A Payroll Guide for Household Employers
Household employers employ household employees, also called “domestic service workers,” to work in or around their home. Per the Internal Revenue Service (IRS), household employees include caretakers, babysitters, drivers, cleaning people, housekeepers, health aides, private nurses, maids, nannies, and yard workers. Household employers need to check the status of their workers in order to ensure correct payment.
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Obligation for Household Employers
Each state may have its own definition of household employment. Furthermore, the U.S. Department of Labor has regulations defining live-in domestic service workers. Therefore, it’s important to confirm that employees qualify as household employees before household employers pay them as such. They should also ensure that the worker is an employee and not an independent contractor.
Other areas relating to compliance that household employers needs to be aware of include minimum wage, overtime, payroll taxes, and recordkeeping.
Minimum Wage and Overtime
Under the Fair Labor Standards Act (FLSA), household employers should pay household employees no less than the federal minimum wage of $7.25 per hour plus overtime pay for work hours exceeding 40 in a week. If both federal and state wage and hour laws apply, the higher standard should prevail.
With a few exceptions, if you pay cash wages above a certain amount to anyone working in or around your home, you must withhold Social Security and Medicare taxes from their wages and pay your own portion of those taxes. (This amount may change annually.) If you want, you can pay the employees’ share of Social Security and Medicare taxes out of your own pocket along with your portion.
Household employers do not have to withhold federal income tax from their employees’ wages. If, however, the employee requests that you withhold federal income tax and you agree, you must withhold it. Note that both cash and noncash wages are subject to federal income tax withholding; however, only cash wages are subject to Social Security and Medicare withholding.
Household Employers Need to File a W-2
If you paid total cash wages above a certain regularly adjusted minimum to household employees, you must pay federal unemployment tax. You’ll also need to file a W-2 for household employees who are subject to Social Security and Medicare taxes. If a household employee is not subject to Social Security and Medicare taxes, but you withheld federal income tax from his or her wages, you must still file a W-2 for that person.
You can pay your household employment taxes to the IRS when you file your federal return. If you pay other types of business taxes and file quarterly via Form 941 or annually via Form 944, you can report your household taxes with your other business taxes on the respective form. Otherwise, you must file your household employment taxes annually on Schedule H (Form 1040).
Each state has its own guidelines on payroll taxes for household employment, including for state income tax and state unemployment tax.
Recordkeeping for Household Employers
The FLSA requires that employers keep basic records for household employees, including name, Social Security Number, daily and weekly work hours, weekly cash wages, overtime wages, and amounts the employer claims for board and lodging. Payroll records used to calculate pay for household employees, such as timecards and work schedules, must be retained for at least two years.