Whether you gave your nanny a month’s notice that you wouldn’t be needed their services because your family’s circumstances changed or fired them on the spot, your now ex-caregiver may file for unemployment. If they are no longer working for you and haven’t lined up another job, they may claim benefits to get financial help while searching for their next placement.
As a household employer, you have unemployment-related responsibilities while your nanny is on the job and after they’re terminated.
Here’s what you need to know when your nanny files for unemployment.
Classifying your household worker
Someone who works in your home is an employee and not an independent contractor. The IRS has consistently ruled this way and to classify your nanny as an independent contractor is considered felony tax evasion. You control your worker’s schedule, tell them how to do their job, and provide the tools and equipment to perform their duties. That meets the definition of an employer-employee relationship.
Why is this important? Employees are eligible for unemployment if they’re let go through no fault of their own. Independent contractors don’t enjoy this benefit.
Paying unemployment taxes
When you employ a nanny, or any household employee for that matter, and pay total wages on $1,000 or more in any calendar quarter, you are required to pay unemployment taxes. For federal unemployment (FUTA), it’s six percent on the first $7,000 in wages.
State unemployment (SUI) rates vary and typically fall between two and five percent. If you are a first-time employer, you may receive a new employer rate. Then your state will provide an updated rate every year. Your rate is based on several factors including longevity as an employer and the number of unemployment claims made by former employees.
You may be able to take a credit against your FUTA tax for payments made into your state unemployment funds.
Federal and state unemployment taxes can be remitted on a quarterly basis.
You don’t have to pay unemployment taxes when your employee is your spouse, child under the age of 21 or your parent.
Understanding unemployment benefits and eligibility
Unemployment payments are based on a percentage of the worker’s income and typically run for 26 weeks. Funds generated through unemployment taxes are dispersed by the state. Those receiving benefits need to be actively seeking a new job or taking a job training program and physically be able to work.
If your nanny was let go through no fault of their own, then they likely will be able to receive benefits. Some reasons may include your children going to school and no longer needing a nanny, your family is moving out of the area, and compatibility issues.
If you fired your employee for cause, they may be ineligible to receive unemployment. These reasons could include misconduct such as dishonesty, theft or insubordination; frequent violations of the work agreement; repeated unexcused absences; and creating an unsafe environment for your children. You’ll likely need to show any documentation that justified this type of termination. For example, you could provide the written warnings you gave your nanny that are signed by both parties.
If your nanny left on their own accord, they won’t be able to claim unemployment. They could be leaving the workforce, going back to school or moving out of the area. They may also end their employment because they found a new job. If they are terminated from that job within a year, you may still get a notification because benefits are “charged” to all employers during the state’s “base period.”
Responding to notifications
When your former employee files a claim for unemployment benefits, you’ll receive a notification from your state. You’ll need to provide information on why they were terminated as well as any compensation above and beyond their typical wages. You may have given them severance pay or paid out unused PTO. Or their final paycheck is being delivered a week after their termination date. This all needs to be reported to the state as it impacts the amount of benefits your former employee can receive.
Make sure you respond to these notifications. Not answering or replying late may result in a fine.
Getting answers to your questions
For any state-specific questions, here is a list of contacts for unemployment information and assistance. Or contact GTM Payroll Services at (800) 929-9213 and we’ll be happy to help.
GTM can help
If you’d rather not deal with the hassles of figuring out and remitting unemployment taxes, give GTM a call at (800) 929-9213. We’ll handle all of your tax obligations including unemployment, Social Security, and Medicare in addition to paying your employee and calculating their withholdings. We offer a complimentary, no-obligation consultation with a household employment expert who can answer all your questions about hiring and employing someone for your home.
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