The summer months are right around the corner and many families are already planning their vacation schedule. For those who take their nanny along to watch the kids, this edition of The Legal Review addresses a common labor law mistake.

The Situation

The Kellogg family hired a nanny through a local placement agency to care for their three sons. The family needed someone who would be able to travel with them for at least two vacations during the summer. The agency was able to set the Kelloggs up with an ideal nanny who was eager to accept the position, in part because she had never been out of the state before and liked the idea of traveling to new places. The agency also recommended the family call Breedlove & Associates because traveling with a nanny can be tricky for families unfamiliar with labor law. The Kelloggs politely declined as Mr. Kellogg had worked in financial services his whole life and felt comfortable handling the nanny’s payroll and taxes.

The Mistake

The first family vacation was a week-long trip to Disney World. The nanny was excited to go and assumed she would have some free time of her own. To her surprise, she worked much more than normal – instead of her normal 40 hour workweek, she worked 60 hours in Orlando. However, she didn’t complain because most of her days were spent riding rides and playing games with the kids.

Upon returning from the trip, the nanny was exhausted. When she received her paycheck, she was surprised to find it was $300 less than her normal pay. When she read over her paystub, she noticed a $300 deduction for airfare. The nanny did not think this was correct, but before bringing it to Mr. Kellogg’s attention, she contacted her placement agency who referred her to Breedlove & Associates.

The Law

When accompanying an employer on a trip – whether a vacation or a business trip – an employee must be compensated for all hours worked during the trip, including the time spent traveling to the destination. If the employee’s working time exceeds 40 hours in a 7-day period, the employer must pay the employee for the overtime hours at the time-and-a-half rate. In addition to the regular and overtime pay, the employer is responsible for the employee’s traveling expenses, including airfare and hotel accommodations. These expenses are covered by the employer because the employee would not have incurred these expenses on her own.

A traveling employee does not need to be compensated during her “free time,” which is defined as time when she is not responsible for her charges and she has complete freedom to go and do whatever she pleases.

The Mess

A Breedlove & Associates consultant explained to the nanny that Mr. Kellogg had not handled her compensation for the trip correctly, but that this was a common mistake for new household employers. The consultant informed the nanny that she should have been paid for all hours worked and that Mr. Kellogg should not have deducted the expense of the flight from her paycheck.

The nanny presented this information to the Kelloggs and they were surprised and embarrassed to find out they had underpaid her. They apologized and explained to the nanny that it was never their intention to swindle her out of any additional money owed to her. Mr. Kellogg prided himself on paying the nanny “on the books,” but admitted he was not an expert in employment law.

The Outcome

Mr. Kellogg contacted Breedlove & Associates on the advice of the nanny to figure out how much he needed to pay her. We helped him calculate the additional compensation owed to the nanny for the trip and explained more about household labor law so he would be prepared for the next family vacation. The Kelloggs made a catch-up payment to the nanny right away and ultimately decided to sign up for our service so they would never risk making a similar mistake again.

How the Whole Thing Could Have Been Avoided

If the Kelloggs had called Breedlove & Associates from the beginning – as their agency recommended – we could have helped save them the embarrassment of underpaying their nanny. Luckily the employment relationship between the Kelloggs and their nanny did not suffer from this incident, but their situation illustrates how easy it is to make a mistake with payroll or labor law.

That’s why Breedlove & Associates prides itself on staying on top of any changes in the law that might affect household employers. And why we are willing to provide each and every family with a free phone consultation. It’s easier and less expensive to handle everything correctly from the beginning and we’re always here to help!

Tomorrow, April 20, is National Nanny Training Day and it’s an important day for caregivers who want to get the most out of their job. Between 1,500 and 2,000 professionals will participate in 38 events across 18 states hosted by local agencies. We’re very excited to see so many nannies committed to improving their profession because their efforts will undoubtedly trickle down to positively benefit the families they work for and the children they care for.

So kudos to all the nannies who will attend National Nanny Training Day events and to the agencies that will host! You’re all doing your part to increase the professionalism of the childcare industry and, most importantly, making a difference in the lives of so many kids.

April 15 is the tax deadline most Americans think of because it’s the final day to file personal income tax returns. However, for the majority of household employers, the month of April is also the when household employment tax returns (a.k.a. the “nanny taxes”) must be filed.

There are 2 deadlines approaching. The first is the federal 1040-ES deadline of April 15^th.  Household employers who paid wages to an employee during the first quarter of 2013 (January, February and March), should file Form 1040-ES and remit all of the federal taxes withheld from the employee’s pay (Social Security, Medicare and any federal income taxes) along with the associated federal employer taxes (Social Security, Medicare and Federal Unemployment).

The second deadline is with your state. In most states, household employers are required to file employment tax returns for the first quarter of 2013 by the end of April. The state returns include remittance of the state taxes withheld from the employee’s pay along with all of the state employer taxes.

The employment tax process funds important benefits and protections for the employee, including Social Security income, health insurance coverage via Medicare and unemployment benefits.

For Breedlove clients, no worries. We handle all these quarterly deadlines for you as part of our no-work, no-worry promise. If you’re not a Breedlove client and would like to learn more about the upcoming tax requirements, feel free to call and speak with one of our household payroll & tax experts. We’re here to help!

You may have seen Stephanie Breedlove featured in a Wall Street Journal story recently about “nanny tax amnesty.” The technical term the IRS is using is Voluntary Classification Settlement Program (VCSP) and this is very relevant to the household employment industry. In our experience, there are 2 common mistakes families make when hiring a household employee:

1) Misclassifying an employee as an “independent contractor” by giving them a Form 1099. (Worker misclassification is considered tax evasion for the family, increases the employee’s tax rate and limits her benefits).
2) Failing to withhold taxes and report wages properly. (Also known as “paying under the table,” the IRS considers this tax evasion too. It carries similar risk for the family and denies all benefits to the employee).

The VCSP helps with the first mistake because it is designed to allow employers who have misclassified their employee to come clean with very minimal penalties compared to what the IRS usually levies. By filling out the appropriate forms and paying the subsequent penalty, the employer agrees to treat the “independent contractor” as an employee moving forward and is not subject to an IRS audit. To take advantage of this amnesty offer, you must file by June 30, 2013.

For families currently paying “under the table,” Breedlove & Associates is happy to provide a simple, cost-effective solution that serves as an “amnesty program.” Lobbying on behalf of clients, we have an excellent track record of getting penalties waived for first-time offenders. As with any tax matter, it is much cheaper and easier to rectify a mistake if you come forward prior to an audit – and these “nanny tax” mistakes are prime examples of that IRS philosophy.

Hiring a full-time, experienced nanny to provide exceptional care for your children can be a daunting expense, especially for first-time household employers. Not only do you have to budget for the nanny’s wages, but also your employer taxes (Social Security, Medicare, state unemployment, etc.). But if you partner up with another family in a similar situation, you can enter into a nanny-share and split the costs.

NannyShares are becoming more popular, but both families need to be on-board with their household employer requirements for it to work professionally and legally. Both families need to document paying the nanny and be set up with the IRS and state as household employers.

The good news is, once the families have their NannyShare set up, they can both take advantage of tax breaks to offset their household employer costs – and many even come out ahead. To check out your savings and learn more about childcare tax breaks, visit our free nanny tax calculator.

If you’re a household employer and paid your employee at least $1,800 last year, you have 2012 nanny tax deadlines coming up shortly. Here’s a quick breakdown of what should be on your radar:

January 31

- Send in your 2012 fourth quarter federal employer estimated tax payment to the IRS. This is done with Form 1040-ES.
- Give your employee(s) their W-2s so they can begin filing their personal income tax returns.
- Remit payment for 2012 fourth quarter state unemployment taxes
- If state income tax is required to be withheld, submit 2012 fourth quarter payment

February 28

Mail Form W-2 Copy A and Form W-3 to the Social Security Administration. These forms summarize the tax and wage information for your household employee(s) and ensure that she receives Social Security income and Medicare during her retirement years.

NOTE: If you file your W-2 Copy A electronically, you do not have to file a W-3 and have an extended deadline of April 1.

Just a reminder, if you had a household employee during 2012, but did not withhold any taxes, it’s not too late to get her “on the books.” We handle nanny taxes for many late filing families during this time of the year and have success in getting late filing fees waived or dramatically reduced.

We're very proud to announce that Breedlove & Associates was recognized by the Austin Business Journal as one of the best places to work.  It's a tribute to our incredible staff and the positive energy they create.