As we move into 2026, hiring in-home assistance, whether it’s a nanny for your children or a caregiver for an aging parent, comes with greater responsibility.
Whether you're a first-time employer or simply need a refresher, here are 10 common household payroll and legal errors to avoid—plus tips to stay compliant and stress-free.
Misclassifying Employees as Exempt (Salaried)
Most household workers—nannies, senior caregivers, housekeepers, and house managers—must be classified as non-exempt employees. This means:
- They must be paid hourly
- They are eligible for overtime pay
- They must receive at least the minimum wage, or higher, depending on your state
Only a very narrow set of household staff—those in true managerial roles supervising other employees—might qualify as exempt.
Bottom line: Don’t assume a salary means compliance. Paying a flat weekly or monthly wage without tracking hours often violates labor laws.
Incorrectly Calculating Overtime Pay
Under federal overtime law, non-live-in employees must be paid 1.5x their hourly wage for any hours over 40 in a week. Some states, like California and Colorado, have stricter rules that require daily overtime for long days.
Treating Household Staff as Independent Contractors
This continues to be one of the most serious and common mistakes. The IRS and Department of Labor are clear: household workers are almost always employees, not contractors.
Misclassification can lead to:
- Back taxes and penalties
- Liability for unpaid overtime
- Difficulty for your employee when trying to obtain unemployment or social security benefits
Using a 1099 form instead of a W-2 is not only incorrect—it puts you at significant legal and financial risk.
Learn more: Why Nannies & Caregivers Are Employees – Not Contractors
Not Paying for All Hours Worked (Including Meal Times)
If your employee is not free to leave during breaks (for example, if they must stay on-premises or remain available), then that time is compensable.
Unpaid “lunch breaks” and untracked hours can quickly lead to unpaid overtime and wage disputes.
Best Practice: Pay for all time unless your employee is completely off-duty and free to leave.
Ignoring On-Call Time Requirements
When an employee is required to be available—like a nanny who must remain in the home while a child naps or attends an activity—they’re considered on-call and must be paid for that time.
Examples include:
- Nannies waiting during activities, sports practice, or other events
- Caregivers available during overnight shifts that are not 24 hr. shifts
- House Managers on standby for vendors or events
Overlooking State and Local Wage Laws
Federal labor laws are just the first step. Many states and cities go further:
- Higher minimum wages
- Stricter overtime rules
- Additional rest break requirements
Check the laws where your employee works
Failing to Track Hours Properly
You’re required by law to maintain accurate time records for your employee.
If there’s ever a dispute over hours or pay and you don’t have proper records, courts will often side with the employee’s claims.
Use a time-tracking app approved by the Department of Labor—or HomeWork Solutions’ built-in tools—to make this simple.
Skipping Workers’ Compensation Insurance
Workers’ compensation insurance is mandatory in many states for household employers—even if you only employ one person.
It protects both you and your employee if there's an accident on the job.
Homeowners insurance usually won’t cover this. Talk to your insurance agent, or let HomeWork Solutions help you find affordable coverage.
Learn More About Workers’ Comp for Household Employees
Using “Comp Time” Instead of Overtime Pay
You can’t offer “extra time off later” in place of legally required overtime pay—even if your employee agrees. Straight time and overtime must be calculated every 7 days, even if you pay your employee bi-weekly, semi-monthly, or monthly.
Overtime pay must be paid at the rate of at least 1.5x the hourly wage.
Taking Unauthorized Deductions
You can’t deduct items like uniform costs or breakage. These expenses are considered normal expenses of an employer.
Let This Year Be the Year of Payroll Peace of Mind
Hiring assistance at home should bring support and relief—not tax and legal stress. With pay rates rising and compliance standards tightening, it’s more important than ever to do things right from the start.
Need help setting up payroll, tracking hours, or handling withholdings and taxes the right way? That’s exactly what we’re here for.
Let’s talk about how HomeWork Solutions can make your household payroll simple, legal, and worry-free. Contact Us Today or call 800.626.4829