May 9, 2013
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 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 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.
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.
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.
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!
April 10, 2013
The April 15 tax filing deadline is less than a week away and many household employers are racing to get their taxes filed on time. Along with their personal 1040 and Schedule H, household employers also need to make sure they are taking advantage of the Child and Dependent Care Expenses tax credit (IRS Form 2441) if they qualify. According to the most current IRS statistics from 2010, only 7 million people file this form nationwide.
Families qualify to file Form 2441 if they had childcare expenses for a child under 13 and both spouses work or are full-time students. Unlike other tax credits, there are no restrictions based on income level. The tax credit is 20% for up to $3,000 of childcare expenses ($600) for families with one child and 20% for up to $6,000 of childcare expenses ($1,200) for families with two or more children.
Some families may not have taken advantage of this tax credit in the past because the name sounds familiar to the Child Tax Credit. However, this is a completely different credit families with children can take to reduce their federal income tax and has no bearing on whether a family is qualified to file Form 2441.
For more information about the Child and Dependent Care Expenses tax credit, or other ways to save money, visit our Expert Advice page.
February 8, 2013
Now that the IRS is processing personal income tax returns, many people are getting their tax documents in order and preparing for a (hopefully) big tax refund. But there are also many of you who may be stuck because you haven’t received your Form W-2 from your employer yet. So, what do you do?
The best thing to do is ask your employer. They’re supposed to send you your W-2 by January 31. The IRS says if they sent it by mail, it could take up to two weeks, so there’s a chance it could still be in transit.
However, if your employer says they never prepared one for you (or they provide you with a Form 1099 instead), you should remind them that you are considered a household employee and are required to have a Form W-2 from them so you can file your income tax return. If that doesn’t work, you will have to claim your wages and taxes by filing your income tax return without a W-2.
If you earned less than the FICA threshold of $1,800, report your wages on line 7 of Form 1040 along with the letters "HSH," which is the code for household employment. If you earned more than $1,800, you will have to file Form 4852 which serves as a substitute for the W-2. Finally, if you received a 1099, you need to file Form 8919 to figure and report your share of the uncollected FICA taxes due on your compensation.
Because of the potentially expensive tax problems this could create for you and your employer, we advise you to do everything you can to educate your employer on the tax process for household employers (a.k.a. the "nanny taxes")...most busy families simply are not aware of their responsibilities. You might want to share our helpful literature and videos -- and also let them know that we're happy to provide a free personalized phone consultation if they'd like to call. We’re here to help!
December 16, 2011
As we wave good-bye to 2011, it's time to tidy up any loose ends on taxes. If you hired someone to work in your home (i.e. nanny, nurse, housekeeper, chef, personal assistant, etc.) and paid them $1,700 or more, you have household employment tax obligations (a.k.a. "nanny taxes"). See Compliance Checklist for details. Taking care of the reporting requirements has several benefits:
1) AUDIT & LAWSUIT PREVENTION. Families who pay legally don't have to worry about audits, tax evasion charges or legal disputes levied by disgruntled former employees. Think of it as insurance against tax and legal problems.
2) TAX BREAKS. There is a common misperception that “nanny tax” compliance will be prohibitively expensive. The truth is most families with childcare expenses qualify for tax breaks that largely offset – sometimes even exceed – the employer tax costs. (See “Dependent Care Tax Breaks” for more details or visit our Employer Budget Calculator to get an estimate of your tax breaks).
3. PROFESSIONAL BENEFITS. When a family pays legally, the employee receives important short-term and long-term benefits, such as social security, medicare, unemployment, and an ability to obtain loans/credit. These benefits and protections have a dramatic impact on the perceived professionalism of the position and, therefore, the quality and duration of the employment relationship.
If you'd like to learn more about the Breedlove No-Work, No-Worry way to handle your obligations, watch this brief video or give us a call. We're here to help.