Domestic Employment Laws in New York State

domestic employment laws in new york stateWhen it comes to paying household employees, A New England Nanny recognizes that nannies, housekeepers, senior care workers, etc. are professionals who should be compensated legally by employers with the appropriate taxes and benefits in mind. Here in New York, there are many nuances and details to know when it comes to paying domestic workers.

GTM Payroll Services has put together a guide for household employers in the Empire State to understand their responsibilities when it comes to paying their domestic worker. The guide is also beneficial to household employees for knowing their rights and what benefits they are entitled to.

Not only are there things like minimum wage, overtime, and workers’ compensation insurance to consider, but New York is one of only a handful of states to have a Domestic Workers’ Bill of Rights, which contains many protections and regulations specific to household employees. Plus New York has a Paid Family Leave law that all employers must abide by. Other items like disability insurance, the new employer SUI rate, and the state’s taxable wage base all must be considered when paying a household employee in New York.

Check out GTM’s guide, and if you have more questions about being a household employer in New York, contact them for a free consultation.

Do You Need to Pay Taxes for a Summer Nanny?

summer nanny taxesSchool will be out soon, and if you’re going to be hiring a nanny to care for the kids during the summer, you might think that since it’s only a temporary job, you don’t need to worry about payroll taxes or even insurance. But those requirements may apply even if you’re only hiring for the season.

Our friends at GTM Payroll Services have put together this list of what you need to know about paying taxes on a summer nanny:

Your Summer Nanny is an Employee

The IRS has consistently ruled that a nanny is an employee and not an independent contractor.

This distinction is important. With an employee, the worker and employer each pay Social Security and Medicare taxes. An independent contractor pays both their share and the employer portion of these taxes.

Why is a nanny considered an employee?

She is a worker who:

  • works under the direction and control of her employer
  • has her schedule set by her employer
  • uses the employer’s tools

Essentially, you are telling your nanny how to care for your children and when to show up to your to home to work. When she is working, she is using your tools, such as plates and utensils to serve lunch.

An independent contractor is told what is needed to be done and possibly when it needs to be done by. However, they determine how the work will get done, when they will perform the work, and will use their own tools to do the work.

Your Summer Nanny Makes $2,100

If your summer nanny passes the $2,100 cash wage threshold, then Social Security and Medicare (FICA) taxes need to be paid by both you and your employee. You each have a responsibility of 7.65 percent of cash wages for FICA for a total of 15.3 percent.

Your employee’s obligation can be handled through a paycheck withholding and you can remit both your and your employee’s taxes quarterly using Form 1040-ES.

A summer nanny can very easily reach this threshold. Let’s say she makes $10/hour for 25 hours of work per week for 10 weeks. That’s $2,500 in cash wages triggering the FICA withholding requirement.

There are some exceptions. Do not count wages you pay to your spouse, child under the age of 21, parent or any employee who was under the age of 18 at any time during the year.

You and your summer nanny may also agree to withhold income taxes from their pay. It’s not required that you withhold but it may be preferred so that your nanny won’t owe all of her tax obligation come tax time. You can remit income taxes quarterly.

Your Summer Nanny Makes $1,000 in a Calendar Quarter

Federal unemployment taxes are owed if your summer nanny makes $1,000 in any calendar quarter. We’ve already shown how easily this threshold can be reached. This tax is an employer-only tax (do not withhold from your employee’s pay) and is six percent on the first $7,000 in cash wages. You may also owe state unemployment taxes.

Again, there are some exceptions. Do not count wages you pay to your spouse, child under the age of 21 or parent.

You will need to pay unemployment taxes for employees under the age of 18 if they make $1,000 in a calendar quarter.

You May Need Workers’ Compensation

Workers’ compensation is usually required for household employers in New York. If your summer nanny works 40 hours in a week, even for just one week, you need workers’ compensation coverage for the entire time she works for you.

Follow Minimum Wage & Overtime Rules

Since your summer nanny is an employee, she is protected under the Fair Labor Standards Act. This means she must be paid at least New York’s state minimum wage, which is currently $10.40 per hour. Overtime also applies. Hours worked over 40 in a week need to be paid at no less than time and a half. There are some exceptions for live-in employees.

File Year-End Tax Forms

At the end of the year, you will need to provide your nanny Form W-2 (Wage and Tax Statement)while filing Copy A of this form and Form W-3 (Transmittal of Wage and Tax Statements) with the Social Security Administration. You’ll also file Schedule H (Household Employment Taxes) with your personal tax return.

Please contact us at (518) 348-0400 for more information about hiring a summer nanny. For more info about paying nanny taxes, call GTM at (800) 929-9213 for a free, no-obligation consultation with a household employment expert.

Payroll and Tax FAQs from Nannies

payroll and tax faqs from nanniesAs a nanny or other domestic worker, you may have questions about your employment status and tax obligations. Even if it’s just a temporary placement, it’s important to understanding your (and your employer’s) responsibilities at the beginning of employment.

Here are some payroll and tax FAQs from household employees.

Am I an employee or an independent contractor?

In almost all situations, nannies and other household workers are employees and not independent contractors. If you take instruction from the employer, have your schedule set by the employer and use your employer’s supplies, tools, and equipment, then you are an employee. If you work under your own conditions, sets your own schedule and use your own supplies, then you are an independent contractor. Tax agencies like the IRS treat nannies the same way as people who work in an office, retail store, or restaurant.

Do taxes need to be taken out of my paychecks?

Yes, if you earn more than $2,100 (2018) from one family during the year. In that case, your employer must withhold Social Security at 6.2% and Medicare at 1.45% of your gross pay. Your marital status and how many allowances you choose to claim on your W-4 form will also impact how much federal and state income tax is withheld from your paycheck.

Will I need to pay any taxes?

Even if you earn less than $2,100 (2018) from any family, you will still have to report any wages earned during the year on your annual income tax return. Be sure to keep an accurate record of your earnings to help you pay both federal and state income taxes for the calendar year when you file your tax returns.

Our friends at GTM Payroll Services have a nanny tax calculator to help you figure out how much in taxes will be withheld from your paycheck.

What if my employer doesn’t want to pay taxes?

Your employer is required by law to withhold taxes if they are paying you more than $2,100 (2018) in a year. We realize that many families want to avoid paying nanny taxes and would prefer to pay you “off the books.” But the truth is that being paid legally isn’t just in their best interest – it’s in yours as well. Here are some reasons why your employer should follow the law:

  • Your employer can take advantage of their employer’s flexible-spending plan (commonly called an FSA) and deduct your salary as a qualifying expense.
  • The IRS may investigate, fine or penalize families that don’t report your wages; they must withhold taxes for you and disclose the amount on their personal income tax return.
  • In order to add funds to your Social Security account, give you the ability to obtain credit, and protect you if you become unemployed, you must be paid legally.
  • You and your employer will have a happier employment relationship. The risk of an IRS audit for your employer is greatly reduced , as is the risk of hefty fines for not following the law. And you will have a legal, recorded employment history and be eligible for Social Security, Medicare, and unemployment assistance.

Read more about legal pay for household workers, and contact us at (518) 348-0400 for more assistance.

How Much Should I Pay My Nanny?

how much should i pay my nannyOne of the most frequent questions we get asked from our families who are hiring a long-term nanny is how much they should pay them. How much to pay a nanny is something to figure out early in the process, not after you decide to hire someone. This way there are no surprises for either side.

Remember, hiring a nanny is hiring a professional to work in your home, much like a small business owner hires someone for their team.

If you’re hiring through an agency like ours, we will help you determine an appropriate offer for the type of nanny you’re seeking. But to get a general idea of all the factors that influence what you’ll pay your nanny, see the list below.

Factors for how much you pay a nanny

  1. Fair Labor Standards Act
    Full- and part-time nannies are covered by the Fair Labor Standards Act (FLSA). They must be paid an hourly rate that is at least the federal minimum wage or the minimum wage for your state or city if it’s higher. Overtime pay of time and a half must also be paid for more than 40 hours of work per week.
  2. Location
    As with most jobs, nannies that live in areas that have a higher cost of living or in metropolitan areas tend to be paid more. According to the latest research by the International Nanny Association, the average hourly rate for a nanny in California is $23/hour. Washington, New York, Massachusetts, and Maryland are also on the higher end of the pay scale with average rates of at least $20/hour. But in an area like the Capital Region, the average pay rate is around $15/hour.
  3. Live-in or Live Out
    Will your nanny be live-in or live-out? A nanny who lives in your home could be paid less if they are receiving room and board.
  4. Full-time or Part-time
    Are you hiring a full-time nanny or is it a part-time position? A full-time employee has more job security and may receive benefits that can keep their hourly rate lower than a part-time nanny.
  5. Experience, Education, and Training
    As with most professions, experience counts. Think about how many years of child care you would like to have in a candidate. What about certifications, formal education, or training in a child care field? The more experience, education, and training a nanny possesses, the higher her pay will be.
  6. Responsibilities
    What other responsibilities will your nanny have? Will they be expected to cook dinner, wash dishes, do laundry, walk the dog, or pick up the kids from school? Also, will your nanny need to be on call? Will they be expected to care for your children if you’re called into work? Additional responsibilities and being on call could increase the pay rate.
  7. Number of Children
    The number of children the nanny will care for will impact pay. The more children, typically the higher the pay.
  8. Benefits and Incentives
    As you determine your nanny’s hourly rate, you may want to consider benefits and incentives for your nanny. This will also help you attract and retain the best talent. Consider paid time off, paid holidays, health insurance (or health insurance stipend) and a retirement plan. Also, think about bonuses for excellent performance, annual cost of living increases, and reimbursement or increased pay for completing training or getting a degree.
  9. Tax Obligations
    When budgeting for your nanny’s pay, remember you have employer tax obligations on top of what you pay your nanny. Check out GTM Payroll Service’s easy-to-use tax calculator to help you figure this out.The tax calculator will also provide your nanny’s gross and net pay. Your nanny will be most interested in their net pay – or take-home pay. This is the amount in their paycheck after taxes – such as income tax, Medicare, and Social Security – are taken out. Their gross pay is their take-home pay plus the taxes that will be withheld. Make sure you and your candidate are clear about gross and net pay to avoid any confusion come pay day.

When you have agreed on compensation, put the hourly pay rate and other policies in a written work agreement.

Contact us for more information at (518) 348-0400.

How Nannies Benefit from Being Paid Legally

nannies benefit from being paid legallyFamilies benefit from legally paying their nannies or other domestic workers by staying compliant with the law and being able to take advantage of tax breaks. But a nanny benefits as well from being paid legally even though they may see a little less in their paychecks.

If you’re hiring or looking to transition a current employee to “on the books” and she doesn’t want taxes taken out of her pay, explain these nanny benefits and protections that they’ll enjoy.

Nanny Benefits of Legal Pay

1. Verifiable income

If your employee applies for a car loan, student loan, mortgage or even a credit card, they’ll need to show that they can pay monthly installments. Being paid legally provides a verifiable income to show the lending institution. If their pay is not documented, they have no way to show that they have a job that brings in a steady income.

2. Legal employment history

Having a work history is also important when applying for a loan, credit, or their next job. Being paid “on the books” creates a legal employment history that banks and lending institutions as well as future employers can verify.

3. Unemployment benefits

As an employer paying your workers legally, you are required to pay unemployment taxes. This is an employer-only tax yet it’s your employee who benefits. If your nanny loses her job, through no fault of her own, unemployment benefits will partially replace their lost wages for up to six weeks while they look for a new job. Amicable splits are common in household employment and this is a benefit your nanny will want if they find themselves without a job.

4. Social Security and Medicare benefits

Social Security and Medicare taxes will be taken out of your nanny’s pay. This money is set aside to help pay for their living and medical expenses when they retire. As an employer, you’ll also pay into their Social Security and Medicare. If your nanny is paid “under the table,” they won’t receive these benefits. As a result, they may need to continue working past retirement age.

5. Health care subsidy

Under the Affordable Care Act (ACA), a health insurance marketplace has been created to help uninsured people find coverage. If your nanny wants to purchase a policy through the marketplace, they could qualify for a subsidy and cut the costs of their insurance. For example, a nanny who makes $40,000 and lives on her own in New York City would save 38 percent on their health insurance premiums. Of course, this is only available to them if they are paid legally.

6. Employment benefits

As an employer, you may want to provide benefits to your workers to help retain your best employees. A 401k retirement plan and health insurance plans that may be cheaper and provide better coverage than the ACA marketplace are a couple of perks that would set you apart from other employers. But your nanny will be need to paid legally in order to take advantage of these benefits.

The benefits and protections of being paid legally far outweigh the small amount of money that will be taken out of their pay each week.

Nanny Tax Planning for 2018

nanny tax planning for 2018Hard to believe 2018 is less than two weeks away! Now is a good time to ensure that everything is in order so there are no surprises when it comes time to pay your nanny taxes next year. Don’t put off or ignore your 2017 year-end tax planning; look at your finances and think about any changes you will be making for the rest of this year and into early 2018. Some things to consider include:

  • Adding/decreasing your employee’s hours during the holiday season
  • Awarding a year-end bonus
  • Adjusting salary for 2018
  • Making note of the new minimum wage in New York
  • Vacation pay for the holiday season

The domestic employee coverage threshold amount will rise to $2,100 for 2018; this means that you are required to pay taxes if you pay a nanny at least $2,100 for the year. Make sure you keep accurate records of any changes you make, along with any changes to any federal or state tax and wage laws.

Contact us at (518) 348-0400 if you have any questions or need more information.

Proposed Regulations to Help Prevent Identity Theft

regulations to help prevent identity theftFresh off the recent Equifax breach , the IRS has proposed regulations that may help individuals prevent identity theft when it comes to their W-2s.

The proposal would allow truncated Social Security numbers (SSNs) on Form W-2 in the form of Taxpayer Identification Numbers (TTINs), which would hide full SSNs from identity thieves.

Employers would be permitted to voluntarily truncate their employee’s SSNs only on the copies of Form W-2 that are given to employees. Using TTINs on any documents – including tax returns or statements – that must be filed with or sent to the IRS or Social Security Administration would not be allowed.

Public comments on the proposed regulations are being taken by Dec. 18, 2017. Visit Regulations.gov to submit your comment.

Nanny Tax Compliance Infographic

Mistakes or misinterpretations of nanny tax compliance laws can mean IRS audits, thousands of dollars in fines and penalties or an employee lawsuit. Our friends at GTM Payroll Services have created this handy infographic that highlights what you need to do to maintain nanny tax compliance. Click the image below to view a larger version.

nanny tax compliance

Wage Theft Crimes and Household Employers

wage theft crimes and household employersWhile household employees are often excluded from federal and state laws protecting against wage theft and overtime pay because of the limited number of employees within the home/ business, the crime of wage theft crimes and household employers are not mutually exclusive. A growing number of states are addressing the wage theft by some employers—employers who pay workers below minimum wage or do not pay overtime, resulting in overworked, underpaid employees. Many (but not all) of these employees tend to be immigrants who come to the United States desperate for any work, and who therefore accept what is on offer—even if the job entails an infringement of worker’s rights and federal and state law.

According to a 2013 briefing report, “Low Wages and Scant Benefits Leave Many In-home Workers Unable to Make Ends Meet”, by Heidi Shierholz, in-home workers, such as nannies, housekeepers, and senior care workers, often receive such low wages that they are living below twice the poverty threshold. While the household employer must ensure his or her employee receives at least the minimum wage and other protections such as overtime pay, meal breaks, etc., domestic worker organizations are calling for action at the federal and state level as many employers are in violation of this.

In addition: in-home workers’ hourly wages are nearly 25 percent lower than those of similar workers in other occupations (after accounting for demographic differences) and in-home workers’ median weekly pay is 36.5 percent lower than similar workers in other occupations.

According to the report, in-home work is expected to grow 53.2 percent, compared with 14.3 percent for other occupations. All federal and state laws and efforts to protect domestic workers will add to the occupation’s growth. Some states, including New York, have enacted Domestic Workers’ Bill of Rights laws that help with this protection.

The 2012 report, “Home Economics: The Invisible and Unregulated World of Domestic Work”, also documents “serious and widespread” mistreatment of domestic workers in the United States. Generally domestic workers, said the report, “are underpaid, in many cases less than the minimum wage, and often at levels too low to adequately care for their own families…Employed in private homes, behind closed doors, domestic workers endure long hours and substandard pay. There is little economic mobility and almost no financial security…”

The historic 2009 study, “Broken Laws, Unprotected Workers”, highlighted the low-wage workforce in Chicago, Los Angeles, and New York City, the nation’s three largest cities. The study found that core employment laws—like minimum wage and overtime pay—were aggressively and systematically violated. It estimated that two-thirds of the 4,387 workers surveyed experienced pay violations and that the average worker lost more than $2,600 in annual income due to the violations, a full 15 percent of annual income. Private households yielded the highest minimum wage violations—exceeding 40 percent. Child care workers experienced the highest violations of any job, with 89 percent of in-home child care workers earning less than the minimum wage and 90 percent facing overtime violations. Wage theft appears to be widespread, particularly with low-wage workers and immigrant workers.

A number of states protect workers with wage theft prevention laws, including New YorkCalifornia, and Washington, D.C. Wage theft prevention laws mandate that employers provide workers with written, detailed information on how much and when a worker is paid. These employer pay notices must generally be provided upon hire and when there is a change to the information provided. Employers not following laws and regulations could find themselves facing penalties and even jail time.

For more information, contact us at (518) 348-0400.

Steps to Comply with Nanny Tax Requirements

steps to comply with nanny tax requirementsIf you are hiring a nanny or other household employee, it’s important to understand your obligations as a household employer. You must file all applicable nanny tax forms, Social Security, Medicare, federal and state unemployment insurances, and income taxes. These obligations apply to all full-time and part-time employees that you expect to pay over $2,100 (2018) in the course of a calendar year.

Some families pay their child care providers in cash or “off the books.” Although this gives the employee more income and saves families from the extra paperwork, it is illegal and can make you liable for unpaid childcare taxes, interest, and penalties. Therefore we recommend following this list created by our affiliate GTM Payroll Services to ensure you know the steps to comply with nanny tax requirements.

14 Steps to Nanny Tax Compliance

  1. Obtain household employer tax IDs (federal and state). In order to report childcare employment taxes and issue employee tax statements, you must obtain an employer identification number (EIN) from the IRS. Your state will require you to obtain a separate number for state unemployment insurance reporting and possibly income tax withholding reporting as well.
  2. File a new hire report with your state (if necessary). Generally, the information you must provide to state agencies includes the employee’s name, address, Social Security number, as well as your name, address, and federal employer identification number (EIN).
  3. Purchase workers’ compensation insurance (if required in your state). Workers’ compensation insurance protects both you as the household employer and your employees in case of a work-related injury or illness. See what the requirements are in your state.
  4. Adhere to all applicable tax, wage, and labor laws that pertain to household employment such as a Domestic Workers’ Bill of Rights. To see which laws impact household employment in your state, see our state-by-state guide.
  5. Verify your employee’s social security or tax identification number and complete Form I-9 for employment eligibility. Household employers must obtain a completed Form I-9 for every employee hired. This is used to verify the identity and employment eligibility of your domestic workers. Keep this form on file with copies of the documentation your employee provided for employment eligibility.
  6. Calculate employee tax withholdings. Your household employees’ wages fall under the Federal Insurance Contribution Act (FICA), so a portion of the wages you pay needs to be withheld and paid as Social Security and Medicare taxes. Both you and your employee are required to pay a percentage (7.65%) of the gross wages. You may pay the entire amount yourself and list the employee’s share as additional taxable gross income. The IRS, realizing that many employers will not want a large tax liability at the end of the year, strongly recommends quarterly estimated payments.
  7. Prepare and distribute paystubs (even if paying by direct deposit). Even though pay statement distribution isn’t required under federal law, most states have opted to pass state laws that require employers to provide regular statements about their pay and withholding. Employee name, Social Security number, pay rate, pay period, and deductions are what is generally required on the statements. Find out if your state has pay statement laws and whether pay stubs can be provided to employees electronically here.
  8. File and remit quarterly state employment taxes. Generally, all states require state income taxes to be paid quarterly with your state income tax department. See a list of state tax departments here.
  9. File and remit quarterly federal taxes using Form 1040-ES. The IRS encourages household employers to deposit federal nanny taxes four times a year using the 1040 ES form.
  10. Prepare and distribute Form W-2 to your employees by January 31 (for previous year’s taxes and wages). All wages and tax withholdings must be reported on your employees’ W-2 form at the end of the year. The W-2 form must be given to your employee, the IRS, and to your state.
  11. File Copy A of Form W-2 and Form W-3 with the Social Security Administration by January 31. See instructions on these forms here.
  12. Prepare Schedule H and file with your federal income tax return (Form 1040). Schedule H is filed annually and goes with step 9 on this list.
  13. Read and respond to government notices or alerts. When the IRS or another government agency contacts you about your household employment, it’s important to respond in a timely manner to avoid any penalties or other hassles.
  14. Monitor changes to tax, wage and labor laws that could potentially affect household employment. Some good websites to monitor information that could impact household employment can be found here. If your state is considering new laws like a Domestic Workers’ Bill of Rights or a paid sick leave law, make sure you stay informed on what the law entails and if it affects household employers.

The easiest way to ensure you are compliant with nanny tax laws is to have a professional service like GTM handle your household payroll. They will remove the hassles, worries, and risks of nanny tax compliance and give you peace of mind (plus more time in life for the things you enjoy).

Contact GTM for a free consultation at (800) 929-9213, or download their Complete Guide to Household Payroll for more information.

*The information contained within is designed to give the user general guidelines on the subject of household employment taxes. Tax laws can vary considerably from different taxpayers based on the circumstances and the state of residency. This information is not designed to serve as legal, accounting, or tax advice. GTM encourages you to consult with a competent tax advisor concerning specific matters before making any decisions. GTM does not accept any responsibility for positions taken by taxpayers for any interpretations on the information found within.