Happy New Year! Here’s a round-up of what’s new, what’s changed, and what’s coming in household employment in 2020. Minimum wage rates are on the rise, domestic worker protections are expanding, and a significant legal ruling impacting au pairs are among the top developments in the industry.
1. Minimum wage rates
The first day of the new year marked minimum rate increases in a number of states and cities. Household employees like nannies, senior caregivers, and housekeepers, need to be paid the highest minimum wage among the applicable federal, state, and local rates. Since the federal rate has been stuck at $7.25/hour for several years, many state and local rates have surpassed it and now apply when paying a household employee.
2. Nanny tax threshold
The employment coverage threshold for household employees increased by $100 to $2,200 for 2020. That means if a household employee earns $2,200 or more in cash wages in 2020, Social Security and Medicare taxes, commonly called FICA taxes or “nanny taxes,” must be paid by the family and the employee. Earnings below this threshold aren’t taxable under Social Security.
3. New York employment laws
Several employment laws that household employers need to be aware of have gone into effect (or will) in 2020. From inquiring about salary histories of applicants and employees to protecting employee medical privacy to domestic victim leave, household employers in New York have a number of new labor regulations to follow.
While those who work in private homes are considered employees, you may have other workers who are independent contractors. Like traditional employees, they are now protected against discrimination in New York City.
4. Philadelphia domestic worker protections
In November, Philadelphia enacted a domestic worker bill of rights that guarantees several labor protections including required work agreements, meal and rest breaks and paid leave for the city’s household employees. It is considered one of the strongest bills in the nation that protects domestic workers and makes Philadelphia the largest U.S. city to extend labor rights to household employees. The law would go into effect in May 2020.
5. Massachusetts au pair ruling
In December, a decision by the U.S. Court of Appeals for the First Circuit means au pairs in Massachusetts must be paid at least minimum wage and time-and-a-half for overtime. Host families in Massachusetts must also follow the state’s domestic workers’ bill of rights, maintain timesheets, and obtain workers’ compensation among other requirements. GTM Payroll Services is helping families comply with the new regulations. If you’re a family with an au pair in Massachusetts, give us a call at (800) 929-9213 for a complimentary, no-obligation consultation on what you need to do now.
6. New health benefit for household employees
An ICHRA (Individual Coverage Health Reimbursement Arrangement) is a new type of Health Reimbursement Arrangement (HRA) that provides tax-free reimbursements for employees and unlimited contributions for employers. They became available for employers and their workers in January 2020. ICHRAs are similar to QSEHRAs (Qualified Small Employer Health Reimbursement Arrangement) as they are both employer-funded HRAs that reimburse employees tax-free for health insurance premiums and/or medical expenses. Learn more about ICHRAs at the link below or contact us at (800) 929-9213 if you’re interested in learning more or setting up an account for your employee.
7. New Form W-4
In December, the IRS released an updated version of Form W-4 (Employee’s Withholding Certificate). Employers use Form W-4 to determine their employee’s federal income tax withholdings. While withholding income tax from a household employee’s pay is optional, it’s highly recommended so the employee is not stuck paying with their entire tax obligation when they file their personal return. The new form is intended to harmonize tax withholding declarations with the Tax Cuts and Jobs Act. All employees hired in 2020 should use the new Form W-4. Current employees don’t need to complete a new Form W-4 unless they wish to amend their withholding declarations.
8. Mileage reimbursement
In 2020, the standard mileage rate for use of a car for business travel is 57.5 cents/mile (down from 58 cents/mile in 2019). The standard mileage rate is used to calculate the costs of operating an automobile for business purposes. If your employee drives their own car while on the job – for example, a nanny taking kids to school or a senior caregiver bringing a patient to a doctor’s appointment – they can be reimbursed for mileage using this rate.
9. Social Security wage base
The Social Security wage base likely doesn’t apply to most household employees but could impact estate managers and others with higher pay. For 2020, the Social Security wage base is $137,700 (an increase of $4,800 over 2019). An employee and their employer don’t pay Social Security taxes on wages above that base amount.
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