For many people, juggling family, work, and household priorities can be a daily challenge. If your finances allow, hiring some household help can streamline your schedule and free up precious time for you to spend enjoying what matters most, with the ones you love.

Whether you’re considering a part-time maid to help keep your home tidy, or someone for a more demanding role like a live-in caregiver or personal assistant, there are a number of factors to weigh carefully before you hire someone.

 

Define Your Needs

Working can make outsourcing household chores more necessary – but also more affordable. Before you hire anyone, consider your budgetary as well as family needs. Outsource the tasks you don’t like doing, or the ones that sap the most time or energy.

The Employee Classification

How you classify your domestic help determines your tax, insurance, and other responsibilities. Determining whether they’re an employee or a contractor hinges on your control of the worker, rather than factors like duties, hours, or pay.

Typically, someone who’s over 18 and a non-relative is considered a domestic employee if you tell them what to do and how to do it, and their tasks meet the definition of household work i.e., work that’s done in or around your home, and is unrelated to your business or trade.

Example: You hire Jane three days a week to babysit, prepare meals, and perform housework. She follows your instructions about caring for your child and completing chores, and you provide the equipment and supplies. Jane is your household employee.

Example: John mows your lawn each week. He uses his own tools, pays his helpers, and does similar work for others through his yard work business. John is a contractor.

Due Diligence And Background Checks

The person you hire may have access (with or without permission) to sensitive information or treasured valuables, and may interact with other family members. Background checks can provide peace of mind.

• Request employment and/or personal references.
• Run criminal background, credit, and motor vehicle reports.
• Confirm certifications, especially those required by law e.g., nursing qualifications.
• You are required by law to verify right to work: your worker must complete an I-9 (Employment Eligibility) form and provide required identification documents.

Your Insurance Coverage

Appropriate insurance can help protect you from major costs, criminal and civil liability, and more. Check with your insurance company to see what your current policies cover, and what specific options are available to domestic employers.

Your home insurance may limit or exclude those injured while working in your home, as job-related injuries are typically covered by worker’s compensation (required in some states).

Find out what’s covered and the impact of any claim should your domestic employee be found negligent e.g., if your nanny has an accident while driving your vehicle, your car insurance may pay out, but how will this affect your premiums?

Make sure your household insurance adequately covers theft. Photograph and secure all valuables, especially those small enough to conceal easily and/or those that may not be missed for some time. Consider naming specific items on your policy.

Specialist employment practices liability insurance can be purchased as a stand-alone policy or as a rider to your existing personal liability (‘umbrella’) coverage. It can help cover the legal costs of defending a claim relating to harassment, discrimination, wrongful termination, etc.

Paying Taxes For A Household Employee

It’s important to pay the proper taxes. This helps your domestic employee build a work history for benefit purposes, as well as access worker’s compensation if necessary. You may also benefit e.g., if you employ a nanny, you may be able to use the Federal childcare tax credit.

While withholding Federal income tax is optional, you may be liable for the so-called ‘nanny tax’ – even if your household help isn’t a nanny! This term actually refers to three Federal employment taxes that you may have to pay:

• Social Security and Medicare (collectively known as FICA taxes). You and your domestic employee share this tax burden equally, but as the employer, you’re responsible for remitting the required amount.
• Unemployment taxes (known as FUTA). If required, this tax must be paid from your own funds. It cannot be withheld from your employee’s wages.
• Taxation differs from state to state. In addition to these Federal employment taxes, you may also need to pay state unemployment and disability taxes.

There are several ways of paying required taxes:

• All at once, by adding them to your Federal income tax return using Schedule H.
• In installments, as estimated tax payments, or by increasing payments if you already make estimated tax payments.

We recommend consulting an accountant to properly determine your tax responsibilities.

Legal Considerations For Domestic Employers

Not all employment laws apply in a domestic setting, but the Fair Labor Standards Act does. This means you must pay at least the mandated minimum wage (Federal or state, whichever is higher). You must also pay overtime at time and a half for all hours worked above 40 per week.

Consider drafting a written contract that both you and your domestic employee sign, defining agreed-upon terms like hours, compensation, duties, and specific ‘house rules’ e.g., no smoking inside. A confidentiality clause may help protect unauthorized release of your personal matters.

Please consult an attorney for more detailed information on your legal obligations.

Using An Agency

You can also use a reputable recruitment agency to source your household help. While this may cost more, the agency acts as the employer and should assume responsibility for background checks, tax, insurance, and other issues that you may not wish to handle.

If your lifestyle is active and your schedule is full, hiring a domestic employee can be well worth the cost for financially successful families. Your wealth offers great potential to facilitate a broad range of real life solutions that support your daily life. Please contact us to learn how SageVest can help you connect with your wealth in more meaningful ways.

Prepared by SageVest Wealth Management. Copyright 2016.

The information contained herein is obtained from sources believed to be reliable, but its accuracy or completeness is not guaranteed. This article is for informational purposes only. The views expressed are those of SageVest Wealth Management and should not be construed as investment advice. All expressions of opinions are subject to change and past performance is no guarantee of future results. SageVest Wealth Management does not render legal, tax, or accounting services. Accordingly, you, your attorneys and your accountants are ultimately responsible for determining the legal, tax and accounting consequences of any suggestions offered herein.

In accordance with IRS CIRCULAR 230, we inform you that any U.S. Federal tax advice contained in this communication (including attachments) is not intended or written to be used, and cannot be used by a taxpayer, for the purpose of (a) avoiding penalties under the Internal Revenue Code or that may otherwise be imposed on the taxpayer by any government taxing authority or agency, or (b) promoting, marketing or recommending to another party any transaction or matter addressed herein.

The provision of a link to any third party website does not mean that SageVest endorses that website. If you visit any website via a link provided here, you do so at your own risk and indemnify SageVest from any loss or damage incurred.