Hiring help around the home to assist your family isn’t a new concept. Many often believe this pertains to only wealthy families; however, the notion that household employees are only for wealthy families is changing. Over the last decade, we have seen the emergence of online companies connecting families with individuals to help with a variety of needs around the home.
While it has become easier and more convenient to hire help around the home, it can pose challenges. For example, trying to hire a housekeeper, gardener, caretaker for elderly parents or nanny for your children may be a very complex transaction – one which involves various aspects of law, taxation and risk mitigation.
Before hiring a household employee you should consult with a financial planner, attorney, accountant and insurance professional to review your personal circumstances to make sure a domestic worker makes the most sense for your family. Here are a few items to use as a primer:
The following are the three most common misunderstandings clients have expressed to us.
They only work part time; therefore, he/she is not considered a household employee. Incorrect – part-time or full-time employment status is not a determining factor.
I hired a worker through an agency, which precludes the worker from being considered a household employee. Once more, not true – hiring a worker through an agency doesn’t necessarily mean you are off the hook as an employer.
Compensation is not a salary agreement; consequently, the worker is not considered a household employee. Again, this is an inaccurate statement. Whether you pay the worker on an hourly, daily, weekly basis, or by the job, the frequency of compensation is not part of the criteria when determining if you have a household employee.
Requirements for a household employee?
When determining if a worker is a household employee or self-employed ask yourself these three questions:
- Does the worker control how the work is completed?
- Will the worker provide his or her own tools when performing tasks?
- Does the worker offer services to the public?
If you answered “yes” to all three questions, the worker has likely deemed a self-employed contractor and not a household employee; therefore, you are not an employer and can simply pay the invoice for the services rendered.
Items to Consider
How organized are you?
Having a household employee requires organizational skills. Do you color coordinate your closet or wad up receipts in your back pocket? If you are the former – great – you have the mental makeup to take on a domestic worker. Logging hours, tracking expenses, writing checks and organizing receipts is not as simple as it sounds. Trust me, you will need a system and processes in place to stay on top of everything.
Hiring a payroll service
The seemingly simple act of paying an employee is not so straightforward, especially if you have never done it before.
- Should you withhold Federal Income Taxes?
- Are you required to withhold State or Local Income Taxes?
- What about employment taxes? Do you know how to account for Medicare and Social Security?
- What about Federal Unemployment Tax?
- Do you know if your state has unemployment taxes, as well?
Navigating payroll is not impossible, but for someone with no experience, it will be difficult.
Meet with your Insurance Professional
If you don’t have an appointment scheduled, plan to do so in short order. Review your property and casualty policy, and outline a plan of having a household employee. There are liability factors anytime someone is on your property. Make sure there are no exclusions in your policy, which may result in financial exposure.
While it has become easier and more convenient to hire help around your home, it doesn’t mean you should hastily commit to having a household employee. Don’t take this decision lightly, it requires a great deal of thought and consideration.