Health Insurance For Your Employee in California

One Household Employee & Health Insurance - California

The Affordable Care Act requires most individuals to have health insurance, but as an employer of less than 50 employees, you are not required to provide this benefit. If you only have one household employee, the easiest way for everyone to be compliant (and healthy!) is for your employee to purchase a health insurance policy on the California marketplace. It’s a great resource and easy to navigate.

Also, if your employee earns less than $48,000 per year, they might qualify for federal subsidies to lower the premium costs.

Another way to lower costs is for you to contribute. Although not required to by law, contributing to your employee’s health insurance premium benefits both parties because any money paid by you is considered non-taxable compensation.

Please Note: Families that have two or more household employees must purchase a group policy through SHOP if they want their contributions to be non-taxable. If you have more than one household employee, there are other options to consider that are not covered here.

The information herein is general in nature and may not be applicable to or suitable for your specific circumstances. Accordingly, the information is not intended to be providing legal or tax advice, and should not be relied upon without the advice and guidance of a professional tax or legal advisor.


Attention Employees: Say YES To Your Future!

“…You won't always have the energy you have now. You could get seriously injured, or just burn out. Every dollar earned is important for social security." -anonymous nanny

"Once our younger child started to school, we no longer needed the babysitter, and she went to work for others. One day she called, asking if we had paid taxes on her. I said we had. She needed proof because she had health problems and couldn't work any more. She needed Social Security income and Medicare benefits. Without those, she couldn't afford the drugs for her heart condition. Fortunately, I not only paid the taxes, I had the records to prove it." -anonymous parent

If your “office” is in someone’s home, make sure that’s no excuse for missing out on critical safety nets and long-term security. If you are being paid over $2,100 in a year (2019) by any household, being paid legally brings you critical benefits:

  1. You qualify for unemployment. You are entitled to receive up to 50% of your salary for six months (current cap $450/week) if you are dismissed from your job through no fault of your own. You wouldn't qualify for unemployment unless you are paid legally.

  2. You can apply for loans and health insurance subsidies. Without salary history, loans are difficult to get, especially at a fair interest rate. Student loans, renting an apartment, mortgages, credit card applications, auto insurance applications and health insurance subsidies all require employment history.

  3. You save for your retirement. You will build up your social security, which is based on your 35 highest-earning years in the workforce. For every year you are paid under the table, it will be a zero against your future. Read here to learn how it gets calculated.

  4. You get health insurance when you are older. It takes about ten years of working to earn enough credits for Medicare at retirement age. Make sure every year of work counts towards this benefit!

  5. You are protected if you get hurt OFF the job. If your state offers it (currently CA, NJ, RI, HI and NY), and you get hurt or sick NOT on the job, you could qualify for a short-term period to receive a weekly benefit, usually a portion of your salary. This can help to tie you over while you recover. Please check your specific state disability plan. If you live in a state that doesn't include disability taxes, your employer can purchase it directly and it is relatively inexpensive.

  6. You are protected if you get hurt ON the job (assuming employer has this coverage, mandatory in many states including CA). This benefit provides coverage for lost wages and medical bills related to an injury ON the the job. Employers who provide this coverage are protected from lawsuits if there's an accident, so it is worth the protection for the employer too!

For further understanding, read here for an interesting explanation by the State of California as to why paying under the table isn't worth it. It’s also important to know that the employer will be required to pay all back taxes (employer and employee), and any fines and penalties if the IRS finds out you were being paid off the books. 

Simplify your life with Nest Payroll

your To-Do list just got shorter

You are onboard with paying your household employee legally, using Nest Payroll. Great, you just crossed off some MAJOR to-do’s from your list. Below you’ll see some simple steps that only you can do. As part of being a subscriber to the Nest Payroll service, you’ll receive reminders and guidance for these steps as well, but here they are in a nutshell:

  1. I-9 Form Make sure your employees are legal to work. Ask them to fill out an I-9, and then file it in a safe place if you ever get audited. Get the I-9 form here.

  2. W4 Form We do all the tax calculations for any withholdings! All you need to do is have your employee fill out the W-4, so the employee can specify how much to withhold from their paycheck. In the app, under each employee profile, select “Edit” and you can adjust the withholdings based on each employee’s W4. This is an area where it differs from non-household employees. You are not required to withhold income tax, but this means your employees will owe at the end of the year, which could be a burden for them. Since you are using Nest Payroll, it’s no extra work for you, and this is another way you can take care of your employees. Keep the W4 in a safe place with the I-9 forms.

  3. FEDERAL EIN We do this for you!

  4. STATE REGISTRATION We do this for you!

  5. NEW HIRE REPORT We do this for you!

  6. WORKERS' COMPENSATION This is insurance to protect you and your employee, not a tax, and it's mandatory in many states even if you have just one part-time employee (and worth the peace of mind for the protection it provides your family). Check your homeowners' or renters' insurance to see if you already have some coverage. For example, you might be covered if your nanny works less than 20 hours/week. Or you might need to supplement with an "endorsement" for a household employee who works more than 20 hours/week. A typical cost for an endorsement is about $600/year. Every insurance company is different so you need to check. For California, you can read more here and Nolo also has a good summary.

  7. OVERTIME Nest Payroll will calculate overtime, but you need to know the rules: In California, over 8 hours in one day, as well as over 40 hours in one week, is calculated at 1.5x the hourly rate (you can easily enter regular and overtime hours into the Nest Payroll app). See California’s overtime rules here: https://www.dir.ca.gov/dlse/DomesticWorkerBillOfRights-FAQ.html

  8. LEGAL PAY STUB We do this for you!

  9. FILE QUARTERLY TAXES TO YOUR STATE We do this for you!

  10. EVERY QUARTER - FEDERAL File and pay your estimated taxes through the Federal Form 1040-ES each quarter (or increase your withholdings through your employer), so you don't owe penalties at the end of the year. Here’s how to easily do this.

  11. YEAR END COMPLIANCE We do this for you! We provide a W2 for each of your employees, and prepare and file Copy A of Form W-2 and Form W-3 to the SSA (Social Security Administration).

  12. FOR TAX TIME We do this for you! You will receive a signature ready Schedule H that you attach to your personal tax return (Form 1040).

  13. REGULATIONS Always adhere to the Domestic Worker's Bill of Rights. Some states have their own version, such as California.

Keeping It Professional

"A nanny who only wants to be paid under the table seems shady and unprofessional to me--not someone I'd want watching my kids." -a real parent

"I used to be a nanny, and I actually refused to work under the table. I just felt more comfortable when parents paid me legitimately, because I knew that if something went wrong in the working relationship, I was protected by labour laws just like any other employee." -a real nanny

Most people want to do the right thing, but when it comes to paying their household employees, "off the books" is too common. Research has found that most people on both sides are unaware of the risks and the benefits to paying legally. It's understandable...after all, who has an HR department in their house?

Keeping your relationship professional protects you and your nanny, and is better for your loved ones.  

  • Reduce stress if you ever have to let your employee go, as she will have the safety net of unemployment if it takes time to find another job.

  • If your nanny gets hurt or sick, she can apply for disability.

  • Your nanny will build up critical social security credits and Medicare.

  • You won't be committing tax fraud.

Sleep better at night knowing you are paying right. 

Trying To Do It Yourself?

The 12-Step Program To Paying Your Household Employee

It's an arduous, dare we say "taxing", journey to pay a household employee correctly. Clearly the IRS thinks we have Finance and HR departments in our house, just like a big corporation. You'll see why we created Nest Payroll, but in the meantime, here's the lowdown (and these are just the basics). 

The very first question to ask yourself is "Am I going to pay someone who helps me with household work (like a nanny, caregiver, housekeeper, personal assistant or gardener) $2,100/year or more?" If so, these are the basic steps for how the payroll process works. And most household workers are employees. You can check on your situation by downloading a copy of the IRS Publication 926 on household employment. Happy reading!

  1. LEGAL TO WORK Make sure your employees are legal to work. Ask them to fill out an I-9, and then file it in a safe place if you ever get audited. Get the I-9 form here.

  2. TAX WITHHOLDINGS You also need your employees to fill out a W-4. Here's an area where it differs from non-household employees. You are not required to withhold income tax, but this means your employees will owe at the end of the year, which could be quite a burden for them. We recommend you play it safe from the beginning (and Nest Payroll makes it easy!). Keep the W4 in a safe place with the I-9 forms.

  3. FEDERAL EIN Get your EIN - an Employer Identification Number, from the federal government. This is something the IRS has done well - It's super easy and fast online. Make sure you select "household employer" for type of employer as you go through the steps. If you already have an EIN, but it's for an LLC or incorporated business, you will need a second EIN just for household. You need to keep the EINs completely separate. If your existing EIN is for a sole proprietor business, then you can use it.

  4. STATE REGISTRATION Register as an employer, and you'll need your Federal EIN to register in your state. Every state is different. With California, elect the household employer status, and make sure you also file a new hire report with any new employee. You'll also need to pay an additional employer tax for disability (SDI) and training (ETT). For California households, here's a guide to getting it all setup.

  5. WORKERS' COMPENSATION This is insurance to protect you and your employee, not a tax, and it's mandatory in many states even if you have just one part-time employee (and worth the peace of mind for the protection it provides your family). Check your homeowners' or renters' insurance to see if you already have some coverage. For example, you might be covered if your nanny works less than 20 hours/week. Or you might need to supplement with an "endorsement" for a household employee who works more than 20 hours/week. A typical cost for an endorsement is about $600/year. Every insurance company is different so you need to check. For California, you can read more here and Nolo also has a good summary.

  6. OVERTIME Have your employees use a timesheet that tracks hours/day so you can compute overtime. Every state is different. In California, over 8 hours in one day, as well as over 40 hours in one week, is calculated at 1.5x the hourly rate (you can easily enter regular and overtime hours into the Nest Payroll app). 12 or more hours in one day is calculated at 2x the hourly rate.

  7. PAY STUB With each paycheck, you need to provide a paystub that shows the breakdown including taxes and withholdings (Nest Payroll does this for you).

  8. EVERY QUARTER- STATE File and pay taxes due to the state each quarter (in California you have to elect to pay once a year, the default is quarterly).

  9. EVERY QUARTER - FEDERAL File and pay your estimated taxes through the Federal Form 1040-ES each quarter (or increase your withholdings through your employer), so you don't owe penalties at the end of the year.

  10. W2 At year-end, provide a W2 to your employees, and prepare and file Copy A of Form W-2 and Form W-3 to the SSA (Social Security Administration).

  11. AT TAX TIME Fill out Schedule H and attach to your personal tax return (Form 1040).

  12. REGULATIONS Always adhere to the Domestic Worker's Bill of Rights. Some states have their own version, such as California.

Sign up with Nest Payroll to make these steps a lot more manageable. 

 

 

 

5 Common Nanny Mistakes To Fix Right Now

AVOIDING THESE 5 MISTAKES ARE CRITICAL FOR EMPLOYERS, AND EASY TO AVOID. 

"Can you start yesterday?!?", is a common feeling we all have when we find the right nanny for our kids. You may be in a rush, but don't neglect these key steps for a long-term successful outcome. Taking the time to do things correctly upfront will improve the chances of a great relationship, which is critical for your kids. And if you've already hired your nanny, it's never too late to implement the right changes, right now, with the resources below.   

1-   Paying less than minimum wage

Not only is this illegal, but some cities have higher minimum wages than the state, so you need to check. Read more about California's minimum wage from the Labor Commissioner's Office, and Minimum-Wage.Org and the UC Berkeley Labor Center both detail which cities have higher rates than the state.

2-   Paying "off the books"

If you need to let go of your employee for any reason, you and your employee will have peace of mind if you have been paying them legally ($2,100 or more during the year is the trigger). They will be able to file for unemployment to tide them over until they find the next job. If your employee cannot find a job right away, she has the right to file for unemployment, and she will be required to report any previous employers.  

And don't forget, by paying legally, you can take advantage of caregiver tax credits.  And last but not least, you will sleep better knowing you are paying right. (Note: If your employee is asking to be paid under the table, here's what to say.) .

3-   Not checking to see if you have worker’s compensation insurance.

If there's an injury that happens while your employee is working for you, you are the one that will be responsible.  You need to check your workers' compensation coverage by calling your homeowner's or renter's insurance provider. Laws vary by state and by insurance company. You might already be covered for a part-time employee (in California), for example, or you might need to add a rider.

In many states, including California, it is the law to have workers' compensation for any household employees. In California, the employee would be covered if he or she works at least 52 hours or earns at least $100 in the 90 days before the date of injury. This will protect you from medical costs and lost wages if your employee becomes ill or injured on the job. You don't need to be told how scary-high medical costs can be in the U.S.!

4-   Not paying overtime

Every state is different. California household workers can't work more than 9 hours in a day, or 40 hours in a workweek, unless the employee receives 1.5 times the hourly wage (and it goes to 2x over 12 hours/day). Click here for California's overtime details

5-   Not agreeing to a formal contract

Even though your nanny might be a super-star, you still need a contract. Contracts get you both on the same page. It can also address sticky situations like playdates (some nannies request extra payment for each additional child), expectations with cleaning and errands, how much time the nanny can spend on the cell phone, driving requirements, confidentiality with family matters, and of course, compensation. Download a comprehensive nanny contract here that you can modify for your needs, and check this off your list!

 

"My Nanny Only Works A Few Hours A Week... Isn't She An Independent Contractor?"

THE SHORT ANSWER IS NO, NANNIES ARE NOT INDEPENDENT CONTRACTORS.

A friend recently commented that she was so glad she didn't have to deal with taxes for her afternoon nanny. After all, her nanny worked only 15 hours a week and also had another family she worked with. My friend assumed this placed her in the independent contractor status.   

A lot of folks think that caregivers are independent contractors if they work less than 20 hours, have another job or have other families they work with. But hours worked or other side jobs have nothing to do with the designation. In the eyes of the IRS, the type of work and who controls it, almost always makes the caregiver your employee. For example, if a Nanny was an independent contractor, then SHE would decide what to feed your child, what to do during the day, how to discipline your child... you get the picture. 

Examples of household employees include:

•  Nannies and babysitters

•  Housecleaning workers, maids and housekeepers

•  Health aids, senior caregivers and private nurses

•  Caretakers, drivers and yard workers

It's really important to understand this because if you are paying under the table, not even intentionally, you are vulnerable to risks. Risks include paying medical costs out of your own pocket, which could be financially devastating for a family.  Paying over the table protects you, and here's how it does that.  

Attention Working Parents: #1 Reason To Pay Your Nanny OVER The Table.

AN UNINSURED INJURY CAN RUIN A FAMILY FINANCIALLY. 

Imagine this: You just found the perfect nanny to take care of your little one as you are now returning back to work. You hire the nanny and pay her $500 cash each week. Six months later, she slips on the stairs while taking down some laundry. She hurts her leg, fractures her wrist and needs several weeks off from work to recover, plus physical therapy.

You assumed she was an independent contractor, and thus it's on her, covered by her own insurance. But it turns out she is your employee. Because she got hurt while working for you, it’s your responsibility. You find out that you were supposed to have worker's compensation insurance.

Many household employers have no idea this may be required by their state, and it’s just a plain good idea. What is worker's compensation insurance? If an employee is injured on the job, it covers lost wages and medical costs regardless of who is at fault. If your employee accepts the payment from the insurance company, this also provides extra protection from lawsuits.

Sometimes homeowner’s insurance policies automatically cover household employees, but it's critical to check. For example, a California employer who has an employee who works over 20 hours/week may need a rider added to the policy.  

In addition, If you aren't paying legally, and your employee gets hurt on the job, your insurance company could deny coverage based on tax fraud. Every insurance company is different, so you need to ask. 

If the nanny injured herself due to negligence on your part, she could decide to take legal action. 

A lot of folks are simply unaware of the risks when they pay under the table. The number one clear reason for an employer (beside the fact that it is the law) is to stay protected.

Here are some other darn good reasons to pay legally.

Nest Payroll is passionate about helping employers pay their household employees legally. If you'd like to be notified when Nest Payroll is available for you, we'd love to add you to our growing community!

 

 

Top 5 Reasons To Pay Over The Table

 WHEN YOU PAY YOUR EMPLOYEES LEGALLY, YOU PROTECT YOURSELF.

Besides being the law, there are many smart reasons why you should pay your employee "on the books". Here's our take on the top 6:

  1. Avoid being sued. From a purely financial perspective, you are protecting yourself and your family from liability if your employee gets hurt ON the job or even OFF the job. On the job injuries that aren't insured can be financially debilitating for many families. You can easily obtain workers' compensation insurance to cover medical costs and lost wages (get more details here). If your employee gets injured OFF the job, or gets pregnant, and can’t work, you might need to find someone else and let the employee go. If paid legally, the injured employee would be protected by disability insurance. Your ex-employee could become upset if this coverage is not in place when needed, and could sue you for not following the law. Read here for details.

  2. Avoid tax penalties and fines. If you and your employee part ways, regardless of the reason, your employee could find out that unemployment protection should have been available, plus social security and medicare should have been withheld. You’ll be on the hook for both the employee and the employer taxes as well as penalties and fines.

  3. Protect your career. By following the law, you will reduce the risk of triggering a full audit and not jeopardize your career if you are an attorney, CPA, Doctor or other (especially licensed) professional.

  4. Get a tax break. If your employee is taking care of a dependent such as your child or an aging parent, you could qualify for a dependent care tax break. You might even SAVE money. Read this post here to see what it costs an employer.

  5. Increased family and household safety. Your employee, by agreeing or wanting to be paid legally, immediately sets a higher bar and can be seen as a true professional. Usually these household positions are intimate and critical to our family life, and we need trustworthy employees. Paying above board strengthens this trust both ways.

  6. Employees receive benefits. Last but not least, it's great for your employee, who can qualify for unemployment and disability, contribute to social security and medicare and apply for loans, better housing options, and other benefits that require a work history. This strengthens our overall economy and reduces the burden on all tax payers.

For more information, the California EDD has a thorough and interesting analysis on why it's not worth it to pay under the table.