Having a household employee can be a complicated situation; employers need to be aware of federal, state, and local tax and wage laws in order to stay compliant. There are many issues about which household employers may have questions – the list below answers some of the most common ones. Read on to learn about 5 nanny tax facts…or myths.
1. It is illegal to pay nannies through your company’s payroll.
FACT! It is not proper for an employer to pay a household employee through their business payroll. A household employee is an employee of the home, not the business, and therefore would not qualify for the tax deductions that would otherwise be allowed with a traditional business employee. In most cases, federal household employment taxes must be paid on the employer’s personal federal income tax return, either annually or quarterly. The only exception to reporting federal household employment taxes on the employer’s personal federal income tax return is if they are a sole proprietor or if their home is on a farm operated for profit. In either of these cases, the employer may opt to include federal household employment taxes with their federal employment tax deposits or other payments for the business or farm employees. For more information, refer to IRS Publication 926.
2. Nannies are entitled to overtime pay.
FACT (in New York)! The New York Domestic Workers’ Bill of Rights requires employers to pay overtime at time-and-a-half after 40 hours of work in a week, or 44 hours for workers who live in their employer’s home. Employees hired to provide babysitting services on a casual basis are exempt from minimum wage and overtime requirements, whether or not they reside in the household where they are employed.
3. Nannies are independent contractors.
MYTH! There are specific differences between an employee and an independent contractor. An employee is a person who takes instruction from the employer, has a schedule set by the employer and uses tools and equipment provided by the employer. An independent contractor is a person who works under their own conditions, sets their own schedule and uses their own supplies. Most nannies who work in an employer’s home whether it be on a temporary or full-time basis are considered household employees, not independent contractors because they work under the family’s control and have their schedule and pay set by the family. In the past, the IRS has made determinations that caregivers are considered employees and it is illegal for a family to treat them as independent contractors.
4. Employers do not need to track a nanny’s hours.
MYTH! According to the FLSA, employers are required to keep records on wages, hours and other items as specified by Department of Labor regulations. These records include hours worked each day and total hours worked each week. Not keeping proper time records makes it difficult to prove the hours an hourly employee has actually worked and when they may be eligible for overtime pay in the event of a wage and hour audit by the Department of Labor. Learn more about record keeping for your nanny or other employee.
5. Only full-time nannies need to be paid legally.
MYTH! Any household employee who earns $1,900 (2015) or more in a calendar year must be paid legally and the employer must withhold Social Security and Medicare taxes regardless of whether they work on a part-time or full-time basis. Employers must pay federal unemployment tax for any employee who earns wages of $1,000 (2015) or more in a calendar year. Since the wage threshold for these requirements is low, many times even the most part-time employee needs to be paid legally.
For more information about these and all issues regarding household employment, contact us at (518) 348-0400.