So, you need to hire someone to work at your home—a housekeeper, a chef or a personal assistant. You have decided not to contract out these services to a local company, and your family office does not hire staff for you. It is up to you to fill this position.
Before you let a stranger into your home, you need to understand the domestic employment process from hiring through terminating, so you don’t open your family to exposure financially, legally and socially. Your attorney will be able to assist you with parts of this process and should be consulted before you begin. This article does not constitute legal advice, but it should help you understand the issues and pitfalls associated with hiring help.
Should I hire from an employment agency or find my own employee?
Many types of workers can be hired through an agency, and this has the benefit of taking some of the burden from you.
Hiring Through an Agency
Pros:
Cons:
You may prefer to find your own employee. This is likely to be less expensive overall, especially if you already have some candidates in mind, but the burden is on you to perform the investigation.
For positions involving basic household chores or estate services, you could likely ask your friends and neighbors for referrals. For specialized staff positions, you could contact educational institutions and professional organizations related to the position. You could also hire a search firm or place an employment ad on a site such as Monster, Indeed or Zip Recruiter.
To investigate a prospective employee:
While choosing to use an agency to find an employee can provide peace of mind, it will also cost you based on a percentage of the employee’s salary, and you need to weigh the benefits and costs in your decision.
Am I prepared to start the hiring process?
If this is your first employee, you may need to do one or more of the following:
Am I prepared to advertise the position?
Putting in a little time upfront should make the hiring process easier on everyone.
For tax purposes, the IRS Publication 926 defines a worker as your employee if you control the work to be done and how it is done. The publication uses this example, “You pay Betty Shore to babysit your child and do light housework 4 days a week in your home. Betty follows your specific instructions about household and child care duties. You provide the household equipment and supplies that Betty needs to do her work. Betty is your household employee.”
Keep in mind that the Fair Labor Standards Act (FLSA) requires that you pay at least minimum wage for every hour that your employee works, and overtime compensation for every hour over 40 that is worked in a week, even if the employee has agreed to work more than 40 hours per week.
For example, if your personal assistant has agreed to work the same 50 hour-a-week schedule that you do, and at a pay rate of $825 per week, you would indicate in your contract that the employee earns $15 per hour for the first 40 hours each week and then $22.50 for 10 hours of overtime per week, and $22.50 for any additional hours worked that week.
It is much easier to discuss or develop an employee’s performance when the position is spelled out in a document.
How do I know who to hire?
When you start receiving applications or resumes from your job advertisement, the hiring plan that you devised above should kick in, and interviews, reference checks and background checks will begin.
First, a thorough check of the candidate’s background and references is important, given the access the candidate will have to your family and assets. Perform an internet search on the candidate and check out his/her social media sites prior to the interview. Talk to the candidate’s references before the interview, if possible, so you can ask the candidate more specific questions about topics and skills.
Second, schedule interviews with candidates, choosing a neutral location—someplace public and away from your home—for the first round.
Coordinate with your fellow interviewers, so that each of you is asking questions about and looking at different skill sets, and compare your notes later. It is not uncommon for different people, such as a husband and wife, to interview the same person and have vastly different opinions—be prepared to support your observations and listen to those of others. Remember, this person could have access to your home, family members, possessions, and cars, so everyone should feel comfortable with the hire.
Be careful to design your interview questions to relate to the job requirements. Avoid asking personal questions that could land you in a discrimination lawsuit, including questions related to a candidate’s age, race, gender, birthplace, religion, disability or marital/family/pregnancy status. Some examples of questions not to ask include:
Finally, if you feel it is important to the position, you can evaluate an individual using other methods such as drug testing or personality testing. If you are going to utilize these methods, you should communicate this to the applicant early on. Keep in mind you cannot require an applicant to take a drug test (or any other medical examination) until you have given the applicant a conditional offer of employment. Of course, you should not extend an offer to anyone, no matter how well they interview, until you have completed your other background checks and testing.
What do I do to hire someone?
If you extend an employment offer which is accepted:
How do I on-board a new staff member?
Introduce the employee to everyone as practical—family, other staff, neighbors and vendors.
Depending on the employee’s job, a procedure manual filled with instructions, schedules, contacts, emergency procedures and product manuals may be useful, but you will also need to:
What are my tax responsibilities once I hire an employee?
If you pay annual wages over a certain amount to an employee, you have tax responsibilities. You can choose a payroll service to eliminate most of the work of withholding and paying taxes.
If you don’t use a payroll service, you may withhold, at an employee’s request, any state and federal income tax, but you are not required to do this. If you agree to do this, the employee should complete Form W-4, to help you calculate how much tax to withhold.
Check your state regulations to see if it is required to withhold state income tax or pay for unemployment, disability or worker’s compensation insurance.
Cash wages (for example: cash, check, money order) and non-cash wages (food, lodging, clothing and other items) must be used to compute federal income tax withholding, with the fair market value of the non-cash items included in the calculation. See IRS Publication 926 for details on exceptions which are allowed for meals, lodging, transportation and parking in some circumstances.
If you choose to pay the employee share of the taxes listed in the chart below, you must also include this as wages for the calculation of federal income tax, but you do not use this share for purposes of reporting Social Security, Medicare and federal unemployment (FUTA) wages.
See the chart below, from IRS Publication 926, to determine any employment taxes that may need to be paid.
IF You:
A. Pay cash wages of $2,000 or more in 2017 to any one household employee.
Don’t count wages you pay to:
THEN you need to:
Withhold and pay social security and Medicare taxes.
IF you:
B. Pay total cash wages of $1,000 or more in any calendar quarter of 2016 or 2017 to household employees.
Don't count wages you pay to:
THEN you need to:
Pay federal unemployment tax.
Note: If neither A or B applies, you don’t need to pay any federal employment taxes. But you may still need to pay state employment taxes. Source: IRS Publication 926. Check this publication to determine your responsibilities and make use of this withholding table.
If you have withholding responsibilities for an employee, you must furnish him/her with Copies B, C and 2 of Form W-2 by January 31 of the following year.
You need to send Copy A of Form W-2, with a Form W-3 (Transmittal of Income and Tax Statements), to Social Security each year. This can be done electronically through the link at https://www.ssa.gov/bso/bsowelcome.htm. See the Social Security website for more information.
Copy D of Form W-2 is for your records, and Copy 1 is submitted to the employee’s state, city or local tax department.
How do I make required tax payments?
When you file your federal income tax return, use Schedule H (Form 1040) to calculate your total household employment taxes, including Social Security, Medicare, FUTA and federal income tax. Add these to your income tax and attach Schedule H to your 1040 form.
You can make estimated tax payments during the year to cover your household employment taxes. Use Form 1040-ES (Estimated Tax for Individuals), which gives you payment vouchers to use if you make payments by check. You may be able to pay with a credit card or a transfer from your bank account. Note that you may be subject to a penalty for underpaying your estimated taxes, so see IRS Publication 505 for information regarding estimated tax payments.
What records do I need to keep as an employer?
You need to keep records of wages and taxes paid. During each pay period, record the following:
You must keep employment tax records for at least four years after the taxes were reported or paid. You must also keep copies of all employment tax forms (Schedule H, W-2, W-3, W-4) and all supporting documents for these forms (including wage records, employee’s address and employee’s name and SSN as it appears on his/her card).
What if I need to terminate an employee?
Most of your workers are likely employed “at will” which means you do not need a reason to terminate their employment (unless termination violates discrimination laws), but it is likely that the termination will have a cause (job is temporary, end of need for service, employee conduct). Regardless of the reason for termination, have a plan in place with a checklist to handle items such as ending property and account access, collecting keys/phones/devices/uniforms, moving the employee from your home, changing/deactivating passwords and updating security. You must pay all final wages due to the employee as part of your normal payroll cycle. You cannot make deductions from this final paycheck (to cover, for example, uniforms he/she didn’t return) unless you have the specific, written authorization of the terminated employee.
Wrap-up
Hiring a domestic employee requires some time, effort and specific knowledge, but usually produces a good fit for your needs. Domestic employment and management is impacted by many areas of law and finance, so contact with professional service providers such as your accountant, attorney and insurance provider is recommended to protect yourself against a bad hire, employee negligence and unexpected events.
