This reminder from California attorney Bob King at www.legallynanny.com: “If you’re a family hiring someone in your home, always negotiate based on gross, not net, pay. Net pay agreements make it more difficult to calculate overtime and could allow the employee to overwithhold taxes at your expense. You can always determine the net pay, but any agreement should be based on gross hourly wages.” Why is this important? Household staff are considered “employees” by the IRS (see IRS Publication 924) and as employer you have important tax & withholding obligations. As a result, the total amount that you spend in wages (the “gross” wages) will be greater than the net amount that your employee takes home (their “net” pay). Simple enough, but your employee is likely to think about his or her compensation in terms of what they actually get in their pocket, not the total that you as employer are spending. As employer, you are not in control of their tax situation (how many dependents? how many deductions? credits? filing single or jointly? etc), so there is no reliable way for you to calculate the “gross” amount that you would have to pay for your employee to achieve the …
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For 2012, the domestic employee wage threshold under Federal law for paying Social Security taxes will rise to $1,800. Earnings below this amount will not be subject to Social Security taxes. This limit is up from $1,700 in 2011. Under California law, the thresholds will stay at $750 and $1000. Specifically: You must register with the Employment Development Department (EDD) as a household employer for California payroll tax purposes when you have paid cash wages totaling $750 or more in one calendar quarter to one or more people who work as employees in or around your home. The amount of wages you pay in a calendar quarter will determine the payroll taxes you are required to withhold and pay. If you pay … – $750 to $999, then you have to withhold State Disability Insurance (SDI). – $1,000 or more, then you have to withhold SDI, PLUS pay Unemployment Insurance (UI) and Employment Training Tax (ETT). Thus, if you, as an employer, pay more than $750 in a quarter or $1,800 in a year, you will have some tax reporting requirements.
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Posted on February 1st, 2011 in category Payroll and Tax Tips |
One of the important conversations that we have with new clients to Town & Country is whether they have thought about how they will handle payroll for their new nanny, housekeeper or other household employee. We don’t have reliable data on what portion of household employees in this country are paid “off the books” or “under the table,” but we suspect the percentage is pretty high. So, probably because it’s so common, it may seem as if paying “off the books” is safe – or at least very low risk. But doing so carries some important risks for the family who is employing someone in their home (and those risks can come to pass in some unexpected ways, and means that the employee could miss out on some important benefits. First, here’s the basic law. When a family hires someone to work in their home, they become a household employer. Household employees include nannies, medical caregivers, housekeepers, gardeners, cooks, personal assistants, household managers, etc. By law, these individuals cannot be classified as independent contractors (or, at least, the exceptions are very, very few). As an employer, the household is required by law: 1. To pay federal and state employer taxes, …
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