At a recent business lunch, I was surprised to hear that many attendees (most of whom are practicing attorneys) pay their children’s nannies “off the books.” Even more admitted to not keeping track of household employees’ hours or paying overtime, instead simply offering some extra cash at the end of a week if the worker stayed late one or more evenings. As a California employment lawyer, I shuddered. I briefly summarized the potential pitfalls — liability for taxes, back pay, penalties, attorney fees, even on-the-job injuries — and followed up by sending a sample “Nanny Contract” to the group. Due to a significant recent uptick in household employee legal claims, you can’t be too careful.
Many families hire household help without thinking about numerous state and federal employment laws governing the relationship. Beginning in 2014 (and extended permanently in 2017), California’s Domestic Worker Bill of Rights granted overtime to certain household employees previously exempted as “personal attendants.” See Cal. Labor Code Section 1450 et seq. Domestic workers covered by the law provide caregiving services or perform maintenance work in private households or premises, such as nannies, childcare providers, caregivers for elderly or disabled people, housekeepers, and cooks.
The duties of a “personal attendant” include supervising, feeding and dressing a child or person requiring assistance due to age, physical or mental disability. Under the new law, personal attendants are entitled to overtime (1.5 times regular pay) for hours worked above nine per day or 45 per week, whether or not they live in the home. As a result, employers must keep precise records of daily and weekly hours worked in order to properly calculate and pay for overtime. Household employers may further be required to account for time spent on specific tasks. A domestic worker who spends more than 20 percent of his or her time performing non-personal attendant duties (e.g., making beds, cleaning, cooking, laundry or other household maintenance duties) is not considered a personal attendant and may be entitled to even more overtime.
Families with household workers have myriad obligations as employers in addition to overtime pay. On top of complying with minimum wage obligations (climbing to $15/hour by 2023 under California law and an increasing number of local ordinances), domestic workers may be entitled to paid sick time and other employment benefits. Household employers must also obtain workers compensation insurance or face civil and criminal penalties as well as liability for work-related injuries. Finally, families must report and withhold income tax from their household workers’ wages. Failure to do so can lead to claims for back taxes, interest and penalties from employees and taxing authorities. Paying in cash or classifying a worker as an “independent contractor” is not a quick fix and is unlikely to withstand scrutiny for workers under a family’s direction and control. Misclassification can expose employers to additional claims, taxes and civil penalties ranging from $5,000-$15,000. See Cal. Labor Code Section 226.8.
Notwithstanding all of the above, some basic precautionary steps can help families avoid potential legal problems with household employees:
Enter a written contract. Written agreements can prevent misunderstandings by spelling out compensation, work hours/schedule, duties, and more. Is travel with the family required? How will reimbursement of transportation or cell phone expenses be handled? Is posting about the employment on social media permitted? Contracts can secure confidentiality and confirm that the employment may be terminated “at-will,” with or without cause or notice.
Record hours and pay overtime. By keeping time records, household employers can calculate overtime pay and guard against unsubstantiated claims for additional wages. Documenting sick and vacation time taken is also prudent. Formal time clocks or signature logs are not necessary; a simple spreadsheet (approved by the employee) of hours worked and time off during each pay period will suffice.
Withhold and pay taxes. Even household employers with no plans to run for office are well served by properly reporting domestic workers’ wages and paying the appropriate taxes. In addition to potential legal ramifications, an employer’s failure to comply with tax obligations can be an uncomfortable source of leverage in employee disputes and settlement negotiations.
Maintain appropriate insurance. Failure to have workers’ compensation coverage is a criminal offense under the California Labor Code. In addition to fines and possible imprisonment, household employers without insurance may be responsible for medical expenses resulting from on-the-job injuries. Employers are further advised to secure sufficient insurance through homeowners and umbrella policies, which may provide defense coverage for some legal claims.
The bottom line: Planning is key. Treat household employees like other business associations. Consult with attorneys, accountants and insurance brokers to implement contracts, procedures and insurance to assure compliance with legal and tax obligations, minimize risk and maximize the likelihood of successful and productive relationships.