Household Employees: What Employers Need to Know

Oct 30, 2023 | Household Employee Management, Household Payroll & Taxes

Hiring household employees, such as nannies, housekeepers, caregivers, or personal chefs, can greatly enhance the quality of life for families and individuals. However, employing domestic staff comes with responsibilities and legal obligations that employers need to understand. Let’s explore the essential aspects of hiring household employees and what employers need to know to ensure a smooth and lawful employment relationship.

Who is a household employee?

A household employee is a person hired to perform domestic services in or around a private residence. These services typically include childcare, housekeeping, cooking, gardening, and other similar tasks. Nanny, housekeeper, personal assistant, driver, groundskeeper, and personal chef are some examples of household employee roles. The key distinction is that household employees work under the direction and control of the employer. They follow set schedules and use tools and equipment provided by the employer, making them integral to the daily functioning of the household.

Distinguishing household employees from independent contractors

Control and independence

Employers exercise significant control over household employees. They set work schedules, provide instructions, and determine the tasks to be performed by the household employee. Independent contractors, on the other hand, have more autonomy. They generally have control over their work, can choose when and how they complete tasks and often use their own tools and equipment.

Taxes and benefits

Household employers are responsible for withholding and remitting taxes on behalf of household employees, including Social Security and Medicare. They may also be required to provide benefits such as workers’ compensation and paid time off. Independent contractors are responsible for managing their own taxes and are not entitled to employee benefits from the household employer.

Contracts and duration

Employment relationships with household employees are typically ongoing, and there is usually an employment contract outlining terms and conditions. Independent contractors are often hired for specific projects or limited duration, with a written agreement that specifies the scope of work and payment terms.

For more information on determining if you have a household employee, see IRS publication 926.

Requirements for hiring household employees

When hiring household employees, it’s crucial to comply with federal, state, and local labor laws. Before hiring a household employee, you must verify their eligibility to work in the United States by completing Form I-9, issued by the U.S. Citizenship and Immigration Services (USCIS). The form should be filled out promptly, typically on the employee’s first day of work.

Household employee agreements

Creating a clear and comprehensive household employment agreement is essential for a successful employment relationship. The agreement should outline the following:

Job duties

Specify the household employee’s responsibilities, working hours, and any specific tasks or expectations.

Compensation

Clearly state the hourly wage and payment schedule, and any additional benefits, such as paid time off, health insurance, or a retirement plan. Discuss these options with your household employee and clearly outline them in the employment agreement.

Duration of employment

Indicate whether the employment is temporary, part-time, full-time, or ongoing.

Termination policies

Describe the process for terminating employment, including notice periods and severance pay, if applicable. Some states like California have specific requirements on the timing of the final payment of wages.

Confidentiality and non-disclosure

If your household employee will have access to sensitive information, consider including a confidentiality clause to protect your privacy.

Household employees and taxes

When hiring a household employee, employers need to be aware of several legal requirements to ensure compliance with labor laws and tax regulations. Employers are responsible for withholding and remitting payroll taxes, including federal income tax, Social Security, and Medicare taxes. Failure to do so can result in penalties and interest.

Set up a payroll system

Consider hiring a payroll service to ensure accurate wage calculations and tax withholding.

Pay appropriate taxes

Deduct the required federal, state, and local taxes from your employee’s wages and submit them to the appropriate tax agencies.

Follow minimum wage and overtime regulations

Be aware of federal and state minimum wage laws, as well as overtime rules. Household employees are generally entitled to overtime pay if they work more than 40 hours per week.

Provide wage statements

Furnish your employee with regular pay stubs detailing earnings, deductions, and taxes withheld. You may also need to contribute to unemployment insurance, depending on your location.

Keep accurate records

Maintain detailed records of your employee’s hours worked, wages paid, and any taxes withheld.

In addition to tax responsibilities, many states require household employers to have workers’ compensation insurance for their household employees.

Understanding household employee rights

Household employees have specific rights that employers need to follow.

Fair Labor Standards Act (FLSA)

Ensure your employees receive at least the federal or state minimum wage and overtime pay when applicable. Comply with the FLSA to avoid wage and hour violations.

Sick and medical leave

Some household employees may be eligible for sick and family medical leave, depending on what state they are in. Household employers should be aware of this and provide appropriate accommodations when required.

Anti-discrimination laws

Employers must not discriminate based on factors such as race, gender, religion, or disability. Treat all employees fairly and equally.

Domestic workers’ rights laws

Some states have a domestic workers’ bill of rights in place that household employers must adhere to.

Conclusion

Hiring household employees can greatly benefit your family or household, but it comes with legal responsibilities and household employee tax obligations. By understanding and adhering to labor laws, creating clear employment agreements, managing taxes and payroll correctly, and respecting employee rights, you can establish a positive and compliant working relationship with your household staff. Always consult legal and financial professionals to ensure that you are meeting all legal requirements and providing a fair and safe working environment for your household employees.

For a comprehensive, in-depth review of household employer responsibilities, download the Complete Household Payroll and Tax Guide.