Schools have opened for remote learning, but one local district has already shut down for in-person education and others could follow. Many parents are looking at hiring in-home teachers for learning pods or microschools, and if that’s a viable option for you, you’ll want to ensure you set up a learning pod the right way. Check out this advice from our payroll partner, GTM Payroll Services.
As families across the country face full- or part-time virtual learning for their school-aged children, many are forming multi-family learning pods or pandemic pods to either supervise online learning or supplement traditional learning.
A multi-family learning pod is two or more families hiring a private teacher or tutor to work with their children in one of the family’s homes.
Although most like a nanny share, learning pods may be new to many families. While the focus of this type of home learning is the children’s education, families should take time to understand the tax and legal aspects of jointly hiring a private teacher. It will remove any potential costly headaches down the road.
We will go through a series of frequently asked questions to help you set up your multi-family learning pod the right way.
Is our teacher an employee or an independent contractor?
In almost all cases, the IRS considers household workers to be employees and not independent contractors. You control aspects of the job like the teacher’s schedule and responsibilities. That makes you an employer.
Misclassification is considered felony tax evasion because an independent contractor pays both the employee and employer share of FICA taxes (Social Security and Medicare). A household employee like a private teacher or tutor should only pay their part of FICA taxes and the employer – in your case, each family – pays their portion. You would be skipping out on your FICA tax responsibility by saying your teacher is an independent contractor.
So every family in a learning pod an employer?
Yes, each family is considered an employer even if the multi-family learning pod is set up in just one of the family’s homes. That means each family should obtain federal and state employer identification numbers and file a new hire report with the state. Each family would issue a paycheck to the teacher and withhold and remit taxes.
You will want it set up this way.
If the children return to full-time, in-school learning, the school year ends or there is any other reason you may no longer need a private teacher, your employee may file for unemployment benefits (as long as they lost their job through no fault of their own). They could list each family as their past employer but the state only has a record of one family as the employer. That’s tax trouble for the families who could face fines and penalties and payment of back taxes.
Why can’t one family just pay the teacher and collect money from the others?
When each family is an employer, then the teacher gets a paycheck from each family on payday. The proper taxes need to be withheld and remitted to the employer and employee’s tax accounts. That can’t happen if only one family is paying the teacher and collecting from the rest. How would those other families remit their taxes?
It’s not like you are in a restaurant and one person puts the entire check on their credit card while collecting cash from everyone else. It is more like everyone gets separate checks and pays individually.
How much should we pay our teacher?
Typically, a household employee working for multiple families in a learning pod is paid a portion of their regular rate of pay by each family. For example, each family may agree to pay two-thirds of a teacher’s normal rate. If their typical rate for a single family is $24/hour and there are two families in the learning pod, then each family pays $16/hour.
Just remember that each family must be paying at least minimum wage.
Can we pay the teacher a flat salary each week?
Yes and no.
It is a federal law (Fair Labor Standards Act) for household employees – like your private teacher – to be paid an hourly rate that is at or above the highest applicable minimum wage rate (the highest of the federal, state, or local rates) and at least time and a half for overtime hours. This is typically any hours worked over 40 in a week (some states like California have different overtime laws).
For example, each family can’t just pay a teacher $500/week without regard to the number of hours they work. Let’s say they work 40 hours/week mostly teaching and then watching the kids until the parents come home from work. That’s $12.50/hour. But you live in Chicago, Boston, New York, Los Angeles, San Francisco, or one of the many other cities that has a higher minimum wage rate than $12.50/hour. Now you are paying your employee illegally and they could file a wage claim down the road to reclaim back wages.
However, you can pay your teacher for what’s called guaranteed hours. Determine an hourly rate that’s at or above minimum wage and the number of hours you need them to work. For example, each family will pay $10/hour for 30 hours of work. You will guarantee your employee will gross $300/week from each family when they work 30 or fewer hours. Let’s say you and your pod families don’t need your teacher to work one day during a particular week so they put in 24 hours. They will still get $300 for that week from each family. If they go over 30 hours, then you will need to pay them for those extra hours. Let’s say they work 35 hours. Then they are paid $350 for that week from each family.
Every hour of work needs to be accounted for and paid for when employing a household worker.
Should we have our teacher sign an employment contract?
Having a signed contract or work agreement in place is highly recommended. It helps make sure everyone is on the same page as far as job expectations and responsibilities, wages, paid-time off, sick leave, benefits, and more.
Do we need to get workers’ compensation insurance?
Many states require household employers to obtain workers’ compensation insurance. Check your state’s regulations. If you do need it, GTM Payroll Services can obtain a policy for you. Even if workers’ compensation is not required in your state, you could still purchase voluntary coverage to provide financial protection for your teacher or tutor if they get hurt while on the job.
Since every family in a learning pod is an employer, each family is required to have a workers’ compensation policy in place.
Lack of workers’ compensation coverage is one of the costliest mistakes a household employer can make with fines in some states as high as $5,000 for every 10 days you are out of compliance.
What are the steps to setting up a learning pod the right way?
At the end of this post, you can fill out a brief form and receive our complimentary Complete Guide to Household Payroll, which will tell you everything you need to do. In brief, each family should:
- Obtain household employer tax IDs (both federal and state).
- File a new hire report with your state.
- Purchase workers’ compensation insurance (if required in your state).
- Adhere to all applicable tax, wage, and labor laws that pertain to household employment such as a Domestic Workers’ Bill of Rights.
- Verify your employee’s social security or tax identification number and complete Form I-9 for employment eligibility.
- Calculate employee tax withholdings.
- Prepare and distribute paystubs (even if paying electronically).
- File and remit quarterly state unemployment taxes.
- File and remit quarterly federal taxes using Form 1040-ES.
- Prepare and distribute Form W-2 to your employee by January 31 (for the previous year’s taxes and wages).
- File Copy A of Form W-2 and Form W-3 with the Social Security Administration by January 31.
- Prepare Schedule H and file with your federal income tax return (Form 1040).
- Read and respond to government notices and alerts.
- Monitor changes to tax, wage, and labor laws like minimum wage increases and paid sick and family leave requirements that could potentially affect household employment.
Is there an easier way?
The IRS estimates that it will take you 60 hours a year to comply with the rules and regulations around household employment. That’s time better spent doing something – almost anything – else.
Let GTM Payroll Services take care of it all for you. We can set up each family as an employer and take care of paying your employee, filing your employer taxes, and all of the year-end forms. And you’ll have a team of household employment tax and payroll specialists to help you with any task or question.
For a complimentary, no-obligation consultation with one of our experts, call (800) 929-9213 and we will answer your questions about learning pods, being a household employer, and how to do this the right way.
Looking for an in-home teacher or any other caregiver? Contact us at (518) 348-0400 and let us know how we can help!