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Is My 90 Year Old Mother an Employer?

Written by: Jennifer L. Parent

Published in New Hampshire Society of CPAs 2014 Winter Newsletter

IS MY 90 YEAR OLD MOTHER AN EMPLOYER?

Q.  Eric and his brother want to hire 24-7 in-home care for their elderly mother so she can stay in the family home.  He found a former nurse, Nancy, who provides this care and who will bring in four other individuals to help.  However, Eric recalls hearing about a friend who had some unexpected issues with the government and taxes by going this route.  He thinks, “But all I have to do is make sure my mother issues each person a 1099 form at tax time and everything will be fine, right?”  Eric picks up the phone and calls his mother’s accountant.

A.        Once again the employee-versus-independent-contractor issue rears its ugly head.  Misclassification of workers as independent contractors was a top ten wage and hour mistake made by New Hampshire businesses last year. Because of some well-publicized cases, New Hampshire business owners are more aware of the rules that apply to accurately classifying their workers. But not every employer is a business – and Eric's mother is an excellent example.

            So when is someone who hires help of some kind an actual employer?  Would it ever even cross Eric's mother's mind that these in-home care providers may be her employees?  Would she know anything about the dangers with misclassification, or consider for a second that there is an analysis to be done?  With more families seeing to the care of elderly relatives, it is important to know how our government agencies define employment status when it comes to employing in-home caregivers, and the implications that follow.  Misclassification of workers has significant implications with respect to minimum wage, overtime requirements, unemployment insurance, federal and state payroll taxes, and workers’ compensation. There can be civil penalties, liability for damages if someone gets injured on the job, penalties for back pay, and back taxes. 

            As if this prospect is not daunting enough to a family just trying to provide care for a loved one, the government agencies who oversee employment protection and taxation in our state have different standards of what constitutes an employee.        

            For purposes of unemployment insurance, NH Employment Security has what is called the “ABC” test to determine an individual's employment status.  All three stipulations must be met for the worker to be considered an independent contractor.

A.    The worker has been and will continue to be free from control or direction over the performance of such services, both under a contract of service or in fact;

B.     Such service is either outside the usual course of the business for which such service is performed or that such service is performed outside of all the places of business of the enterprise for which such service is performed; and

C.     The person is customarily engaged in an independently established trade, occupation, profession, or business.

            The NH Department of Labor uses a seven part test for this analysis.  For an individual to be correctly classified as an independent contractor, all seven criteria must be met.

1.      The worker possesses or has applied for a federal employer identification number or social security number, or in the alternative, has agreed in writing to carry out the responsibilities imposed on employers under the law.

2.      The worker has control and discretion over the means and manner of performance of the work, in that the result of the work, rather than the means or manner by which the work is performed, is the primary element bargained for by the employer.

3.      The worker has control over the time when the work is performed, and the time of performance is not dictated by the employer. However, this shall not prohibit the employer from reaching an agreement with the worker as to completion schedule, range of work hours, and maximum number of work hours, and in the case of entertainment, the time such entertainment is to be presented.

4.      The worker hires and pays the person's assistants, if any, and to the extent such assistants are employees, supervises the details of the assistants' work.

5.      The worker holds himself or herself out to be in business for himself or herself or is registered with the state as a business and the worker has continuing or recurring business liabilities or obligations.

6.      The worker is responsible for satisfactory completion of work and may be held contractually responsible for failure to complete the work.

7.      The worker is not required to work exclusively for the employer.

            Eric needs to keep in mind that the IRS has its own rules for determining federal tax liability. It should also be noted that effective January 1, 2015, most direct care employees,  including those who provide home care services, such as certified nursing assistants, home health aides, personal care aides, caregivers, and companions, will be required to receive federal minimum wage and overtime pay.

            In Eric's case, issuing a 1099 form is not enough, and he may want to seek advice from both legal counsel and an accountant to protect his mother's interests, and meet her legal obligations. There are some other preventive measures he should consider:

·         Enter into a written contract setting out the mutual obligations and expectations.

·         Where there are multiple individuals providing care, Eric may require Nancy to form a business and obtain a federal employer identification number.  Eric would pay the business directly for all services performed and the business would pay each of the individuals and pay for the worker’s compensation and liability insurance.

·         Negotiate the price and have Nancy propose the fee allowing for negotiation.

·         Have Nancy decide who works what hours and days during the week.  The caregivers should control the care provided and training.

·         Determine if Nancy offers similar in-home care services to others.

            Meeting one test does not necessarily mean an individual is an independent contractor for all other purposes.  Given the penalties, taxes, and damages, all these factors should be considered before hiring caregiver services.

 

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