By: Trevor D. Large, Partner 

April 2013

It may seem simple to hire a landscaper, housecleaner, companion for an elderly parent, or any other type of domestic worker.  However, if not done properly, this seemingly innocuous act can create numerous legal and financial issues, leading to significant liabilities.

What if the person you hire to clean your house or maintain your yard is an illegal alien? What if either asks to be paid in cash and doesn’t report the income? What if the roofer falls off a ladder and breaks an arm? What if the window cleaner drops a bucket from the second story onto a visitor to your home? What if the tree surgeon miscalculates and a limb crushes your neighbor’s car? What if the exterminator assaults a visitor? What if the caregiver steals the silverware? What if, what if, what if . . . ?  These questions are complex, and cannot fully be explained here.  However, some of the key issues are addressed below.  If you have further questions, please contact your attorney.

INDEPENDENT CONTRACTOR VS. EMPLOYEE 

Typically, household workers are hired as independent contractors, not as employees.  This is a very important distinction.  Independent contractor status can eliminate many employment and liability issues. An example of this would be, if you hire a plumber from Angie’s List of the Yellow Pages to repair a leaking pipe, and you provide no specific instructions regarding how you want the pipe fixed, you’ve likely hired an independent contractor.  However, substantial problems can arise when someone who the law considers an employee is hired by you supposedly as an independent contractor.  This mistake can lead to fines and expanded legal liability.

The employee/independent contractor determination largely hinges on the level of control you can (not just do) exert over the worker (and not on how you choose to describe the relationship, your payment scheme, or the worker’s full-time/part-time status).  If you can control not only what work is done but also how the work is done, you’ve likely hired an employee. For example, if you hire a housekeeper and require the housekeeper to scrub the kitchen with your cleaning supplies and to polish your table according to your methods, that housekeeper may work for you as an employee, notwithstanding your or the housekeeper’s intentions.

If the worker is actually an employee, you will be responsible for withholding and remitting employment taxes to both state and federal authorities, depending on the total wages earned by the worker and other factors. In addition to potential tax consequences, the classification and/or misclassification of an employee has several employment law ramifications.

EMPLOYMENT LAW

If you’ve hired an employee, you must comply with all applicable employment laws, including unforgiving wage and hour laws.  This means you must pay your employee an amount at least equal to minimum wage for every hour that your employee works, as well as overtime compensation, when required.  If you anticipate that your employee will work overtime (more than 8 hours in one day or more than 40 hours in one week), even if your employee “agrees” to a weekly pay rate, you should structure a written compensation agreement that complies with the law.

For example, if you and your employee agree on a weekly salary of $600 for a 45-hour work week (9 hrs per day x 5 days), the employment contract should explicitly state that the employee earns, e.g., $12.63 per hour for the first 40 hours, $18.94 per hour for five hours of overtime work each week, and $18.94 per hour for any additional hour of overtime work.  In addition, depending on the total number of hours worked, overtime can reach as much as two times the regular hourly rate.  So, it is advisable to avoid paying employees overtime, where possible.  Be warned that if an employee is misclassified and/or treated by you as an independent contractor, you could be responsible for overtime (as well as other potential tax penalties) that should have been, but was not paid to the employee.

Employees are also entitled to regular ten minute rest breaks (that you must pay for) and meal breaks (at least one-half-hour of uninterrupted time that you need not pay for).  If you have not properly allowed your employees to take rest and meal periods, you are potentially liable for a one-hour penalty for each rest/meal period missed by the employee.  Again, this pitfall is another reason that properly classifying your workers is so important.

AGREEMENTS

Entering into an employment agreement with a domestic worker enables you to document the parties’ expectations at the outset and can prevent problems from arising later.  At a minimum, the contract should cover work hours, hourly compensation, job responsibilities and duties, benefits, house rules (such as no smoking indoors), payroll frequency, tax treatment, confidentiality (so your employee doesn’t share your family’s secrets), and a statement that their employment is on an “at will” basis, which means that either party may terminate the relationship at any time for any legal reason.  Note, however, that an improperly worded agreement can lead to unintended consequences or liability.  We recommend you consult an attorney.

As mentioned above, when you hire someone to work at your home, such as a house painter, you will likely be engaging the worker as an independent contractor. Quite often, an independent contractor will propose that you sign a form contract.  It is advisable to review any proposed contract carefully to ensure that you are not agreeing to be held financially responsible for issues beyond your control.

IMMIGRATION STATUS

In addition to the issues discussed above, another concern is immigration law. Be aware that the burden of hiring an employee who is authorized to work in the United States falls squarely on you, not the employee.

A Social Security number is necessary to prove eligibility to work. In some instances, a taxpayer identification number may be provided along with a Social Security number. At this time, it is not considered proper to question the status of the worker further. Basically, you’re only allowed to ask if the worker is eligible to work in the United States, and you’re not allowed to ask where the worker was born or where the worker’s parents were born. If the potential worker cannot provide evidence of eligibility to work, it is not legal for you to employ that person.  Filing the proper paperwork to document employment eligibility is a requirement for all employers.  If you have concerns or questions, check with an attorney.

EMPLOYER LIABILITY

If your employee is injured at your home, you may be held individually liable under certain circumstances. If you know a throw rug has a tendency to slide out from under people, and you don’t warn the housekeeper, the housekeeper could try to hold you liable for injuries sustained in a fall. If you hire a roofer and give the roofer a ladder you know may be unsafe, you better hope that ladder doesn’t collapse with the worker on it.

If you have any employees, it is mandatory for you to have workers’ compensation insurance.

Some insurance policies contain specific exclusions for injuries occurring to employees or independent contractors.  Read your homeowner’s insurance carefully to determine what coverage it provides as you may need protection.

You can also be held accountable for the negligent acts of a domestic employee if those acts cause injury to another person or damage someone’s property.  For example, the housecleaner might invite a visitor into the home just after waxing the floor. If the visitor isn’t warned of the condition of the floor and falls, the homeowner could potentially be held liable.

Will your employee be driving your vehicle as a part of the job?  If so, you may be responsible for any damage or injuries caused if the employee has a collision.  Even if the employee will be driving his or her own vehicle, you could potentially be liable for his or her negligent conduct or for negligent entrustment if you don’t properly check the employee’s driving record and criminal background.

Generally, the vehicle’s insurance is primary, and the driver’s insurance is secondary. This is why you should give careful consideration before letting an employee drive your vehicle.  At a minimum, verify documentation evidencing that your employee has a valid driver’s license and has automobile liability insurance before allowing them to drive on your behalf.  An “umbrella” insurance policy providing coverage over and above your automobile and homeowner policy limits is recommended.

AGENCY ALTERNATIVES

A good alternative to consider is arranging for your domestic workers to be hired through a licensed agency. A reputable agency will provide workers who are bonded and insured, will ensure they are paid consistent with law and the agency will have both reviewed the immigration paperwork and performed background and reference checks on the worker.

Generally, these employees will be covered by workers’ compensation insurance through the agency, which would remove most financial concerns of any on-the-job injuries. Although it will be a little more expensive to use an agency, doing so can provide you with valuable peace of mind. If you do use an agency, carefully review the contract to see exactly what protection the agency offers you and what personal exposure you may still have.

CONCLUSION

Retaining a domestic worker touches on several areas of law. You should think through all the potential problems that might arise and take all reasonable precautionary actions.  Consult your legal professional for the best way to proceed.

Trevor D. Large, Partner

TLarge@BFASLaw.com

(Direct) 805.966.7716

DISCLAIMER:  This Advisor is one of a series of business, real estate, employment and tax advisories prepared by the attorneys at Buynak, Fauver, Archbald & Spray, LLP. This Advisor is not exhaustive, nor is it legal advice. You should discuss your particular situation with us or with your own attorney. Our legal representation is only undertaken through a written engagement letter and not by the distribution of this legal Advisor.