Nannies and senior home-care workers are not independent contractors.
“Most workers [who are classified as independent contractors] are employees under the FLSA’s broad definitions.” ~ David Weil, Administrator, US Department of Labor Wage and Hour
Nannies and senior home caregivers are almost always employees of the hiring family, yet every year thousands of families classify their nanny or senior caregiver as an "independent contractor" and fail to pay the employment taxes and unemployment taxes on the wage they pay their family's nanny.The IRS estimates that fewer than one in five famlies with a household employee comply with the payroll, tax, and reporting requirements in the tax code. Industry experts place the compliance rate much lower than 20%, and have calculated a $3 BILLION dollar per year tax gap - the taxes owed but not collected on household senior homecare and nanny employment.
US Department of Labor Solicitor M. Patricia Smith addressed a labor law conference on October 12, 2010 promising stepped up enforcement of the Fair Labor Standards Act (FLSA) and a crack down on employee misclassification to reverse a “culture of noncompliance” that has developed over the last decade.
Smith stated that due to reduced enforcement, “many employers developed a ‘catch-me-if-you-can' attitude. Our challenge is to change that attitude.” The Labor Department Labor will implement initiatives to respond to complaints from those who might be fearful of government actions, such as immigrant workers.
July 2015 Update on Senior Home Care Worker Status:
On July 15, DOL Administrator David Weil issued an Administrator’s Interpretation that said “most workers [who are classified as independent contractors] are employees under the FLSA’s broad definitions.” This clarification by the government put the final nails in the coffin of the independent contractor myth.
According to attorney Cynthia Effinger of McBrayer, McGinnis, Leslie & Kirkland, PLLC, "The defining question in this calculus is whether the worker is truly in a separate business that is independent economically from the employer. If the worker is economically dependent on the employer, the worker is an employee in the DOL’s eyes."
The Obama administration is keen on punishing the employers in FLSA and misclassification cases. Misclassification refers to the fraudulent classification of employees (nannies, housekeepers, etc. in household employment) as independent contractors. Misclassification, along with the employer's failure to report wages paid to the IRS, results in substantial tax gaps in unemployment insurance, Social Security and Medicare taxes, and state and federal income taxes.
(Updated August 4, 2015)