Once you hire a nanny, or other type of in-home caregiver, you become that person’s employer. As a household employer, there are several human resources-related aspects to manage. You will need to protect yourself from all the liabilities and risks.
When working with employees in your residence, these are some of the most common sources of costly claims and lawsuits:
- Tax Issues
- Uninsured Injury Lawsuits
- Errors of Payroll Administration
- Wrongful Employment Practices
- Hiring a Person without Conducting Proper Background Checks
- Car Accident Injuries
The need to hire a nanny is becoming more and more commonplace; however, many families are not aware of the associated risk management issues. It’s crucial to identify and manage these risks before a claim arises.
You’ll need to apply for an employer identification number, or EIN, with the IRS. As an employer, you’ll be responsible for understanding taxable wages, employment tax withholding and which tax returns to file. Generally, you need to consider these taxes:
- Social Security and Medicare taxes, commonly called FICA taxes.
- Federal and state unemployment tax.
- Federal income tax.
- State income tax.
There is a risk of fines, penalties, and payroll taxes for improperly paying an employee as a contractor and not withholding payroll taxes. It is strongly recommended to do the withholding and pay the payroll taxes to avoid future issues. Of course, it’s highly recommended to speak with your tax professional for advice on your specific situation.
You aren’t required to provide health insurance; however, some families contribute funds to their employee’s ’s plan.. or have a portion of their payroll dedicated toward a policy of their choice.
You may be required by law to carry a workers’ compensation insurance policy. Even if it is not required by law, it is a good idea to obtain a policy because if your employee is injured and you don’t have coverage, you may be financially liable for their medical bills and lost wages.
If your employee drives your vehicle, you may need to add them as a driver to your automobile insurance policy.
Employment practices liability is a type of liability insurance that covers families in the event they are sued by their employee for alleged wrongful employment practices (discrimination, sexual harassment, wrongful termination, invasion of privacy, breach of contract, emotional distress or wage & hour law violations). This is available as an optional coverage on some personal umbrella policies, or can be purchased as a separate policy.
The peace of mind you gain by having adequate coverage is well worth the effort and money. No one ever wants to think about injuries or lawsuits, but if something happens, it’s important to know you’ll have the coverage in place to handle it.