect 32 hours of regular pay and 8 hours of holiday pay.
  2. Paid Holiday, employee did not work; however she worked 5 hours on Saturday August 30th, while you had a date night.  In this case, she would get paid for 45 hours at her regular hourly pay rate. Why no Over Time?  You have to have 40 working hours to get paid over time. In this example, there are 37 regular hours and 8 Holiday hours for a total of 45 total regular rate hours.
  3. Paid Holiday, employee did not work however she worked 5 hours on Saturday September 6th. In this case, she would get paid 32 regular hours and 8 holiday hours for a total of 40 hours.  The work performed on the 6th is in the next pay period.
  4. Paid Holiday, employee works the day of the holiday.  In this case, the employee would be paid for the hours worked on the holiday and the holiday (so essentially she will be paid double time). This would be reflected as 40 hours at her regular hourly rate and 8 hours of holiday pay on a pay stub.
Questions? Give us a call at 800.626.4829 or request a free telephone consultation!

Nanny Tax Compliance - Do You Have the Time?

 

HWS has been providing Nanny Tax compliance services since 1993. Did you know, in a recent client survey, the biggest motivation for employers in outsourcing nanny tax compliance is the time saved?

nanny tax complianceHow much time an individual would spend on their nanny taxes will of course vary between individuals. The IRS estimates that record-keeping, keeping familiar with the law, and tax return completion can run 60 hours per year. Record-keeping accounts for the lions share of the time, an activity that needs to be done every payroll period.

I was chatting with a client today. This gentleman has used our services for many years, and his household circumstances are changing. In the course of the conversation, I asked him what factors caused him to continue using our services year after year. He answered without hesitation "The time savings!" He went on to state that he actually spends only about one hour a year on his nanny taxes - primarily in collecting his information and responding to our quarterly requests for wage reports. (This client is a NaniTax Plus subscriber.) He was certain that he had never filed a tax return on time before hiring HomeWork Solutions, and that the savings in late fees alone was more than our fee. I suspect some exaggeration, but not much!

Learn More

Oursource Nanny Tax Compliance and Save TimeHomeWork Solutions provides fully outsourced payroll (with direct deposit) and tax solutions, as well as less expensive options when you choose to write your own paychecks. HWS allows registered clients to calculate their payroll online, save all  payroll records to your account and then write your own check to your household worker. Reporting wages is as easy as logging into your account, selecting the payroll records and electronically submitting them for processing. Status emails are the norm - we confirm you have sent your information, we confirm we have received your information, we confirm tax amounts due when we are collecting the taxes, and we confirm when your quarterly or annual filings are complete. Or, as this client remarked, "I send you the information, I don't need to think about it again."

Do you want to do the right thing and pay your fair share of taxes for your household employee, but hesitate to make this time commitment? Give us a call and learn more about how HWS can simplify this for you. You have better things to do with your time, right?

800.626.4829

5 Ways a CPA Can Help Clients with Household Employees

 

CPAProfessionalConsultationThe 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.

Household Employer ChecklistIf 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.

 

Common Household Payroll and Legal Mistakes
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