In many cases, the divide between business and home life is clear-cut, but what happens when the home is also the place of employment as it is for household workers? Families that also become employers have numerous federal and state labor laws and tax requirements to follow – often more than they know. Few families have extensive experience in the area of household employment, which is why a Long Island accountant who knows federal, state, and local tax law thoroughly is a wise investment.
Hearsay from others who have hired household workers isn’t always accurate. Learn about some of the most common myths about hiring workers in the home and use them as starting points for your conversation with your financial advisor or CPA before tax day.
Myth: Families Can Consider Employees as Independent Contractors
According to the IRS, household workers are expressly identified as employees when the household controls the nature of the work. If you govern who works in your home, what they do, when they work, and how the work is performed, you are an employer – which makes your household workers your employees. Classifying household employees correctly is critical to tax compliance. The Department of Labor has also upheld this distinction, noting that economic dependence on employment and the permanence of the work are also factors in how home workers are categorized.
Myth: Salaried Household Workers Do Not Receive Overtime
The Fair Labor Standards Act, or FLSA, requires that all non-exempt workers receive overtime pay for any hours worked over 40 in a standard 7-day week, including household employees. Like employees in an office, they are generally entitled to a minimum of 1.5 times their usual pay rate for overtime hours. These FLSA guidelines become more complex when household workers live within the home. Some live-in caregivers and nannies are exempt workers, while others remain non-exempt; working with an accountant familiar with employment laws can help you make the right decisions here.
Myth: Household Employees Can Appear on the Family Business’ Payroll
Household workers contribute a great deal to a smoothly running home, and that can make a big difference in the workplace indirectly. According to the IRS, however, they are not direct contributors to the company’s success and cannot be placed on a family-owned business’ payroll. They remain employees of the household, not the business. Expenses and dependent-care tax exemptions related to home workers must go on your personal tax return, not your company’s.
Myth: There Is No Rush to Handle Household Employment Taxes
Tax time is invariably busy for your CPA. Services related to household workers take time to sort out, so work with your accountant as soon as possible to ensure that you make all filing deadlines and comply with labor laws. By speaking to your tax professional sooner rather than later, you ensure that your tax process goes smoothly and make tax season easier on your household personnel too.
Myth: Compliance Is Expensive
For some households, the additional layer of complexity that being an employer adds might be daunting enough to reconsider hiring home workers. Your accountant can map out where hiring workers for home employment and complying with federal and state laws can help offset your liability through tax breaks. Setting up a Dependent Care Account saves money for families that have home healthcare needs. Coordinating with your CPA to establish your family’s employer/employee relationship with home workers also lets your household staff get the full complement of benefits to which they are entitled, including Social Security and unemployment insurance.
By blasting the myths surrounding household employment and ensuring compliance on your personal tax return, you and your accountant offer better financial care to the people who help take care of your household.
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