California Cracks Down on Employers Who Hire “Independent Contractors”

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When a family child care provider hires someone to help her care for children she must treat this person as her employee, not as an independent contractor.

This is true regardless of how little the worker is paid or how few hours she works.

Hiring an employee means following a series of complicated federal and state payroll tax laws. Failure to do so can result in a range of significant state and IRS penalties. As a result, many child care providers try to avoid these laws or simply ignore them.

A new California law (S.B. 459) has increased the state penalties for employers who fail to comply with payroll tax laws. The new penalties range from $5,000-$25,000.

The hiring of employees has always been a difficult issue for child care providers. When I speak about this at workshops, most don’t want to hear about their responsibilities to withhold Social Security taxes, pay federal and state unemployment taxes and purchase workers compensation insurance. While training in California I have spoken to child care providers who have gotten into trouble for not following all of these rules.

Here are some resources that can help:

* My summary of California Employment Laws.

* You can hire a payroll service to complete all the paperwork and file the proper forms. Google “Payroll Service” for your town.

* Alison Jacks is a tax professional who specializes in family child care taxes and offers a payroll service for child care providers who live in California.

I’ve previously written articles about hiring employees:

“Are Helpers Your Employees or Independent Contractors?”

“Your Payroll Tax Responsibilities as an Employer”

“Does Paying Someone Less than $600 a Year Make Them an Independent Contractor?”

Independent Contractors

Note: There are three exceptions to the the rule that you must treat workers who care for children as employees. 1) You pay a substitute agency that assigns someone to come to your home, 2) The person is self-employed in the business of providing substitute care, has a business name registered with the state and works for a number of child care providers, or 3) The person is doing an activity for you (music lesson, puppet show, etc.) rather than caring for children.

Hiring Your Own Children

If you hire your son or daughter who is under age 18 there is no Social Security taxes or federal and state unemployment taxes due. There also may not be a requirement to purchase workers compensation insurance. For further details, see my article “To Hire a Relative or Not?”

Thanks to the law office of Irina N. Goldberg.

Image credit: singledadbrad.com

2014 TW smallFor more information about how to fill out the federal tax forms when hiring an employee, see my annual Family Child Care Tax Workbook and Organizer.



Categories: Employees, Record Keeping & Taxes

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3 replies

  1. Thank you. This cannot be repeated often enough!!

  2. Hi Tom–what about a parent who volunteers while their child is in the home. Works with all the children? Has training and requirements to be alone with the children.

  3. C – There are no payroll tax issues if a parent volunteers to help care for a child, assuming they meet all child care licensing rules. But, if the parent is receiving free child care in exchange for their volunteer work, then there is a barter situation. In a barter, both sides must report the transaction as if money changed hands. That is, you would have to report as income the money the parent would have paid you. The parent would have to report as income the money should would have earned. And – you must treat the “money” paid to the parent as employee wages, subject to Social Security, federal and state unemployment taxes, etc.! Yikes! Stay away from bartering in this situation.

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