There has been a significant trend toward families employing in-home caregivers to solve their child care and senior care needs, a trend that has been exacerbated by closed facilities and a desire to mitigate COVID exposure. On top of this growing demand, the American Rescue Plan has generated more willingness to put caregivers “on the books,” driven partly by caregivers’ need for critical safety nets and partly by families’ desire to capitalize on the newly expanded dependent care tax breaks.
When questions and issues arise about domestic employer obligations, families often turn to their trusted financial professional for advice. But according to a new survey of 400 financial professionals (accountants, financial advisors and estate planners), there are nuances to household employment that give even financial professionals headaches and anxiety. Here is what the survey from Care.com HomePay found:
Outsourcing is the norm
When it comes to nanny tax obligations, 83 percent of respondents surveyed said they prefer to outsource. Almost half of those respondents (44 percent) said that the numerous exceptions and exemptions in the domestic employment world create unappealing complexities. A similar number (41 percent) said they worried that the maze of federal, state and municipal employment law obligations, which often interplay with payroll (i.e., overtime, paid sick leave, family medical leave, insurance requirements, etc.), would bring their firm unwanted liability. Other respondents felt that supporting domestic employers puts a strain on their operations due to high volume of questions and requests.
Resistance from families and caregivers
A staggering 81 percent reported having a domestic employment client resist paying “on the books.” The top reason for this is a lack of understanding of the obligations and risks (51 percent). Almost as many respondents (44 percent) said the caregiver requested to be paid under the table. Families often inadvertently put themselves at risk by agreeing to pay an employee “under the table” in order to help them avoid taxation. However, there is usually a lack of awareness of the problems that can arise from an unemployment claim, workplace accident, wage dispute, etc.
Paperwork confusion
One in 10 financial professionals admitted a lack of awareness toward the paperwork required to properly report wages at the state and federal levels. An additional 39 percent think a 1099 is an acceptable way to report caregiver wages. This confusion likely stems from the fact that the processes for domestic employment are different from those for commercial employment. Most practitioners are familiar and comfortable with the commercial payroll process, but the household employment process is simply not as familiar because it arises less frequently.
‘At time of hire’ is paramount
More than half of respondents (51 percent) said the secret to preventing domestic employment tax and labor law problems was to handle paperwork and get things set up properly at the time of hire, instead of waiting until the subsequent tax season. This would ensure proper tax withholdings, eliminate delinquent state tax filings, and surface important labor law requirements such as overtime, paid time off, paid sick leave, workers’ compensation insurance, etc. These respondents felt strongly that addressing everything up front ultimately saved all parties time, money and frustration.
Most financial professionals — even tax practitioners — aren’t set up to handle all aspects of domestic employment compliance. With increases in privately employed in-home care and a growing desire for doing so compliantly, it is never too late to evaluate a partnership with a domestic specialist.
