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:
- Employees typically bonded and/or insured
- Agency may provide workers' compensation insurance so you won't have to obtain it
- Conducts personal interviews
- Checks criminal, sex offender, financial background
- Performs reference and educational degree verifications
- Investigates driving record and status of professional licenses held
- Provides plan for assistance if employee is a bad fit
Cons:
- Need time to investigate the agency
- Lack of control over process and employee(s) hired
- Higher cost
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:
- Request a background check from a full-service source such as GoodHire and e-NannySource, or perform an online check through vendors like BackgroundReport.com. Compare prices and services for vendors and make sure your choice includes credit and financial information and a cross-check with sex offender lists. Keep in mind that a background check performed by a third party is subject to the Fair Credit Reporting Act (FCRA), and you (or the background check provider) will need specific paperwork to perform the search and notify the applicant. Check with your attorney if you have questions.
- If not obtained during a background check, verify driving and professional license records from the Secretary of State, state government offices or from commercial services, such as DMV.com.
- Contact references personally, as conversations typically provide more information than email exchanges.
- If not performed during the background check, verify educational degrees by sending the registrar’s office a release form signed by the prospective employee. This will provide the institution permission to release student record information. Forms can usually be found on the institution’s website.
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:
- Obtain an employer identification number (EIN), which is different from your social security number. Each state has its own application form, but the Federal Form SS-4, Application for Employer Identification Number, is available at www.irs.gov.
- Understand the payroll and tax reporting process for household employees and note that the IRS has guidelines about mingling the household payroll with that from your family business, and guidelines for paying taxes, Social Security, Medicare and unemployment insurance for your employees. Consider using a payroll service such as ADP or Paychex which can take most of the headache out of this process for a fairly nominal fee.
- Register as an employer with federal, state and local agencies.
- To enroll in the federal Electronic Federal Tax Payment System (EFTPS) visit www.EFTPS.gov at least a week before you need to begin issuing paychecks, because you will have to wait for your personal identification number and your employer’s tax guide to arrive by mail. Check IRS Publication 966 for more information and their guide to getting started.
- To enroll as an employer in your state, check your state government or treasury website. This may take longer, and should be completed a couple of months prior to issuing paychecks.
- Some local municipalities assess income taxes. Check with your city treasurer’s office to see if there is a local income tax and obtain the required registration forms.
- Understand your liability and verify that you have appropriate insurance coverage.
- Does your homeowner’s insurance cover injuries to an employee and are your policy limits sufficient to pay all damages in the event of an accident with serious injury?
- If not, do you need worker’s compensation insurance? (A hire from an agency may have this already, and some payroll services will handle this for you.)
- Do you have insurance that covers you if an employee’s act or negligence causes injury to someone else or their property?
- Will the employee be driving one of your cars? (If so, you must be willing to accept the liability for his/her accidents. In the insurance world, the car’s insurance is usually primary and the driver’s insurance is usually secondary, so the injured party will come after you.)
- Does the employee have auto insurance of his/her own?
- If the employee is driving his/her own car in the course of daily duties, did you check his/her driving record so you can’t be liable for negligent entrustment?
- Would an Employment Practices Liability Insurance (EPLI) policy designed for high net worth families be appropriate?
- Do you have an umbrella insurance policy to cover anything over and above your homeowner and vehicle insurance limits?
Am I prepared to advertise the position?
Putting in a little time upfront should make the hiring process easier on everyone.
- Decide if you are hiring an employee or an independent contractor. Misclassifying a worker is illegal and can lead to fines and tax evasion charges.
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:
- How old are you?
- Are you married?
- Do you have any kids? (are you pregnant or planning to have kids?)
- Where are you from? (if this question is intended to identify race)
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:
- Create an offer letter which encompasses, at the minimum, the basics of the employee’s responsibilities, compensation/benefits, work hours/time off, and the employee’s status as an “at-will” employee.
- Have the employee complete the paperwork needed for payroll, benefits, taxes (see tax responsibilities below) and employment eligibility requirements (Form I-9). Once the employee has completed the I-9 form, you can verify that the employee is legally eligible to work in the United States by using the e-Verify process at www.uscis.gov/e-verify. For most employees, this will just take a couple of minutes.
- Give your new hire the employee manual you created while preparing to hire and have him/her read it and sign a document indicating that it has been read and understood.
- Have the employee sign your confidentiality agreement and any agreement you have about privacy, cameras/recording devices, conflict of interest, protected information and social media use.
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:
- Explain the logistics of your home as needed for their employment
- Make sure they are comfortable with personal needs such as:
- Parking area
- Lockers or personal item storage area
- Meal and beverage policy--meals or beverages provided, ability to leave for meals
- Cell phone use
- Dress code
- Restroom use
- Smoking policy
- Fire escapes, safe rooms and emergency procedures for fire and security issues
- Train on the household rules and schedules, such as:
- Who answers phone and door, accepts packages, opens mail
- How guests are greeted, announced and addressed
- How family members are contacted and addressed
- Importance of family meal times
- Rules for driving a family vehicle
- When family members should be notified of irregularities or emergencies
- When and who to call for maintenance issues or emergencies
- How you will communicate with employees
- Train on general information:
- Any restricted areas in the home or compound
- Any food or environmental allergies to be respected
- Hot buttons for any family members
- Storage location for cleaning and other supplies
- Procedures for household costs incurred
- Employee reimbursement for household purchases
- Train on technology and security:
- Provide keys, codes and fobs and train on their use
- Provide explanations (and possibly manuals) for appliances, HVAC and security systems, computers, phones and other technology.
- Assign a mentor or another person who can answer the employee’s questions as needed.
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:
- Your spouse
- Your children under 21
- Your parent (see Publication 926 for an exception)
- Any employee under the age of 18 at any time in 2017 (see Publication 926 for an exception)
THEN you need to:
Withhold and pay social security and Medicare taxes.
- The taxes are 15.3% of cash wages
- Your employee’s share is 7.65% (you can choose to pay it yourself and not withhold it)
- Your share is 7.65%
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:
- Your spouse
- Your children under 21
- Your parent
THEN you need to:
Pay federal unemployment tax.
- The tax is 6% of cash wages
- Wages over $7,000 a year per employee aren’t taxed
- You also may owe state 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:
- Wages paid (cash and non-cash)
- Federal income tax withheld
- Social security and Medicare tax withheld or any you have agreed to pay for employee
- State employment taxes withheld
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.
