Understanding the Household Employer's Role with Unemployment
When you hire someone to work in your home, you become a household employer. You are required to pay unemployment taxes, as well as other payroll taxes. Like thousands of other clients, you outsource all compliance activities to HomeWork Solutions - choosing a service level that best fits your needs.
All household employer's pay onto the unemployment system, which pools all employer paid taxes to fund unemployment benefits to workers who are discharged through no fault of their own. The average cost to an employer is $350 annually per employee.
Nanny and senior caregiver arrangements always end – either the child and family outgrow the need or the senior passes or is moved to a group care setting. You let your household employee go. Your role as employer is done. You reach out to HWS to finalize your tax reporting paperwork and to notify the state that you are “out of business”.
Your former employee is now looking for a new family to work with and is not finding a job as quickly as she had hoped. She applies for unemployment benefits to help her during this job transition. She provides prior job information to the state's Unemployment Office. The Unemployment Office sends you a questionnaire to complete.
The state determines eligibility for unemployment benefits (sometimes referred to as unemployment insurance) and the payments are paid by the state to the former employee who is unemployed and activity looking for work. The state uses money from the pool of monies you have paid into the unemployment system – hence the term ‘insurance’. You, the former household employer, will receive statements of payments made to her. These are not billed to you, they are strictly informational and no action or additional payments are required.
Unemployment insurance is an important safety net for your former nanny or senior caregiver. You have done the right thing by paying your caregiver 'on the books' and now you can rest assured that, although your arrangement is over, your former employee has an income stream while she searches for that next position.
What if you didn't pay your caregiver on the books?
The family that paid their nanny or caregiver in cash, not reporting income and paying taxes to the government, is at substantial risk when the job ends and the employee is discharged. Regardless of your agreement at the start of employment, your former employee may still file for unemployment and be awarded benefits. She may have some back income tax responsibilities, although in our experience this is usually quite modest and is more than offset by the benefits she can receive. You, the employer, on the other hand will be responsible for the back payment of all of your's and her Social Security and Medicare, back unemployment taxes, penalties and interests. These will likely exceed 20% of the wage you paid her. If you find yourself in that unfortunate circumstance, give HWS a call as we can help. The sooner this is dealt with the better.