When you’ve finally decided that you or someone you care about needs a little help at home, the journey into caregiving begins. The good news is that you’ll have a few options to choose from. What’s not so nice is that some choices come with inherent risks.
One of your main concerns is likely to be finding the right person with the right qualifications who is just the right fit for all your needs. A qualified in-home caregiver expects to be paid a reasonable wage for performing the agreed-upon hours of care.
Unlike caring for a small child who can manage for a few hours with a teenaged-babysitter, seniors need trained, professional caregivers. The government has recently stepped up to help classify rules for in-home caregiver employment, which alleviates some of the confusion around payment.
One of the choices is to hire a private caregiver and agree on hours and a price. Initially, this may seem to be a simple solution. This choice may present health or safety risks to the senior and unexpected tax risks to the employer.
To avoid breaking any laws and alleviate financial and safety risks, it’s prudent and wise to weigh the benefits of hiring a home health care agency over taking a risk with hiring an independent caregiver.
We will discuss in this article
- What Legal Classifications Do I Need to Know About?
- Do I Have to Pay My Private-Hire Caregiver Minimum Wage?
- Do I Have to Pay Overtime to My Private Caregiver?
- Do Meal and Sleep Breaks Count for Overtime Pay?
- Is There a Risk of Hiring Independent Caregivers?
- What are the Dangers of Hiring Non-Agency Caregivers?
- Is Hiring Caregivers Under the Table an Acceptable Practice?
- What are the Pros and Cons of Hiring Private-Pay Caregivers vs. a Home Care Agency?
- What are the Tax Rules of Hiring a Caregiver?
- Concluding Your Options
What Legal Classifications Do I Need to Know About?
The federal government decided that there’s no real comparison between in-home caregivers and babysitters. From a legal perspective, we view them differently. The Department of Labor [i] provides clarification about three important issues.
- How to classify in-home caregivers as employees
- Legal requirements for paying them
- How their pay gets taxed
The Setting Where the Caregiver Provides Care is a Factor in Classification
In meeting the definition of an in-home caregiver, the federal government also considers the setting. They use three criteria for classifying care given in the home:
- The home has to be legally deemed the person’s home.
- Group settings aren’t considered homes.
- The person receiving care lived in the home where they now receive care.
The government classifies in-home caregivers as domestic employees and gives them many of the same rights as other workers. In addition to classifying in-home caregivers as domestic employees, the government differentiates between in-home caregivers and companions.
What is the Difference Between an In-Home Caregiver and a Companion?
If 80% of a caregiver’s duties are companion care and 20% of the time they provide caregiving, they are considered companions. The rules for companions are different than the rules for in-home caregivers, which are domestic employees.
Most caregivers don’t qualify as an independent contractor. [ii] This is an important distinction because the tax rules between independent contractors and domestic employees are different.
Do I Have to Pay My Private-Hire Caregiver Minimum Wage?
One of the reasons that it’s important to properly classify an in-home caregiver is that employers of domestic employees are legally required to abide by certain pay rules.
- Employers must pay domestic employees an hourly wage for all hours they provide service.
- Employers must pay domestic employees at least the state minimum wage.
- Employers must pay domestic employees overtime for working more than 40 hours per week.
Do I Have to Pay Overtime to My Private Caregiver?
One of the common questions employers ask is, “Do I have to pay overtime to my private caregiver?”
In-home caregivers that are classified as domestic employees are legally entitled to overtime. [iii] What makes things a bit confusing is that individuals need vastly different levels of care from a few hours per day to around-the-clock care.
In-home caregivers may sometimes take meal and sleep breaks and sometimes they’re not able to take a break at all. In both situations, they’re on the clock even when they aren’t providing care the whole time they are at their place of employment.
Tracking hours works best when caregivers keep a written record of how many hours they spend providing care. The answer is yes, you do have to pay overtime to your private caregiver.
Do Meal and Sleep Breaks Count for Overtime Pay?
In-home caregivers often spend long hours at a client’s home. Typically, employers don’t pay for meal and sleep breaks. Employers do pay for hours that caregivers spend in the home when they aren’t on break and don’t need to provide care.
In-home caregivers that can’t take meal or sleep breaks because of the ongoing needs of the person they provide care for should be paid for care that extends beyond the 40-hour work week.
Remember that there is an important distinction between in-home caregivers and companions:
- A companion provides 80% of care as a companion and 20% or less care as a caregiver.
- Companions are not entitled to minimum wage.
- Companions are not entitled to overtime pay.
Is There a Risk of Hiring Independent Caregivers?
Individuals who hire in-home caregivers independently acquire major risks with their choice. Before taking such a step, it’s vital that they consider the risk of hiring independent caregivers:
- Financial risks
- Health risks
- Liability risks
The financial risks when hiring an independent caregiver are steeper than most people realize. Employers who fail to withhold or pay state and federal taxes for an in-home caregiver could be audited and have to pay large sums years later, as well as fines and penalties.
In-home caregiving presents many physical risks because of bathing, transferring, and lifting seniors. The individual that hires an independent caregiver could be held liable for injuries sustained while on the job.
Caregivers sometimes care for people who are ill or have communicable diseases. Employers could be liable for expenses related to in-home caregivers who contract communicable diseases from those they care for.
What are the Dangers of Hiring Non-Agency Caregivers?
In addition to the risks that the hiring individual takes on, hiring a non-agency caregiver also presents undue risks to the individual that needs care. Seniors needing care may be unknowingly at risk of abuse, neglect, or exploitation.
Seniors or their family members who decide to hire a non-agency caregiver don’t always have the resources to perform background and criminal checks. While it’s a good practice to obtain references, they aren’t always reliable or truthful.
In-home caregiving requires a degree of relationship and nurturing. However, some caregivers cross their professional boundaries and harm their clients. This is a major risk in hiring a private caregiver.
Potential dangers for seniors who receive care by non-agency caregivers include:
- Physical abuse
- Sexual abuse
- Emotional abuse
- Physical neglect
- Medical neglect
- Theft and financial exploitation
Those who opt for hiring non-agency caregivers must also be aware that they will need a solid backup plan if their regular in-home caregiver cannot show up for any reason. Caregivers that don’t show up and don’t notify their employers is another one of the dangers of hiring non-agency caregivers.
Is Hiring Caregivers Under the Table an Acceptable Practice?
Perhaps it may seem that hiring an in-home caregiver is much like hiring a babysitter, where you don’t have to pay or withhold taxes on the money. This practice is widely known as “hiring caregivers under the table.”
If you intend to pay the caregiver more than $1800 per year, they are considered a domestic employee and as the employer, you are responsible for their Social Security and Medicare taxes. Employers and domestic employees who fail to pay legally mandated taxes are defrauding the government.
Employers of in-home caregivers should be aware that governments are cracking down on proper taxation of in-home caregivers. Those who fail to abide by the laws may get caught and held responsible when:
- They receive notice of an IRS audit.
- The in-home caregiver reports their pay as income.
- The in-home caregiver seeks unemployment compensation.
What are the Pros and Cons of Hiring Private-Pay Caregivers vs. a Home Care Agency?
When potential employers of in-home caregivers better understand the risks and benefits of hiring an in-home health agency versus an independent caregiver, it’s easy to see that the benefits in contracting with a home care agency far outweigh the risks.
Here are the pros of using a home care agency:
- The agency takes responsibility for payment and benefits including regular and overtime pay.
- The agency manages claims for worker’s compensation.
- The agency handles all tax matters.
- The agency provides background and criminal checks and checks references.
- The agency provides a substitute or replacement caregiver if the regular worker fails to show.
Here are the cons of hiring an independent caregiver:
- The employer takes full responsibility for following tax laws.
- The employer accepts responsibility for job-related illnesses and injuries.
- The employer is responsible for paying minimum wage.
- The employer is responsible for paying overtime.
- The employer is responsible to find substitute care when needed.
What are the Tax Rules of Hiring a Caregiver?
Employers of in-home caregivers must abide by the tax rules of hiring a caregiver that they employ and pay over $1800 per year.
The IRS rules for employers of domestic employees are:
- Pay 15.3 percent of the domestic employee’s wages in Social Security and Medicare taxes.
- The employer retains 50% of those taxes. *
- The employer can withhold half of the taxes from the domestic employee’s paycheck.
- Employers who pay in excess of $200,000 per year must pay additional Medicare taxes.
- Employers don’t have to pay taxes for in-home caregivers who are immediate family members, spouses, parents, or children under age 21.
- Employers who pay $1000 or more in a calendar quarter must pay federal unemployment taxes of 6% of the employee’s annual wages.
- Employees should also be aware of any required state income taxes.
*the employer’s half of taxes are 6.2% for Social Security taxes and 1.45% for Medicare
Concluding Your Options
Savings that employers receive by hiring an independent caregiver can end up costing them more in the long run and it’s not worth the risk of hiring a private caregiver.
After educating themselves about senior caregiving, most people conclude that it’s far more cost-effective to use a home care agency than to navigate all the legal and ethical challenges on their own. Home care agencies are professionals who rely on their quality of service and good names to build their businesses, so they work hard to keep clients happy.