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.

Tuesday Tax Tip for Household Employers

When hiring a domestic worker to work in your home (i.e. nanny, health aide, housekeeper, etc.), you can reduce the taxes for both you and your employee by taking advantage of the IRS-approved non-taxable forms of compensation.  When a household employer pays for any of the following expenses for their employee, the payments are not considered taxable wages so neither the employer nor the employee has to pay any taxes on that portion of the compensation:

• Health Insurance
• College Tuition & Books (up to $5,250 per year)
• Parking (up to $240 per month)
• Public Transportation (up to $125 per month)
• Mobile Phone Service

If any of these expenses apply in your situation, call us and we can make sure you set up payroll correctly to minimize your "nanny tax" liability -- and the tax liability for your nanny.

We're proud to be members and supporters of APNA, the Association of Premier Nanny Agencies (www.theapna.org).  APNA is an alliance of many of the best full-service staffing agencies in the U.S. -- boutique, high-quality firms who work extremely hard for families and nannies.  They come together on their own nickel to create standards (in an unregulated industry) and share ideas and best practices for the betterment of the in-home care industry and the well-being of our children.  It's an inspiring group and we can't wait to get to DC for the annual conference!

Next week is the official appreciation week for the unsung heroes of our society -- nannies.  If you have a caregiver, make sure she knows how much you appreciate the way she nurtures, teaches, inspires, and protects your loved ones.  It doesn't have to be something lavish or expensive -- just make sure she feels the love! 

Beyond Nanny Appeciation Week, one of the best things a family can do for their nanny is to make sure she is paid professionally -- so that she has all the protections and benefits that other professionals enjoy (i.e. retirement income through Social Security, retirement medical insurance through Medicare, unemployment benefits, etc.). Handling payroll correctly is not as expensive or as difficult as many people think and goes a long way toward creating a successful employment relationship.

If you pay a domestic worker (i.e. nanny, housekeeper, senior caregiver, etc.) $1,800 or more in a calendar year, you are required to withhold Social Security and Medicare taxes (currently 4.2% and 1.45%, respectively) from your employee's pay. Collectively, these taxes are known as "FICA." Employers who fail to withhold the FICA taxes are responsible for paying them for their employee.

For more information about the "nanny tax" withholding requirements, visit our Expert Advice page/video: http://bit.ly/O8LiRo

We talk to a lot of families who are disappointed in au pairs as a childcare solution.  Often, it's because they had major misperceptions about the au pair program.

This article from GoNannies.com does a good job of addressing the common misperceptions: http://tinyurl.com/7etf9bp.  If you're trying to decide between an au pair and a professional nanny, it's recommended reading.  

Effective January 1, 2012, California families that employ a domestic worker (i.e. nanny, housekeeper, health aide, etc.) are required to provide each worker with a written wage notice at the time of hire.  Known as the California Wage Theft Prevention Act, the law mandates that the notice includes 1) the rate of pay, including overtime rates if applicable, 2) pay frequency, 3) employer information, including their formal name, address and phone number and 4) the name, address, and phone number of the employer's workers' compensation insurance carrier.

If you're preparing an employment agreement, we suggest including this information in the agreement.  If not, you can provide these details to your employee(s) in a separate document.

If you have a wonderful caregiver and want her to know how much you appreciate her, here are some ideas (courtesy of our good friend Michelle LaRowe):

1. Gift your nanny an individual membership to the International Nanny Association.  For $35, she'll have the resources and support of this non-profit educational association for professional nannies.  www.nanny.org

2. Send her to the spa.  Nothing rejuvenates and re-energizes like a little pampering at the spa.

3. Have the children make her a special gift.  It could be a drawing, a video, a card, a ceramic mug, etc.  It'll be a fun project for the kids and it'll mean the world to your nanny.

4. Share a meal.  Take her to a restaurant or prepare a homemade meal at home.

5. A surprise day off.  If your nanny works long hours and has to spend her weekends taking care of personal errands, she may really appreciate a day to truly rest.

6. Professional development.  Professional nanny associations offer conferences that provide attendees with educational and networking opportunities.  Consider helping your nanny attend one of these career-enhancing events.

7. Give a gift card.  A gift certificate to your nanny's favorite store at the local mall is the perfect gift if you're not sure what she wants/needs. 

What you give doesn't really matter -- as long as she feels important and appreciated.

Families who have care-related expenses for qualified dependents are able to file for the federal Child or Dependent Care Tax Credit on Form 2441 with their 1040.  There is no income restriction on this tax credit, but both parents must work, be looking for work or be full-time students.

QUALIFYING EXPENSES

Itemizable expenses include: 

1. Wages paid to a caregiver;
2. Employer taxes paid on those wages;
3. Fees paid to a placement agency in order to find the caregiver;
4. Fees paid to a daycare or daycamp (overnight camps do not qualify).

EXPENSE LIMITS

Families with one child under age 13 can itemize up to $3,000 per year while families with two or more children can itemize up to $6,000 per year.

TAX CREDIT PERCENTAGE

The tax credit percentage is based on the family's adjusted gross income.  Most families will get a 20% credit, which yields a direct tax reduction of $600 per year (for one child) or $1,200 per year (for two or more children).

FEDERAL EMPLOYER IDENTIFICATION NUMBER (EIN)

If you have a nanny, in order to take the credit you will need to have obtained a Federal EIN.  That number should be applied to the nanny's wages and the employer taxes for that nanny.  If you itemize fees paid to an agency or daycare, those expenses would utilize the companies' EIN (Note: if you've already reached your expense limit with the nanny's wages, there is no need to chase down these business EINs).  In addition, you'll need to make sure you follow the other federal and state nanny tax obligations.

Let us know if you have any questions.