Nothing could be closer to the truth, especially this tax season as The Affordable Care Act (“Obamacare”) reporting kicks in. But, as we begin to gather our receipts, W-9s, and 1099s, and as CPAs and tax attorneys scramble to understand and advise clients on Obamacare, there is another issue that could have severe consequences (for tax purposes and otherwise) and yet is unknown to most.
THE ISSUE: How do I legally hire a caregiver?
Like taxes, and most things in life, nothing is straightforward. Although this article focuses on hiring caregivers, the issues discussed are relevant to hiring many types of in-home help including personal assistances, chefs, and nannies.
Sometimes you know of someone who is a caregiver or hear of someone through friends or other sources and you hire a person directly. Other times you work with an agency.
With some agencies, you contract with the agency and they provide the caregiver who is their employee. You pay the agency. The agency pays the employee and does all the withholding for tax purposes; workers’ compensation; federal and state taxes; unemployment; disability; and, social security. This is typically the most expensive up front.
Other agencies will provide the caregiver and give the caregiver a 1099, as if the caregiver was an independent contractor (although they are not in almost all situations as “independent contractor” status is very defined and not what you might think).
Lastly, some agencies provide the caregiver, you pay the agency a monthly fee for the referral to the caregiver, and you also pay the caregiver directly. This is typically cheapest, up front.
Just as with directly hiring someone you know or hear of, if you go through an agency but pay the caregiver directly, and 99.9 percent of the time you go through an agency but treat the caregiver as an independent contractor, YOU are the employer!
As the employer, you are required to do all the things any employer must do. And, in addition, there are specific laws that apply to the employment of caregivers. Most of us are not even aware that these laws exist. And, most of us certainly do not know how to comply with them.
As the employer of the caregiver, some of your responsibilities include: 1) Insuring compliance with minimum wage laws, employee break and overtime laws, and other employment laws and regulations applicable to your geographic area, state, and local government (some of which are specific to in-home caregivers and have recently changed); 2) verifying that the employee is eligible to work and insuring compliance with United States Citizenship and Immigration Services’ Form I-9; 3) paying payroll taxes; 4) withholding employee contributions; 5) acquiring and paying workers’ compensation; 6) paying social security; and, 7) paying unemployment insurance.
If you do not do all of these things and comply with all employment laws and the caregiver you think would never be a problem turns you in; blackmails you; files for unemployment, disability, or social security benefits; sues you civilly for an injury; or you are audited by the IRS, there can be severe consequences.
If you have not paid for unemployment insurance, contributed to disability or social security, and have not made the proper tax withholdings, you can face paying the IRS what was due, plus interest and penalties.
If the caregiver claims an injury while working for you and you do not have the proper workers’ compensation insurance, you could be successfully sued civilly. You should check with your homeowner’s insurance provider to insure you have workers’ compensation coverage for in-home caregivers. Homeowners insurance providers will often want to know who will be working in your home and for what period of time. Sometimes a rider on your homeowner’s insurance policy is required.
You think these issues will not be a problem for you? Are you prepared to take that risk?
There are services you can pay to help you satisfy many of the employment requirements. Some CPAs may be able to help. There are even lawyers and law firms who specialize in nothing but helping people comply with the ever-changing laws and regulations concerning the hiring of caregivers and defending individuals when they get caught.
In my opinion, the best option for most people is to contract with an agency directly and let the agency be responsible for insuring compliance with employment laws, making withholdings, and paying the caregiver. This option is the most expensive option, but provides the most protection.
I advise clients to question the agency and to get assurance from the agency that the agency is not only providing the caregiver, but that the agency is complying with, and will assure compliance with, labor laws; has unemployment insurance and workers’ compensation coverage for the caregiver that will be in the client’s home; and, is making all necessary withholdings. A legitimate agency will be forthcoming with this information.
Hiring a caregiver directly, or working through an agency but paying the caregiver directly, can be an option, but be aware of the legal requirements you must comply with and the risks you take by not complying.
In my experience, the decision to hire in-home care often comes at a time when a situation has taken a turn for the worse. Often a person has suffered an injury, is leaving a medical care facility, and is no longer able to care for his or her own needs. This time can be stressful for the individual, the family, and others involved. But a difficult situation can become much worse if one is not aware of the legal requirements and time is not taken to carefully consider all options and insure compliance with the multitude of laws relating to employing in-home care.