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Hiring Household Employees
If you are hiring a temporary nanny or other household employee, it’s important to understand you have hired an employee and not an independent contractor. The single most important factor in determining your worker’s status is the employer’s control over the individual and means by which the work is performed. For an employee, control is present. For an independent contractor, it is absent. Control can be determined by things such as, setting the hours of work and requiring prior permission for work absence.
Unclear situations
In some cases, the working status may be unclear. For example, a housekeeper may have some characteristics of an employee and some of an independent contractor. When in doubt—treat as an employee. The risk happens if an employer mistakenly treats a person as an independent contractor.
When would I have to pay employer taxes?
If you are going to be hiring a temporary employee, it’s important to understand your obligations as a household employer. If the employee earns over $1,900 (2014) in gross wages per year, you are responsible for Social Security and Medicare taxes and Unemployment taxes. If the employee earns over $1,000 during a quarter, you must pay federal unemployment tax.
Why it is important to know the difference?
Misclassification of a temporary employee as an independent contractor can result in significant legal liabilities including:
- back taxes
- tax penalties and interest
- workers’ compensation premiums
- unemployment insurance contributions
- potential liability under state or federal employee protection laws, e.g. for overtime
Employers need to recognize the difference as the employer’s tax requirements are contingent on whether the professional is working for the employer or working for him/herself.
Do I need workers’ compensation and/or disability insurance for my employee?
Some states require that you carry a workers’ compensation and/or disability policy if you are employing a full or part-time person.
What do I need to tell my temporary employee?
You should always inform your employee (temporary or permanent) that they should keep an accurate record of their earnings. This will help them pay both federal and state income taxes for the calendar year when they file their tax returns.
Do I need to pay income taxes for my temporary employee?
The law does not require that you withhold federal or state income taxes for your employee. However, you may do so voluntarily if requested by your employee and he/she completes Form W-4.
For more information, please contact GTM’s Household Employment Experts at (888) 432-7972.
