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A Case Study About Take Home Pay

Posted by HomeWork Solutions on 3/28/23 11:15 AM
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Adele’s elderly mother expressed her desire to stay in her home independently rather than move into assisted living.  Adele did her research to find a qualified and compassionate caregiver to assist. After recently giving up her driver’s license due to health complications, it was critical for Adele’s mother to have a caregiver who would help with with transportation to and from medical appointments, meetings with friends,  and provide assistance with grocery shopping.

Adele’s mother needed a varying amount of help week to week. She found a caregiver who was willing to work a flexible schedule between 25 and 40 hours a week. Adele and the caregiver agreed to a net take home pay of $18 an hour. Adele understood this meant she would be picking up the tab for the employee’s taxes, and her own employer taxes.

After six weeks, Adele and the caregiver had a dispute over her pay. The caregiver’s weekly hours were 28, 36, 32, 32, 36 and then 42 hours. This final week, with its 42 hours, is what caused the dispute. Adele paid her a net pay of $756 which is 42 multiplied by $18 for each hour. However, because there were two hours of overtime, the caregiver expected $774.

This confusion over the amount of net pay owed on the sixth week brought multiple payroll issues to light. The first was that Adele didn’t even know she was required to pay the caregiver overtime under Federal law. When the caregiver worked over 40 hours during week six, Adele was obligated by law to pay overtime at 1.5 times the hourly rate for all hours over 40 in the week. So, what exactly was the hourly rate?  Neither Adele nor the caregiver knew how to calculate the proper overtime using a net wage.

This brought the second issue to light: when agreeing to net pay rather than a gross hourly wage, neither had given thought to how the caregiver’s taxes would be calculated. When Adele used a free online calculator to add the employee’s taxes to the $18 net wage, she realized the gross hourly pay fluctuated, which didn’t seem like a good thing. For the first five weeks, the caregiver's hourly rate varied between $20.75 and $21.93 to reach a take home pay of $18 an hour. This unanticipated variance is caused by the progressive income tax system in the US and the tax tables proscribed for use by the IRS and state tax authorities.  When the caregiver worked over 40 hours during week six, Adele was obligated by law to pay overtime at 1.5 times the hourly rate. So, what exactly was the hourly rate?

The Solution

Adele contacted HomeWork Solutions, and after discussing her situation with a payroll specialist, she agreed to put the worker on a gross hourly rate of pay instead of agreeing to a net wage. In this case, it worked out to $21.60 per hour, and after discussing things with her caregiver, they agreed that this would get them very close to the $18 per hour number for the range of expected hours.  Further, this gave Adele more certainty around her payroll costs from week to week. Adele enrolled in the HWS Complete Payroll Service to ensure all deductions and withholdings were properly accounted for.   She was happy to see that at the end of the year, the average take-home pay was $18.08.

Simplify your life by enrolling in our payroll and tax services. Doing so gives you peace of mind knowing that you are tax and payroll compliant. Contact our experienced team today at 1-800-626-4829 or info@homeworksolutions.com.

Topics: senior care, nanny, Senior Caregiver Payroll, agency, senior, CPA

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