A person who comes into your home to help you care for children is considered your employee, not an independent contractor. It doesn’t matter how little you pay the person or how few hours the person works for you.
There are two exceptions to this general rule. The first situation is a person who is self-employed in the business of providing substitute care for child care providers. Such a person should have a business name registered with your state and their own taxpayer identification number. She should work for more than one child care provider each year and use her own contract.
The second situation is when you hire a substitute through an employment agency and you pay the agency rather than the substitute.
Both of these exceptions are pretty rare. Anyone else that helps you care for children is your employee.
You hire someone for 3 hours to watch the children while you go to the dentist – Employee!
You pay a 16 year old girl in your neighborhood to help you care for school age children for 6 weeks over the summer – Employee!
According to the IRS Child Care Provider Audit Technique Guide: “An employer-employee relationship exists when the business for which the services are performed has the right to direct and control the worker who performs the services.” Someone who is helping you care for children is clearly operating under your direction and control.
When I explain this at workshops, no one likes to hear it. This is because there are many consequences for hiring an employee. You must withhold Social Security/Medicare taxes from the employee’s paycheck and pay in these taxes quarterly (or annually, in some cases). You must withhold federal and state income taxes. You must file IRS Forms W-2 and W-3 at the end of the year. You may also have to purchase workers’ compensation insurance! (Contact your state for further information.)
Holy Cow! This is a lot of work. But there is no avoiding it. You can get help from a payroll service, or perhaps your tax professional.
Don’t let a tax preparer or anyone else tell you that you have an independent contractor if you pay someone less than $600 a year. If you fail to treat helpers as your employees the IRS can come after you for back payroll taxes, penalties and interest. Then your state can come after you for failure to pay state unemployment taxes and purchase workers’ compensation insurance.
This article is the second in a series of articles about hiring workers for your business.
See also: “To Hire a Relative or Not?”, “What is an Independent Contractor”, “Are Helpers Your Employees or Independent Contractors?”, “Your Payroll Responsibilities as an Employer”, “Do You Need Workers’ Compensation?” and“When Hiring Your Husband Makes Sense.”
Here’s story of what happened to a provider who didn’t follow the rules.
Tom Copeland – www.tomcopelandblog.com
Image credit: realsimple.com
For details on how to fill out the federal payroll tax forms, see my annual Family Child Care Tax Workbook and Organizer.
Tom Copeland, www.tomcopelandblog.com