The Legal Review
Bringing the Law to Life for the Household Employment Industry
___________________________________________________________________________________
A Complimentary Resource from © 2009 Breedlove & Associates, LLC.
Breedlove & Associates
In an effort to help you strengthen your business practices and steer clear of legal trouble, The Legal Review will share findings from relevant legal cases. We've found that the easiest way to gain a practical understanding of complex tax and labor law is by reviewing real-life situations. These stories will illuminate potential legal landmines for your agency and/or your clients, and more importantly, show you how to avoid them.
Social Security Administration v. Nanny & Family
The Mistake
A family hired a life-long nanny who had never been paid legally and was nearing the age of retirement. Realizing that she would not receive Social Security and Medicare (FICA) benefits when she reached retirement age, she decided to ask her new family to withhold taxes and pay her legally. Although the benefit she'd receive from contributing for only a couple of years would be extremely small, it was better than nothing.
The family was happy to pay the employee legally and consulted with the in-house accountant for the family business. Unfortunately, the accountant was not an expert in this area. He erroneously concluded that the nanny was a direct contributor to the business and, therefore, could be paid through the company payroll and deducted as a legitimate business expense. All appropriate taxes were withheld from the nanny's pay and remitted to the State and IRS - but it was done as a part of the company payroll and tax process.
The Law
Businesses are allowed to take a significant tax deduction on their payroll expense. For the payroll to be deductible, the IRS says the employee must be an "ordinary and necessary expense of the business" and "directly contribute to the success of the business."
The IRS has ruled definitively that household employees (including nannies) do not directly contribute to a business. So it is illegal for a business to report a household professional's wages on business returns and take any deductions on her payroll. A household professional is instead considered a contributing member of the household - which has its own specific tax filing process and corresponding tax breaks.
The Mess
For 2 years, the business reported all the nanny's wages and taxes on company returns and took the available corporate tax breaks.
The nanny reached retirement age, retired from working and began the application process to receive monthly Social Security benefits.
During the application process, the Social Security Administration (SSA) received a miss-match report from the IRS - most likely due to the employee reporting her occupation as nanny while filing a company W-2.
The Social Security Administration Office notified the nanny that her benefits were rejected due to an error with how her tax contributions were filed in the past few years.
Due to the misclassification and tax reporting, the SSA denied benefits to the nanny until all past household tax filings were reconciled by the employer.
The Outcome
To correct all tax filing errors, the family amended their business returns and removed the nanny's wages from business payroll, tax returns and tax breaks. The family then had to register as a Household Employer, retroactively file quarterly tax returns for each quarter in which they employed their nanny and amend their personal tax returns.
The family ended up paying penalties and interest for 2 years of late tax filings as well as the cost to amend all business and personal tax returns.
The nanny waited for her Social Security benefits while the family trudged through the arduous task of correcting their mistakes.
The accountant no longer has a job at the family's business.
How the Whole Thing Could Have Been Avoided
Families often assume accountants and other general tax professionals are all-knowing. In reality, the state and federal tax code is too complicated for anyone to fully understand all areas. Families - even those with an accountant and a good understanding of business tax process - would benefit from the expertise and experience of a household employment specialist.
This family did not find their nanny through an experienced, reputable agency. If they had, the agency would likely have advised them to call an expert - and that quick phone call would have saved them thousands of dollars and dozens of hours of misspent time.
If you have additional questions, please call 888-BREEDLOVE (273-3356)
or visit www.breedlove-online.com. We're here to help our agency partners
provide their candidates and clients with information, tools and resources
that improve the employment relationship, eliminate legal risk for all parties,
and increase the professionalism of the industry.
Tuesday, August 18, 2009
Saturday, July 18, 2009
Thursday, June 25, 2009
BE AWARE of who is Watching Your Children, and What Resource Did You Find your Nanny From?
I would think with all that happens in this day and age, that parents would really have the common sense to REALLY think about who they are hiring and what source they are using to obtain their nannies and other hired help...
The latest news about Donald Shepard is very disturbing. Please click on link above to read more about him.
Donald Shepard was found by a parent using an online nanny source. ONLINE nanny resources are tools only to connect families and caregivers. There is NO BACKGROUND check done, there is no face to face meeting, no reference checks completed, there is no fingerprinting through the FBI and the DOJ PRIOR to having STRANGERS come into families homes...
As a nanny and now an agency owner, PLEASE!! Find a reputable nanny agency in your area and spend the extra money... You can assure yourself that something like this probably won't happen to YOUR child...
Here is an article in which I wrote a while back but can help educate a parent looking for a nanny and how to find the best agency for you.... ASK QUESTIONS!!
The Agency Process for Families and Nannies
When looking for the perfect nanny, or looking for the best family to work for, finding the right nanny agency is an essential factor in securing symbiosis between client and caregiver.
Parents and nannies are continually being challenged in finding the right liaison to connect to each other. The good news is many nanny referral agencies are popping up all over the country, some online and some in the community, creating more opportunities for parents and nannies to make the right choices in finding the perfect connection. The question is, which is the right agency for you?
CALL AND COMPARE
Place a call into all the agencies in your community to see what they can offer YOU! Local nanny referral agencies can be found in publications, online, and in the local yellow pages. Professional nanny agencies should take the time to invest in a dialogue with you, so that you feel comfortable, leaving you with all questions answered.
ASK QUESTIONS
Ask the agency representative questions regarding their background and philosophy in connecting Nannies and Families within the community! Make sure their answers resonate with your own thoughts on the matter. Be detailed in your requests about the company, and ask about the clients and nannies that use their service. For example, who are the nanny agency owners and what are their backgrounds in? How did they get involved in the industry? What are their personal credentials as well as their agencies? How have they gained their reputation? How do they stay in tune with their industry? Do they attend the INA conference and network with one another for the better of their community? Are they involved in the community in other ways? What larger affiliations are they associated with (APNA and INA)? Are they child centered and are they knowledgeable about making sure the nanny candidates are aware of the specific ages and stages of the child’s development, so the candidates the agency sends over are appropriate? What are the minimum requirements of the agency’s nannies and what skill sets should they have? Are the nannies required to be CPR/First Aid Certified and can the agency help answer questions about taxes and payroll? If they cannot, can they direct you to the appropriate resources that are known in the industry to help with taxes, such as Breedlove and GTM?
HOW DOES IT WORK?
What is the general modus operandi of the nanny agency regarding their interviewing process? How does the agency screen their candidates? How do they screen their prospective clients/families? If the agency has online forms be sure to find out if they also have face-to-face interviews as well. Does the agency ask a nanny for a resume? Are the nannies required to supply the agency with references, if so what kind? This actually might include references for both parties in the process. Again, do your research!
SAFETY & “IN HOUSE” VISITS:
Ask if the agency does an “In House” visit. This is a crucial part of the process in finding the most appropriate match, making both the nanny and family experience a positive one, as well as this approach initiates a quick and accurate placement for both nanny and family. An agency representative will visit the home to assess the family’s own, personal family dynamic, as each family is unique!
The “over the phone” process is a typical scenario when using a nanny agency, however it is usually worth a little more money (if the agency fee is a slightly higher one) if a representative can come into the family home to see the children in their home environment. This is also a sure way to guarantee the nanny’s safety.
BACKGROUND CHECKS?
The nanny agency you decide to work with should offer background checks. This should include the minimum of, a Social Security trace, leading to every county the candidate has lived in, and a County Criminal check in every county they have ever resided in. The background check should also include a Department of Motor Vehicle report. Many agencies will also offer a drug screening, sometimes at an extra cost to the client, including consent from the nanny, depending on what state they reside in. All states have different laws, please make sure to check with the Department of Social Services in your state.
FEES?
What are the agency’s fees and why? Why do some agencies ask for a percentage of the nannies salary vs. flat rate nanny agencies? (Remember that location and demographic of where you live may have an impact.) Does the agency require the nanny pay them as well? Sometimes a percentage of the hours worked by the nanny are paid to the agency.
For families, ask if the nanny agency charges an upfront, non-refundable retainer and what is it for. Does the retainer get rolled into the final agency fee or is it extra? What are the benefits to both for you and your family’s budget for choosing an agency that charges “one month’s nanny salary” vs. a “percentage” vs. a “flat rate” agency? Many agencies that charge flat rates are very appealing to the wallet, however they might be so inundated with clients, that they might not be able to give you the personalized service that both nanny and client deserve.
GUARANTEE?
What are the agency’s policies with their guarantee? If the nanny that is hired decided to leave within a certain time frame, does the agency replace the nanny for no charge? How are the nannies secured within their positions? Nannies need to know they are supported by the agency and if their positions are secure with a contract. As nannies are required to make a commitment to the family in whom they are placed with, nannies also need to know there are always open lines of communication and a commitment from the family that employs them. This is assured within a nanny agency that is supportive of contractual documents that are offered as part of the agency process!
Using a nanny agency that has a good reputation in the community is a great place to start the agency process, so do your research! The questions suggested above will hopefully help you insure that your family-nanny partnership will be as efficient, productive and successful as possible; we all wish for happy homes, nannies, families and of course… happy children!
Dara B. Green
President, Seaside Nannies Inc.
Seaside Nannies Inc. was founded by Dara Green, nanny of 23 years and preschool teacher in the San Diego community. Seaside Nannies has been created to serve the needs of each family and nanny to create relationships that last.
The latest news about Donald Shepard is very disturbing. Please click on link above to read more about him.
Donald Shepard was found by a parent using an online nanny source. ONLINE nanny resources are tools only to connect families and caregivers. There is NO BACKGROUND check done, there is no face to face meeting, no reference checks completed, there is no fingerprinting through the FBI and the DOJ PRIOR to having STRANGERS come into families homes...
As a nanny and now an agency owner, PLEASE!! Find a reputable nanny agency in your area and spend the extra money... You can assure yourself that something like this probably won't happen to YOUR child...
Here is an article in which I wrote a while back but can help educate a parent looking for a nanny and how to find the best agency for you.... ASK QUESTIONS!!
The Agency Process for Families and Nannies
When looking for the perfect nanny, or looking for the best family to work for, finding the right nanny agency is an essential factor in securing symbiosis between client and caregiver.
Parents and nannies are continually being challenged in finding the right liaison to connect to each other. The good news is many nanny referral agencies are popping up all over the country, some online and some in the community, creating more opportunities for parents and nannies to make the right choices in finding the perfect connection. The question is, which is the right agency for you?
CALL AND COMPARE
Place a call into all the agencies in your community to see what they can offer YOU! Local nanny referral agencies can be found in publications, online, and in the local yellow pages. Professional nanny agencies should take the time to invest in a dialogue with you, so that you feel comfortable, leaving you with all questions answered.
ASK QUESTIONS
Ask the agency representative questions regarding their background and philosophy in connecting Nannies and Families within the community! Make sure their answers resonate with your own thoughts on the matter. Be detailed in your requests about the company, and ask about the clients and nannies that use their service. For example, who are the nanny agency owners and what are their backgrounds in? How did they get involved in the industry? What are their personal credentials as well as their agencies? How have they gained their reputation? How do they stay in tune with their industry? Do they attend the INA conference and network with one another for the better of their community? Are they involved in the community in other ways? What larger affiliations are they associated with (APNA and INA)? Are they child centered and are they knowledgeable about making sure the nanny candidates are aware of the specific ages and stages of the child’s development, so the candidates the agency sends over are appropriate? What are the minimum requirements of the agency’s nannies and what skill sets should they have? Are the nannies required to be CPR/First Aid Certified and can the agency help answer questions about taxes and payroll? If they cannot, can they direct you to the appropriate resources that are known in the industry to help with taxes, such as Breedlove and GTM?
HOW DOES IT WORK?
What is the general modus operandi of the nanny agency regarding their interviewing process? How does the agency screen their candidates? How do they screen their prospective clients/families? If the agency has online forms be sure to find out if they also have face-to-face interviews as well. Does the agency ask a nanny for a resume? Are the nannies required to supply the agency with references, if so what kind? This actually might include references for both parties in the process. Again, do your research!
SAFETY & “IN HOUSE” VISITS:
Ask if the agency does an “In House” visit. This is a crucial part of the process in finding the most appropriate match, making both the nanny and family experience a positive one, as well as this approach initiates a quick and accurate placement for both nanny and family. An agency representative will visit the home to assess the family’s own, personal family dynamic, as each family is unique!
The “over the phone” process is a typical scenario when using a nanny agency, however it is usually worth a little more money (if the agency fee is a slightly higher one) if a representative can come into the family home to see the children in their home environment. This is also a sure way to guarantee the nanny’s safety.
BACKGROUND CHECKS?
The nanny agency you decide to work with should offer background checks. This should include the minimum of, a Social Security trace, leading to every county the candidate has lived in, and a County Criminal check in every county they have ever resided in. The background check should also include a Department of Motor Vehicle report. Many agencies will also offer a drug screening, sometimes at an extra cost to the client, including consent from the nanny, depending on what state they reside in. All states have different laws, please make sure to check with the Department of Social Services in your state.
FEES?
What are the agency’s fees and why? Why do some agencies ask for a percentage of the nannies salary vs. flat rate nanny agencies? (Remember that location and demographic of where you live may have an impact.) Does the agency require the nanny pay them as well? Sometimes a percentage of the hours worked by the nanny are paid to the agency.
For families, ask if the nanny agency charges an upfront, non-refundable retainer and what is it for. Does the retainer get rolled into the final agency fee or is it extra? What are the benefits to both for you and your family’s budget for choosing an agency that charges “one month’s nanny salary” vs. a “percentage” vs. a “flat rate” agency? Many agencies that charge flat rates are very appealing to the wallet, however they might be so inundated with clients, that they might not be able to give you the personalized service that both nanny and client deserve.
GUARANTEE?
What are the agency’s policies with their guarantee? If the nanny that is hired decided to leave within a certain time frame, does the agency replace the nanny for no charge? How are the nannies secured within their positions? Nannies need to know they are supported by the agency and if their positions are secure with a contract. As nannies are required to make a commitment to the family in whom they are placed with, nannies also need to know there are always open lines of communication and a commitment from the family that employs them. This is assured within a nanny agency that is supportive of contractual documents that are offered as part of the agency process!
Using a nanny agency that has a good reputation in the community is a great place to start the agency process, so do your research! The questions suggested above will hopefully help you insure that your family-nanny partnership will be as efficient, productive and successful as possible; we all wish for happy homes, nannies, families and of course… happy children!
Dara B. Green
President, Seaside Nannies Inc.
Seaside Nannies Inc. was founded by Dara Green, nanny of 23 years and preschool teacher in the San Diego community. Seaside Nannies has been created to serve the needs of each family and nanny to create relationships that last.
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