There are always salacious stories detailing the trials and tribulations that come from nanny/employer relationships gone sour, such as the he said/she said accusations of impropriety that are later thrown out, with close sources suggesting the whole thing grew from a nanny feeling she was owed money and uncompensated for overtime.
Then there are the famous new parents that are so concerned about their newborns they insist on nanny care throughout the night, with nary a personal rest or meal break allowed during the 12-hour shift and no concerns (or perhaps knowledge) of labor laws that are being broken. Some say practices like confining a caretaker to a baby’s room for 12 hours, seven days a week is something more employers ought to know is wrong (and now in California, illegal without satisfactory overtime pay of time-and-a-half).
After all, no office manager or shop owner would ever consider such a thing.
“The biggest misconception is that employers do not believe their nannies are employees because they work in a home, not an office, and therefore do not need to be paid legally or have taxes withheld from their pay. This is far from true,” says Guy Maddalone, Founder/CEO of GTM Payroll Services.
Not only do parents mistakenly think labor rules don’t apply within their homes, but many forget to keep things official when it comes to paying taxes.
“According to the IRS, any household employee who earns $1,800 (2013) or more in a calendar year must be paid legally, or as an employee, and the employer must withhold Social Security and Medicare taxes regardless of whether they work on a part-time or full-time basis,” says Maddalone. “This includes nannies, housekeepers, senior care workers, drivers, and anyone else who may provide a service in the home. Employers are not required to withhold Federal and State income taxes unless agreed upon by both parties, however if an employer pays cash wages of $1,000 (2013) or more per quarter to a household employee they must pay federal unemployment tax.”
But who really keeps track of hours, notes when a parent asks a nanny to stay late for an occasional business dinner, or records when the nanny hangs out for an extra half hour here and there because the parents are running late from a meeting or conference call? Nannies should track these extra hours to protect themselves and back up any future claims for owed wages, although by law it is an employers’ duty to do so.
“The Fair Labor Standards Act (FLSA) requires employers to keep records on wages, hours, and other items as specified by the Federal Department of Labor. If a household employer fails to comply with any of these regulations and requirements, they risk being investigated by the IRS, which could result in hefty fines and penalties. They will also be responsible for paying all employment back taxes, interest, and penalties and will not be eligible for the Dependent Care Assistance Program (DCAP) tax break or the Child Tax Credit associated with employing someone in the home. “
Ignorance of the law is not considered a defense for disregarding regulations. If a nanny is paid a salary, the salary must be translated into an hourly rate to determine whether or not the nanny’s wages comply with the Fair Labor Standard Act. To determine whether the wages comply, divide the weekly salary by the number of hours worked to calculate the base hourly wage. If the employee works 40 or more hours in a seven day period, overtime must be included at a rate of 1.5 times the base hourly wage. The base hourly wage must be equal to or greater than federal minimum wage.
“It is important that employers understand state and federal laws so that they can become compliant and avoid these risks and hassles.”
Prospective employers can consult IRS Publication 926 Cat. No. 64286A Household Employer’s Tax Guide or contact GTM at 800.929.9213 for help understanding the federal and state requirements and/or setting up payroll for your nanny, housekeeper, senior care worker or other household employee.