California is striving to shine a light on its underground economy.  At the end of 2011, the LA Times reported that employers who pay their workers under the table - to avoid payroll taxes, workers’ compensation insurance and other government mandates - cost the state about $7 billion annually in lost tax revenues.  Last week, California’s Labor Enforcement Task Force set up a public hotline for workers and employers to call in complaints and provide enforcement tips.  Employers who are playing by the rules want to create a level playing field by "ratting out" their competitors who cheat.  One state official notes, “The hotline will be a valuable tool to gather information and bring into compliance those employers who treat workplace safety and wage and hour laws as a nuisance”. 

Efforts by workers’ rights groups to spread the word about New York’s Domestic Workers Bill of Rights have resulted in a big uptick in grievances filed against household employers.  Advocacy groups are actively canvassing New York City neighborhoods – in playgrounds and grocery stores and other places where nannies and other household employees are likely to go - to educate these workers about their rights.

Worker misclassification - the practice by an employer of treating an employee as an independent contractor for purposes of avoiding employment taxes - is a constant issue in the field of household employment. Many household employers - and employees - simply feel this is easier, that the tax forms are too complicated, or the tax expense too high.

The US Treasury's Internal Revenue Service (IRS) advises that G and A visa holders temporarily present in the United States as a foreign government related individual are non-residents for income tax purposes, no matter how long they have resided in the United States. The situation for a G-5 domestic servant, who is NOT a foreign government related individual is a bit different, and their Federal income tax filing status is determined based on their time in the country.

The Internal Revenue Service (IRS) and 11 states, as we reported in October 2011, have entered into information sharing agreements for purposes of employment tax enforcement. Virginia, apparently, is making a concerted effort to collect state unemployment taxes from employers known to the IRS, but not to the state.

IRS data places "nanny tax" compliance (declaration by families of their household payroll) at about 20%. Household employment experts believe even this number is optimistic.  Looking at these statistics, a new household employer has to think that just ignoring this complicated and expensive issue is relatively risk free. What these numbers don't illustrate is the steadily increasing political pressure on the IRS to collect revenue, and the relatively low hanging fruit the "nanny taxes" present. Add to this the very real possibility that the elder care giver or nanny may file for unemployment benefits when the job ends, and the risk evaluation changes dramatically.

If you employ a nanny, chances are strong at some point you will need to let the nanny go. There are myriad reasons a family fires a nanny. The children grow up and your beloved family nanny is no longer needed. Perhaps the nanny has horrible work habits - always late or a frequent 'no show.' Your family and the nanny simply may not 'click.' The nanny who was a wonderful nurturer of your infant does not have the energy to deal with your demanding toddler. Whatever the reason, firing a nanny can be an uncomfortable experience for both family and nanny.

Below are some tips and best practices when letting the nanny go.

Household staff, and nannies in particular, find that a former employer's letter of recommendation is an important part of his/her professional portfolio. The nanny or house manager often uses this portfolio, which is a collection of materials including her resume, work history, educational certifications, and examples of her work, to help 'sell' herself to prospective employers in the job interview. These letters are an important initial reference for families when they begin screening potential nannies and house managers.

While most media attention in 2011 was focused on AB889 the California Domestic Workers' Bill of Rights, which did not pass in the 2011 legislative session, two other pieces of legislation that household employers must be aware of passed with little notice.