California has some of the most complex household employment labor laws in the country! So complicated in fact that the California Household Employers Guide, published by the state, runs 70 pages of explanation, and that is just for the taxation component!
Groups advocating the fair treatment of household workers in California have been diligently educating their constituency about their rights and recourse under California labor laws. These groups will also help workers make unpaid wage claims, which are on the rise.
The following are that seven most common legal mistakes that household employers make with nanny taxes in California.
# 1 Misclassification
Misclassification is the practice of treating an employee as an independent contractor to avoid payroll taxes and insurance obligations. Virtually all household workers are employees under Federal labor law.
It gets twisted in California, however, because even when you properly classify your worker as an employee, if you mis-apply the designation of Personal Attendant to apply overtime rules described below you can run afowl of California employer payroll taxes and labor laws.
A Personal Attendant in California is a person employed in a private home whose primary job duties involve the care and safety of a child or infirm adult. This can include supervision and personal care services. No more than 20% of the personal attendant's time can be spent on general household activities such as meal preparation, laundry, and housework. It is common to assign meal preparation and clean up as well as laundry and bed making to a nanny or senior caregivers responsibilities.
If there is no other employee in the household assigned to general household maintenance activities, it is a best practice to simply classify the nanny or caregiver as a general household employee to avoid the risk of a wage and hour complaint.
#2 Failure to Pay an Hourly Wage
All California household employees are considered hourly wage workers. Employers must be very careful to stipulate an hourly wage in writing to the employee, and to pay for all hours worked, including overtime pay when necessary. It is tempting to simply agree to a weekly or monthly salary with your nanny or housekeeper and add or subtract hours at will. This practice is both illegal and risky for the household employer, and can result in a wage theft claim from a disgruntled employee.
#3 Not Understanding California Household Employee Overtime Rules
In California, overtime is treated differently between Personal Attendants and Household Employees, as well as differently between employees that live with their employer vs those that come and go. There is both weekly and daily overtime pay at play in California also.
- Come and go (live-out) general household workers: Overtime at 1.5 times the hourly pay rate is due for hours over 8 in a day, or over 40 in a 7 day work week. Additionally hours over 12 in a work day are paid at double time, and there are special provisions for when a worker performs services 7 days in the work week. (Wage Order 15 Section 3(c))
- Live-in general household workers: Overtime at 1.5 times the hourly pay rate is due for hours over 9 in a day, as well as overtime for the first 9 hours worked on the 6th and 7th consecutive day worked in the work week. Double time is due for all hours over 9 in the 6th and 7th consecutive day worked in the work week.
- Come and go (live-out) Personal Attendants: Overtime at 1.5 times the hourly pay rate for hours worked over 9 in a day or over 40 in a 7 day work week. Double time is due for all hours over 9 in the 6th and 7th consecutive day worked in the work week.
- Live-in Personal Attendants: Overtime at 1.5 times the hourly pay rate for hours worked over 9 in a day or over 45 in a 7 day work week.
#4 Failure to Pay for On Call Time and Sleep Time
Many nannies provide care before and after school, yet must remain available to immediately respond and provide care should the need arise. Families count on the nanny to respond immediately to a sick child, or to be available for unexpected school closings. This "on call" time is in fact counted as hours worked and must be compensated accordingly.
Similarly a household worker who is required to be responsive overnight, whether they be sleeping or not, also must be paid for all hours on duty, and overtime rules apply. So when a nanny stays overnight with children while parents are not in the home, or a senior caregiver is the responsible party for an infirm adult overnight, the caregiver must be paid for all hours.
# 5 Failure to Make Wage Reports and File and Pay Payroll Taxes
Household employers are obligated under state and Federal law for payroll tax payments and reporting. Your household employee is entitled to a W-2 form at the end of the year for his or her personal tax filings. Your household employee is entitled to the benefits of unemployment, disability and workers compensation insurance.
As the employer, you bear the responsibility to file and pay these taxes. If you fail to make allowed deductions from the employee's paycheck, you also become responsible to pay the employee's portion of the taxes.
It often seems easier to just pay under the table, that is until the job ends and the nanny needs unemployment insurance payments to tide her over between jobs, or there is an on the job accident and a workers compensation claim exists.
# 6 Failure to Provide a Pay Rate Notice and Itemized Pay Stubs
Household workers must be provided a pay rate notice that disclose the hourly and overtime rates of pay, the pay frequency and pay day, and other information at the time of hire, and at any time there is a change to the hourly pay rate.
Household employers are responsible to maintain accurate and contemporaneous records of days and hours worked by the employee. Additionally each wage payment must be accompanied by an itemization of the regular and overtime hours, the rates of pay, the days covered by the wage payment, and an itemization of any deductions from pay.
Failure to maintain these records and provide the itemized pay stub is both illegal and leaves the household employer defenseless against any unpaid wage claims made by the employee.
#7 Failure to Obtain Workers' Compensation Insurance
Household employers are required to obtain workers' compensation insurance. In California, most (not all) homeowners insurance companies will provide you this coverage as a rider to your homeowners policy. This important insurance is generally just a phone call away, and the penalties for non-compliance are steep.
Resources: