As a nanny, you may be wondering “Am I an employee or an independent contractor?” Federal law dictates that household workers like nannies, housekeepers, and in-home senior caregivers are to be treated as employees and not independent contractors. This is an important distinction and one that comes with key benefits for household workers. Here’s what nannies need to know about worker classification.
What’s the difference between an independent contractor and an employee?
Employee
• Takes instruction from the employer
• Has a schedule set by the employer
• Uses tools and equipment provided by the employer
Independent Contractor
• Works under their own conditions
• Sets their own schedule
• Uses their own supplies
In just about all cases, the IRS considers household workers to be employees. For families, misclassification is considered tax evasion and could lead to major fines and penalties.
How does being classified an employee benefit a household worker?
Pay less in taxes
Independent contractors pay both employee and employer Social Security and Medicare (FICA) taxes, which adds up to 15.3% of wages. An employee, on the other hand, only pays their share (7.65%) while the family contributes the employer share (7.65%).
Receive unemployment insurance benefits
As employers, families also pay federal and state unemployment insurance. If a household employee loses their job through no fault of their own, they can file for unemployment benefits with their state. An employee will receive a portion of their wages while they look for a new job. An independent contractor is not provided this benefit if they are let go from a job.
Covered by workers’ compensation insurance
In many states, families are required to purchase workers’ compensation policy if they hire someone to work in their home. Workers’ compensation helps pay medical expenses and cover lost wages for employees who get hurt on the job. This can be a lifeline for a worker who may accumulate significant medical bills while missing time at work. Independent contractors are not covered by workers’ compensation.
Eligible for benefits
A family may choose to offer health insurance or a retirement plan for their household worker. These are nice perks that can help a worker control health care costs and plan for the future. However, these types of benefits are only possible for workers who are considered employees. Independent contractors aren’t eligible to receive benefits.
Learn more about being paid legally and get more resources, or call us at (518) 348-0400 for more information.