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Banking Hours - Why It Does Not Pay Off

by Breedlove March 18, 2014

The Lawson family wanted to take an impromptu vacation after Mr. Lawson received a promotion. The family scrambled plans together and organized a five day reprieve from work and responsibility. The best part of the trip for Mr. and Mrs. Lawson would be the opportunity to take their first vacation with their two-year-old son who was usually supervised during the day by the family's nanny.  

The Mistake 

The Lawson's nanny was their first household employee. They were paying her on the books for the (generally) 40 hours per week she worked (8 hours per day, Monday through Friday) and even gave her five paid vacation days per year. The family chose to not take their nanny on vacation with them and let her know she could simply take the week off. However, they did not discuss how this time off would be interpreted with respect to her vacation time.

Several months after the Lawsons came back from their vacation, their nanny requested to take all five of her paid vacation days to spend time with her parents and extended family who lived several states away. The family informed her that they already paid for her vacation days when they took their trip. However, to avoid conflict, the Lawsons let the nanny take her vacation with the agreement that they would bank those 40 hours by having her work an extra two hours "off the clock" every day for next four weeks after she returned.

The Law 

Federal wage and hour law does not allow employers to average the hours their employees work across multiple weeks - meaning they should be paid for every hour they work during the workweek the hours are accumulated. The Fair Labor Standards Act (FLSA) defines a workweek as seven consecutive 24-hour periods. Any hours worked in excess of 40 during a workweek are required to be paid at an overtime rate of at least 1.5 times the employee's regular rate of pay. These laws are in place so employers cannot carry over hours from week to week to avoid paying an employee overtime.

The Mess 

After two weeks making up for hours already paid to her, the nanny became frustrated with having to stay late at the Lawson's home. She confided in her roommate who was attending law school and explained a few things to her about labor law and the FLSA. The nanny confronted the family about the "off the clock" hours and the lack of overtime. She asked that the Lawsons allow her to resume her normal working hours and be paid time-and-a-half for the 20 hours of overtime she had already accumulated. The family, unfamiliar with the law, had to make an emergency call to their accountant to verify what their nanny claimed was true.

The Outcome 

The Lawson's accountant utilized Breedlove & Associates to handle the family's payroll and taxes and made a quick call to our office. A consultant informed her that the family indeed had to pay their nanny for the 20 hours of overtime she worked. Because the nanny was earning $18/hour, the 20 hours of overtime resulted in an additional $540 in gross wages having to be added to the nanny's next paycheck. The financial dispute between the family and the nanny ultimately created an awkward employer/employee relationship for both parties and the Lawson's nanny quit after the end of the calendar year. 

How the Whole Thing Could Have Been Avoided 

If the Lawsons and the nanny had discussed how the family's vacation would be viewed before they left, each side could have avoided the initial conflict. Additionally, the family could have reached out to Breedlove & Associates - or asked their accountant to do so on their behalf - before deciding to carry over the nanny's hours. When there are variances from the normal workweek, it's important for employers to verify all labor laws are followed before proposing or agreeing to any changes.

Ignoring Workers' Compensation Can Have Messy Consequences

by Breedlove January 22, 2014

Families hiring a household employee for the first time often feel like they're taking a crash course on taxes and payroll when they learn about how to properly pay their caregiver. But there's another part of being an employer many families forget - addressing workers' compensation. In this edition of The Legal Review, the Johnson family learns a valuable lesson about how important this insurance policy can be.

 

The Situation 

The Johnsons live in Ohio with their two children - one of whom has special needs. While Mrs. Johnson had left her career two years ago to be a stay-at-home mom, she was offered a job opportunity last summer she simply couldn't refuse. After several discussions on how to handle childcare for their kids moving forward, the Johnsons decided hiring a nanny would be the most beneficial for their special needs child. After a month-long search, the family found a wonderful nanny named Rebecca with several years of experience working with special needs children. 

The Mistake 

Rebecca was used to being paid on the books, but the Johnsons were unfamiliar with their responsibilities and enlisted the help of a local tax office for guidance. The CPA the Johnsons spoke to was familiar with household employment tax law. He was able to instruct the family on how to file for their federal and state tax IDs and keep up with Rebecca's payroll and the taxes withheld from her pay. But unfortunately the topic of workers' compensation was glossed over as the CPA told the Johnsons their homeowner's insurance policy probably had them covered.

 

The Law 

Many states, including Ohio, require household employers to carry a stand-alone workers' compensation insurance policy - and in Ohio, the policy must be purchased through the state. Workers' compensation provides a family's employee with coverage for medical bills and lost wages if she is injured on the job. The policy prevents families from having to cover these costs out of pocket and protects them from lawsuits because employees that accept workers' compensation benefits forfeit the right to sue their employer. Additionally, in states that require a policy, families caught without a workers' compensation insurance policy can face significant fines.

 

The Mess 

One day while cooking for the Johnson's children, Rebecca badly cut her finger causing her to lose a substantial amount of blood. The injury was so severe, she had to go to the emergency room where the doctor recommended that she keep her arm in a sling for a month to prevent any long-term damage. As a result of her trip to the ER, Rebecca accumulated thousands of dollars in medical bills. She had no idea how she was going to cover the expenses and how she was going to be able to effectively care for the Johnson's children one-handed for a month, so she went to the family for advice.

Because the CPA the Johnsons spoke to led them to believe they had workers' compensation coverage through their homeowner's insurance policy, the family contacted their agent to figure out how to handle Rebecca's claim. But to the Johnson's surprise, their agent informed them the liability coverage in their policy did not cover an employee working in their home. As such, Rebecca would be ineligible for workers' compensation benefits since there was no policy in effect at the time of the incident.

 

The Outcome 

The Johnsons thought Rebecca was doing a wonderful job with their children, so they had no choice but to cover her medical bills and wages for a month out-of-pocket if they realistically wanted her to keep working for them. Additionally, they didn't feel they could afford quality backup care while Rebecca recovered, so they arranged for Mrs. Johnson to work part-time from home and use the majority of her vacation time for the year to stay home with the children. The family has since purchased a workers' compensation policy and Rebecca continues to work for them.

 

How the Mistake Could Have Been Avoided 

Had the Johnsons called their insurance agent to double-check if workers' compensation was part of their homeowner's policy, they would have quickly discovered there was not a policy in place. The family could have purchased a policy through the state and Rebecca would have been eligible for workers' compensation benefits when she was injured. Additionally, the family would not have incurred the cost of her medical bills or lost wages and would have been able to hire a temporary nanny while she recovered.

 

Because workers' compensation is not administered through the tax and payroll process, it's an easy item to forget you're preparing to have someone work in and around your home. If you have questions about workers' compensation or if it's required in your sitution, please give Breedlove & Associates a call. A short phone conversation with one of our experts can ensure you won't make a potentially expensive mistake.

Tax Rules for a Holiday Bonus

by Breedlove December 20, 2013

Just like many other professions, the holiday season is a common time of the year for families to reward their household employee with a bonus. And since your employee is probably buying gifts for family and friends, the timing works out very well for her. During this time of the year, we often get questions on how to handle a holiday bonus from a payroll and tax standpoint, so here’s what you need to know.

A bonus may seem like it should be handled differently than the nanny’s standard pay, but the IRS considers a bonus to be just another form of taxable compensation. Therefore, you should add the bonus to your nanny’s normal gross wages and withhold taxes accordingly.

It’s a good idea to give your employee a heads up that her income will be taxed at a higher rate than usual for the pay period that includes the bonus. This is because the IRS’ tax tables assume her new gross wage amount is a raise rather than a one-time bonus. Because the tax tables are part of payroll law, there is no way to deviate from them to reduce your employee’s taxes.

However, the good news is the higher tax withholding is temporary and is treated as a pre-payment toward your employee’s tax liability for the year. So, when she files her tax return, it will be recouped in the form of a larger refund or a lower tax payment, depending on her situation.

If you would like to calculate the taxes that will be withheld from your employee’s bonus, please feel free to use our Employee Paycheck Calculator.

Minimum Wage Increasing in Several Cities and States in 2014

by Breedlove November 22, 2013

Many people think of minimum wage as the $7.25 per hour mandate set by the federal government. But in actuality, each state (and some municipalities) have the option of accepting the federal minimum wage or setting their own minimum wage. In areas where two minimum wage rates exist, the rule of thumb is you must pay your employee the higher of the two rates.

 

Every year, several states elect to change their minimum wage to account for things like inflation and cost of living. Starting January 1, 2014, if you are a household employer in the following states or cities, please make sure you are paying your employee at least the new minimum wage so you stay in compliance with state and city laws.

 

States:

Arizona: $7.90 per hour

Connecticut: $8.70 per hour

Florida: $7.93 per hour

Missouri: $7.50 per hour

Montana: $7.90 per hour

New Jersey: $8.25 per hour

Ohio: $7.95 per hour

Oregon: $9.10 per hour

Vermont: $8.73 per hour

Washington: $9.32 per hour

 

Cities:

San Francisco: $10.74 per hour

Albuquerque: $8.60 per hour

San Jose: $10.15 per hour

 

If you have any questions about minimum wage, overtime or other aspects of labor law, please visit the Answers page at www.breedlove.com or give us a call. We’re here to help!

In the World of Nanny Taxes, a 1099 is Never the Right Answer

by Breedlove November 20, 2013

The hiring process is the time to address nanny taxes. But many families are so focused on finding the perfect caregiver that they overlook the employer tax requirements and unnecessarily expose themselves to financial and legal risk.

 

This edition of The Legal Review highlights this scenario as the Johnson family runs into tax trouble when their occasional babysitter, Brooke, begins to work for them as a full-time nanny. She couldn’t be more excited to have her first full-time job, but it didn’t occur to her or the Johnsons that there would now be legal responsibilities involved with her employment. 

 

The Mistake:

Brooke began her work as a full-time nanny with the Johnsons in the summer of 2012. Since she recently graduated from college, Brooke was thrilled to have a steady income and had no issue continuing the type of employment agreement she already had with the Johnsons. The family paid Brooke in cash at the same hourly rate they agreed on when Brooke began babysitting and their arrangement appeared to be progressing smoothly.

 

Until January. Brooke’s father, an accountant, began pestering her about filing taxes. He told her that she was an employee now and her income needed to be reported to the IRS. Brooke approached the Johnsons for guidance, and eager to help, they produced a 1099 for her listing her wages for the year.

 

The Law:

If a family pays a nanny, senior caregiver or other household employee $1,800 (2013) or more in a calendar year (in 2014, the threshold will increase to $1,900), they are required to withhold Social Security and Medicare (FICA) taxes from the employee’s wages and pay a matching portion of FICA taxes on top of their employee’s gross earnings. They are also required to pay federal and state unemployment insurance taxes if the employee earned more than $1,000 in a calendar quarter.

 

Note: Other employer taxes may apply depending on the employer’s residence state. Visit your state’s tax page for more details.

 

Additionally, nannies are classified as employees in the eyes of the IRS, not independent contractors. In order to legally report their wages and the taxes withheld, their employer must provide them with an accurate W-2 by January 31. Families who misclassify their nanny as an independent contractor by providing them a Form 1099 can be subject to tax evasion charges by the IRS. Recently, the U.S. Department of Labor released its budget details, including a new line item for $10 million in state grants to enhance enforcement of worker classification laws.

 

The Mess:

Brooke obtained the 1099 from the Johnson family and brought it to her father so he could assist her in filing her taxes. Her father immediately realized this was incorrect and instructed Brooke to have the Johnsons provide her a W-2.

 

Afraid she would end up in legal trouble with the IRS, Brooke came to the family in a panic explaining the difficulty she was having filing her taxes. The Johnsons were embarrassed and unaware of what to do since they paid Brooke in cash and obviously never withheld FICA taxes for the entire time she worked for them in 2012. They were also concerned for their personal tax liability because they never paid the matching employer portion of FICA taxes.

 

The Outcome:

Brooke asked her father if he could help her and Johnsons remedy their tax situation. But because household employment taxes were not something his accounting office handled, he advised the Johnsons to call Breedlove & Associates.

 

Mrs. Johnson called the next day and spoke to a Breedlove consultant who informed her that we could go back to the previous year and file the appropriate tax returns to ensure they were compliant with the law. When the consultant explained that a W-2 could be prepared for Brooke in only a few days, the Johnsons signed up immediately. The family informed Breedlove & Associates of all the wages they paid to Brooke and agreed to cover the taxes that should have been withheld.

 

Breedlove & Associates was then able to retroactively file all of the Johnson’s state tax returns for the 2012 tax year and process the year-end documents – including Brooke’s W-2 – which listed the correct amounts of Social Security and Medicare taxes. Brooke was finally able to file her taxes. To top things off, Breedlove & Associates was even able to get the state to waive the penalties they assessed on the Johnsons for filing their taxes late.

 

How the Whole Thing Could Have Been Avoided:

If the Johnsons had only been aware that hiring a nanny full-time entailed new responsibilities as an employer, the whole mess could have been avoided. Breedlove & Associates works to educate and keep families compliant with the law. By withholding taxes the whole year, making appropriate tax payments and filing correct returns, Breedlove & Associates ensures that every employer is acting within the law and is never stuck in a bind like the one the Johnsons found themselves in. The Johnsons are grateful that Breedlove & Associates now handles Brooke’s W-2 and everything else related to her pay and their taxes!

FICA Threshold Increasing for 2014

by Breedlove November 13, 2013

Recently, the Social Security Administration announced that the Social Security & Medicare (FICA) tax threshold for 2014 will increase from $1,800 to $1,900 in gross wages and cap at $117,000. For families with full-time household employees, this change should not affect their situation because these employees will earn well over the new threshold.

However, for families that use temporary employees on and off throughout the year, this increase gives an extra $100 leeway before the tax withholding and remittance requirements kick in. Please keep in mind that, even though you may not have to withhold FICA from your temporary employee, you may still be required to file unemployment tax returns if the total paid to all employees exceeds $1,000 in a calendar quarter (a few states have thresholds that are even lower).

Whether you have to worry about FICA or not, remember you are still legally an employer and must follow all local, state and federal labor laws. For the specific requirements in your area, please visit or state-specific pages or give us a call. We’re here to help!

Nanny Tax Tip: Take Advantage of Your FSA Open Enrollment Period

by Breedlove October 17, 2013

If you have a nanny or other childcare provider currently working in your home – or are planning to hire in 2014, now is the time to check with your company’s human resources department about enrolling in a Dependent Care Account (a.k.a. Flexible Spending Account or FSA) next year. If you or your spouse has access to this benefit, you’ll be able to pay for up to $5,000 of your childcare expenses with pre-tax dollars. Depending on your marginal tax rate, this will save you between $2,000 and $2,300 next year.

Most companies have open enrollment for their FSA program in the fall and, if you miss it, you’ll have to wait another 12 months unless you have a “life-changing event” such as the birth of another child.

If you miss the enrollment period, you can still take advantage of the Tax Credit for Child or Dependent Care. While the savings are much less than an FSA ($600 if you have one child or $1,200 if you have two or more children), it’s still worth taking advantage of.

For more information on dependent care tax breaks, visit our Answers section or give us a call.

How the California Domestic Worker Bill of Rights Affects Families

by Breedlove October 7, 2013

Recently, California Governor Jerry Brown signed AB 241, the Domestic Worker Bill of Rights, into law effective January 1, 2014. Originally the bill included provisions for overtime, off-duty meal breaks and a 30-day notice of termination.

The off-duty meal breaks and 30-day termination notices were struck from the final bill. However, the new law stipulates that all domestic employees in California will be entitled to overtime.

The specific overtime requirements will vary depending on the type of worker. For most families, the following overtime stipulations will apply to their employment situation.

Personal Attendants (nannies, baby nurses, senior caregivers, etc.)

·         Live-Out – Overtime is required if the employee works more than 9 hours in a day and/or 40* in a 7-day workweek.

·         Live-In – Overtime is required if the employee works more than 9 hours in a day and/or 45 hours in a 7-day workweek.

* Federal law governed by the Fair Labor Standards Act (FLSA) entitles all live-out domestic workers to overtime rates for all hours worked over 40 in a workweek. Therefore, the weekly overtime threshold of 45 hours mandated in AB 241 is only applicable to live-in personal attendants.

All Other Domestic Workers (housekeepers, personal assistants, chefs, estate managers, etc.)

·         Live-Out – Overtime must be paid to the employee if they work more than 8 hours in a day and/or 40 in a 7-day workweek.

·         Live-In – Overtime is required if the employee works more than 9 hours in a day.

NOTE: There are additional overtime requirements for employees that work 12 or more hours in a day or 6 or 7 consecutive days in a workweek. Please call our office for details if this employment situation arises for you.

Financial Illustrations of the Cost Impact to Employers

Not all families with overtime situations will be impacted by these changes. If a family employs a nanny 5 days per week and she works 10 hours per day, her payroll will not change:

2013 Wages                                      2014 Wages
Hourly Rate = $16/hr                      Hourly Rate = $16/hr
Regular Hours Worked = 40          Regular Hours Worked = 40
Overtime Hours Worked = 10       Daily Overtime Hours = 5
                                                           Additional Overtime Hours = 5

Total = $880                                     Total = $880
(40 X $16) + (10 X $24)                   (40 X $16) + (5 X $24) + (5 X $24)

However, if the same family employs a nanny 3 days per week and she works 11 hours per day, her payroll will be affected by the 2 additional hours of daily overtime each day she works:

2013 Wages                                     2014 Wages
Hourly Rate = $16/hr                     Hourly Rate = $16/hr
Regular Hours Worked = 33         Regular Hours Worked = 27
Overtime Hours Worked = 0        Daily Overtime Hours = 6

Total = $528                                    Total = $576
(33 X $16)                                        (27 X $16) + (6 X $24)

As you can see from the above illustrations, these changes may not affect many families. However, if you need any assistance with this new overtime legislation, please give our office a call. We're here to help! 

A Toast to Nanny Appreciation Week

by Breedlove September 27, 2013

This weekend draws a close to Nanny Appreciation Week – a time to show the hard-working, unsung heroes of our society how much we appreciate the effort they put into caring for our children. We hope you’ve shown your caregiver how much you appreciate the way she cares, instructs, teaches, nurtures, inspires and protects your loved ones.

We also want to thank all the families that give the gift of professional pay to their nanny year-round. It is one of the best things you can do for her because she has all the protections and benefits that other professionals enjoy (retirement income and insurance through Social Security and Medicare, unemployment benefits, etc.).

Questions and Answers about the Affordable Care Act for Household Employers

by Breedlove September 17, 2013

Beginning October 1, the first stages of the Affordable Care Act will go live. Americans looking for health insurance will have access to an online health insurance exchange where they can compare policies and ultimately purchase a plan that suits their individual needs. Because this is a new change to the way health insurance is administered, many families are confused or concerned about how the changes will impact them as a household employer.

To help these families feel more comfortable moving forward, we’ve created the following Frequently Asked Questions for household employers:

What is the Affordable Care Act?

The Patient Protection and Affordable Care Act, commonly referred to as the Affordable Care Act, is a federal statute which was signed into law in 2010. The statute is primarily aimed at reducing the overall cost of health care and decreasing the number of uninsured individuals living in the United States by enacting a number of different mandates, subsidies and tax credits.

Am I required to offer health insurance to my employee(s)?

No, employers are not required to offer health insurance if they employ fewer than 50 employees. However, you are required to provide your current employee(s) and, at the time of hire, any future employee(s) with notice of the new Health Insurance Marketplace.

Is my employee required to have health insurance?

Yes, beginning in 2014, your employee may be charged penalties if she does not have health insurance coverage. However, you are not responsible for making sure your employee has health insurance.

What is the Health Insurance Marketplace?

The Health Insurance Marketplace, or The Marketplace, is a “one-stop shop” where individuals can compare and purchase health insurance policies. Open enrollment for The Marketplace begins on October 1, 2013 for coverage beginning January 1, 2014. Your employee(s) will be able to purchase health insurance through The Marketplace until open enrollment ends on March 31, 2014. For more information on The Marketplace, or to complete an online application for health insurance coverage, please visit www.HealthCare.gov.

How much will health insurance cost?

The cost of health insurance will vary depending on your state and the amount of coverage your employee chooses. After completing an application through The Marketplace, your employee will be able to compare prices and coverage options for   different health insurance policies. Depending on your employee’s income and family size, she may be eligible for the Advance Premium Tax Credit if she purchases insurance through The Marketplace. The credit can be applied directly to her monthly premiums which results in immediate cost savings. If she qualifies for the Advance Premium Tax Credit, her savings will be reflected in the prices displayed on The Marketplace.

If I contribute to my employee’s health insurance policy, will I be eligible for any tax breaks?

If you set up a health insurance policy for your employee through SHOP (Small Business Health Options Program) on the Marketplace and pay at least 50% of your employee’s premiums, you may be able to take advantage of the Credit for Small Employer Health Insurance. To take this credit, you’ll attach Form 8941 to your personal income tax return. Beginning in 2014, the credit will increase to up to 50% of the contribution you pay. For more information regarding the requirements for contributing to health insurance, please contact our office.



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