Home Health Aide – Employee or Independent Contractor? (Part 2)
So, Mom needs a home health aide. Hire an agency or hire an aide directly? As I explained last week, some of my clients make that decision based solely on cost. They can pay an aide less than they would pay an agency. That typically is because they are treating the aide as an independent contractor.
By doing so, they are not withholding and paying taxes, including what is known as FICA. If you are a salaried employee, what you receive is a net paycheck, after taxes. Federal and state income tax withholding, Social Security, Medicare and state unemployment insurance contributions must be paid.
However, if you are an independent contractor, you are paid a gross amount and it is your responsibility to pay any taxes. The independent contractor receives a 1099, reflecting the amount he/she was paid. Sounds great. If I’m hiring a home aide, then I’ll treat her as an independent contractor. Except that it’s not my choice. The IRS has guidelines about who is and isn’t an independent contractor.
As I said last week, in some cases the line becomes blurred as to whether we have an employee or an independent contractor. If I hire an aide for a few hours a week and that aide is working for other families at the same time, that looks more like an independent contractor. The aide is offering her services to the general public and it looks more like an independent business.
On the other hand, if the aide is living with Mom in her home and working full time, she is more likely to be considered an employee. How long does the aide work for Mom? Who controls the manner in which the work is performed? Does the family direct and control how the aide does her work? If so, then it’s looking more like an employer/employee relationship.
So what are the potential problems if the aide really is an employee? Well, as I mentioned above, there are taxes that the employer should be withholding and paying that don’t apply in an independent contractor setting. But, there are other laws to be aware of.
Employers must confirm their employees’ immigration status, that they are legally permitted to work in this country. Employers must comply with workers’ compensation laws and carry the necessary amount of workers’ compensation insurance. It may also be a good idea to cover basic liability insurance.
The question I often get is, “what are the chances that the IRS will come calling?” It’s impossible for me to answer. I haven’t had, or heard of, an instance in which the government went after a family in a home care situation, but that’s not to say it has never happened. The risk is there, to be evaluated by each family. And it’s why we recommend avoiding the issues entirely by hiring a home health agency. The agency hires the aides. Problem solved.