Household Employees: Hiring, Classification, Taxes, and More

Household employees are workers hired and paid to fulfill services within their employer’s home or residence. The services they are tasked with completing range from babysitting, cooking, and gardening to carpentry, plumbing, and providing health aid.

Knowing how to distinguish whether a worker providing household services is your employee or not helps you pinpoint the full scope of your responsibilities in terms of handling their wages and taxes.

Keep reading this article to learn more about the definition or meaning of household employees, their classifications, and the regulations that come with employing their services.

Key Takeaways

• Household employees are workers whose primary duties involve managing their employer’s home or providing immediate services to their employer’s family members.
• If a household worker independently decides when to work and what type of services to provide, they are not considered an employee but rather an independent contractor.
• Employers must withhold Social Security, Medicare, FUTA, and SUTA taxes from household employees to whom they paid either $2,700 or $1,000 or more in cash wages within a calendar year or a quarter of a year.

What Are Household Employees?

Household employees, also called household workers or domestic workers, are people who fulfill tasks and services that usually have to do with maintaining their employer’s residential space.

Their duties may also involve looking after family members or relatives of the person who hired them.

Some common examples of household employees include:

• Housekeepers
• Drivers
• Babysitters
• Butlers
• Nannies
• Private nurses
• Caregivers
• Cleaners
• Cooks
• Yard workers
• Maids

Employers determine the range of tasks and responsibilities and the number of work hours that household workers must fulfill. A household employee’s wages or salary rates also depend on where they are located.

For instance, the hourly wage rates in large metropolitan cities may be significantly higher than the rates in rural areas. The employees may also be paid hourly, daily, weekly, or biweekly and fulfill their jobs on a full-time or part-time basis.

Furthermore, employers can hire household workers by seeking the assistance of agencies providing household staff. They could also employ a household worker individually through peer recommendation or by posting a job advertisement.

How to Classify Household Employees

The key to classifying household employees entails assessing who defines the scope of work and work schedule that the workers have to fulfill. In a nutshell, if the workload is decided by the employer, then the worker is classified as a household employee.

A common example of a household worker classified as an employee is an all-around caretaker hired by an employer to regularly look after their kids and oversee the cleanliness and orderliness of the house.

Meanwhile, the Internal Revenue Service specifies that household workers are not considered employees under the following circumstances:

• The household staff was acquired through an agency. They are not considered employees since the agency dictates the worker’s tasks, schedules, and availability.

• The worker independently decides the full extent of their job. At the same time, if they provide their own tools and offer their services to multiple clients, then the IRS identifies them as independent contractors.

• The household worker hires their own personnel to do the job. In this scenario, the household worker acts like an agency and outsources manpower to complete a project or fulfill a task.

• The worker fulfills their job outside of the employer’s residence. In short, if a tutor or childcare service provider performs their job in their own home and not the residence of the person who hired them, then they are not employees.

Knowing how to distinguish between a household employee and an independent contractor is a must to help determine whether to distribute a 1099-NEC or a W-2 form to the worker or withhold payroll taxes from their wages.

How to Hire Household Employees: 4 Key Considerations

To hire household employees that meet your expectations, you need to consider the kind of services that you need. At the same time, you must check whether you can meet or exceed the minimum wage requirements for the specific job you want to hire.

There are several other key factors to keep in mind when hiring household employees:

#1. Job Description

Provide complete information about the kind of service or job you need in your household. For example, if you’re hiring a nanny, specify their work schedule and the responsibilities you would entrust to them in terms of looking after your child’s needs.

At the same time, you must enumerate the skills, expertise, and physical demands that applicants must meet to fill the position. It is also ideal to indicate the possible accommodations you will provide for the household employee.

#2. Background Check

If possible, have applicants provide reliable, professional references who can attest to their work and previous job experiences. Doing so will help you assess further if a candidate could be a good fit for the job.

Conducting a thorough background check is also crucial since you’re looking to hire individuals who will be working and living within your residential space.

Some of the essential details to keep a close eye on include verifying the applicant’s eligibility to work in the U.S. by having them fill out Form I-9, Employment Eligibility Verification.

At the same time, checking a possible household employee’s criminal and driving records is vital if you’re hiring security guards or personal drivers.

#3. Compensation and Benefits

Don’t forget to calculate the correct hourly wages for household employees and ensure you meet the minimum wage requirements. Also, include benefits such as paid time off, sick and medical leave, and healthcare coverage, if possible.

You can also discuss salary expectations during the job interview to gauge whether you and the applicant have the same pay range in mind or not.

#4. Payroll and Wage Requirements

The payroll requirements for household employees include withholding federal taxes from their regular wages as well as paying the employer’s share of Social Security and Medicare taxes.

You may also have to include state and local taxes and pay stub requirements in your checklist to avoid violating any labor regulations in your area.

Tax Obligations for Household Employees

The tax obligations for household employees are quite similar to those of regular, full-time employees. That said, employers withhold payroll taxes, while the Form W-2, Wage and Tax Statement, serves as the household employees’ tax form when filing their taxes.

Collectively, the federal taxes paid and withheld by employers of domestic workers are called the nanny tax.

The general rule is that if a household employee is paid over $2,700 in cash wages within a calendar year or $1,000 or more in a quarter, their employer must withhold federal and state taxes from their earnings.

Employers are also required to pay FUTA and SUTA taxes and cover their portion of employees’ Medicare and Social Security taxes. The percentage of nanny taxes that employers must withhold from household employees’ wages is as follows:

• 15.3% for Medicare and Social Security taxes, with employers and employees splitting the cost at 7.65% each.

• 6% of cash wages for FUTA taxes. SUTA tax rates vary per state.

Withholding federal income taxes from household employees’ wages is not necessary unless the employee requests their employer to do so.

However, it is also worth noting that for employers to withhold income taxes from household workers’ pay, they must have the latter fill out their Form W-4 first.

4 Steps to Paying Nanny Taxes

Use the simple guide below as your basis for regulating and paying nanny taxes:

• Apply for a state and federal tax identification number to report nanny taxes to the IRS.

• Prepare your employees’ copies of their Form W-2 so they can file their returns.

• Submit Form W-3, Transmittal of Wage and Tax Statements, and Form W-2 Copy A to the Social Security Administration to indicate that you withheld FICA taxes from your household staff’s wages and paid your share of the said tax.

• Prepare and file Schedule H if you paid cash wages to your household staff, and the wages paid are subject to income taxes as well as FICA or FUTA tax.

Withholding the correct tax amounts could potentially yield more household income for your employees. Your employees’ household income is their adjusted gross income plus tax-exempt interests and foreign-earned income that they can exclude from their taxable earnings.

How to Pay Household Employees in 4 Easy Steps

Paying household employees requires focusing on cost-effective payroll administration and management practices to help save time and resources. Some of the practical methods that let you compensate household workers in an organized manner include:

#1. Establishing a Fixed Pay Period

A pay period is a fixed interval at which household employees receive their compensation. You can choose from a weekly, biweekly, semi-monthly, or monthly pay period, but it is best to discuss the most suitable pay schedule with your employees.

In this manner, you can adjust your payroll preparation process accordingly and assure workers that they get paid on time. It is also essential to choose a pay period that coincides with the tax filing deadlines set by the IRS and your local or state government.

#2. Subtract Applicable Deductions

Taxes aren’t the only value that you must deduct from your household employees’ gross earnings. If your employees elect to deduct a specific amount of their pay for their health savings account or retirement account contributions, subtracting the correct amount for their contributions is also paramount.

In doing so, employers help their workers set aside enough funds to spend on their qualified health expenses or withdraw when they retire later on.

#3. Use a Pay Stub Generator

A pay stub generator is a simple, user-friendly online tool that lets you create pay stubs with complete and accurate information in a few minutes. Paystub.org’s generator is 100% reliable and safe to use, thanks to our ready-made templates and built-in calculator.

As such, you get to calculate your household employees’ income, taxes, benefits, and other pay adjustments with accuracy. You can also print a physical copy of the pay stub or download a PDF or electronic form to email to your employees instead.

You can also pair our pay stub generator with our W-2 form generator so you can prepare all necessary tax forms for your household employees before the tax filing deadline.

#4. Agree on a Payment Method

Choose a mode of payment that your employees prefer. Some of the most commonly used methods of sending wages to domestic workers include bank deposits, issuing a paycheck, and using secure mobile payment applications.

You can also pay your household workers in cash, particularly if they are only hired to fulfill one-time tasks or short-term projects in your home.

Household Employees: Legal Compliance

An integral part of adhering to household workers’ labor rights is adhering to the Domestic Workers Bill of Rights Act at all times.

The said legislation provides a broader scope of protection and enforcement of household employees’ labor rights, thereby ensuring their employers treat them with dignity and the utmost respect.

Also included in the said legislation’s provisions are:

• The implementation of safe and hazard-free working conditions for household workers

• Protection from employers’ possible retaliation in case workers voice any work practices that are in violation of their basic rights

• Upholding household employees’ right to receive equal pay and protecting workers against discrimination based on their race, gender, sex, or national origin

Presently, the District of Columbia, along with 12 states and two main cities, has passed the Domestic Workers Bill of Rights.

Conversely, knowing whether household workers are non-exempt or exempt employees is also a must. According to the Fair Labor Standards Act (FLSA), domestic workers are non-exempt employees, meaning they are entitled to overtime compensation if they exceed 40 hours of work in a week.

Final Thoughts

Hiring and compensating household employees is no walk in the park. It requires careful scrutiny of the worker’s eligibility for work and the validity of their employment documents.

Whether you’re looking to hire household employees on a short- or long-term basis, make it a point to learn about their basic rights, specific tax requirements, and any other federal or state regulations governing domestic workers’ nature of work.

It is also worth noting that employing domestic staff should be rooted in having an excellent work ethic, integrity, and trust between the employer and the worker. Without these three key components, it is impossible to establish a harmonious and long-term employer-employee dynamic.