1099 vs. employee: Why the difference matters when you hire a caregiver


From Care.com | HomePay, Erik Johnson says that most cases, nannies and other in-home caregivers should be considered employees and not independent contractors. Erik writes:

While you may think of your nanny or in-home caregiver as more of an independent contractor than employee, the fact of the matter is the government usually thinks otherwise. In almost all cases, nannies and other types of caregivers are considered household employees under the law.

Why does this matter? It’s an important distinction when you file taxes as employees require different tax forms (Form W-2) than independent contractors (Form 1099). If there’s any doubt in your mind as to which classification your caregiver falls under, the IRS and the Department of Labor make it clear. Let’s go through it:

How the IRS distinguishes employees and independent contractors

The IRS can help you determine whether a worker is an independent contractor or employee if you or your caregiver sends in a Form SS-8. The form goes through five sections of questions to determine which party (family or caregiver) has control and independence. Admittedly, the IRS says it can take up to six months to get an answer and most families will not want to wait that long.

To save you the trouble of sending in an SS-8 form, the IRS has ruled in almost all cases that household workers should be classified as employees. “We’ve spoken to the IRS in the past about nanny and senior caregiver employment situations and it’s nearly unanimous in favor of employee because the family has control over the schedule their caregiver has to work, the duties they must perform and they have the ability to hire back-up care if their caregiver is unable to work on a particular day,” says Tom Breedlove, Sr. Director of Care.com HomePay.

An independent contractor, on the other hand, would be dictating to you when they’re available to work, would have specific procedures for how they will do their job and would have a network of contacts to fill in for them if they had to miss a day on the job.

How the Department of Labor defines employees versus independent contractors

Like the IRS, the Department of Labor (DOL) can pursue employers that are not following the law. The DOL looks to the Fair Labor Standards Act to give guidance on whether a worker is an employee or an independent contractor and there are different criteria for both distinctions. The DOL has seven factors to consider when classifying a worker, but for household workers, two stand out the most:

  1. The permanence of the job. When an employee accepts a job, they will continue to be employed until their employer lays them off, terminates them with cause or they quit. An independent contractor has a set of duties they will perform over a certain timeframe and it’s understood that they will leave when the job is complete.

  2. Economic dependence. An employee is generally dependent on their job for financial stability. Independent contractors are self-employed so they are providing their services to several different clients at the same time. Losing one client is not ideal, but will not generally cripple their business.

“This distinction may be part of the reason why employees are eligible for unemployment benefits if they’re laid off due to no fault of their own, but independent contractors are not,” adds Breedlove.

Read the full story at 1099 vs. employee: Why the difference matters when you hire a caregiver – Care.com HomePay

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