[IMGCAP(1)]In-home, private-duty senior care is one of the fastest-growing segments of the care industry. The high cost of facility-based care, coupled with the desire to enjoy the comfort and convenience of home, makes employing a caregiver an increasingly popular option for families.
Additionally, recent legislative forces, such as the Department of Labor’s clarification on the companion care exemption, have driven up the cost of utilizing an agency for certain types of caregivers. More than ever, families are consulting with trusted experts to set budgets and understand what solution works best for them prior to hiring someone to work in their home. Many times, the result is becoming a household employer and taking on the responsibility of managing the caregiver themselves.
If you have a client who needs private-duty care for an elderly loved one, several topics need to be addressed so you can advise them on the right course of action.
Employee vs. Independent Contractor
There is a common misconception that senior caregivers privately employed in the home can be labeled as independent contractors so that payroll taxes can be avoided. However, the IRS has ruled that the vast majority of these workers should be classified as employees because the family has the right to control how, what, when or by whom the work should be performed. It does not matter how many hours they work, how much they are paid or what they are called in a work agreement. Misclassifying a household employee as an independent contractor (by providing them Form 1099 instead of Form W-2) is considered tax evasion in the eyes of the IRS.
Families that employ a caregiver—and pay him or her legally—can take advantage of tax breaks that can largely offset their employer payroll taxes. For many, the tax savings can significantly offset the cost of employer taxes. The tax breaks available to most families with caregiving needs are:
• Dependent Care Account (a type of Flexible Spending Account specifically for dependent care needs)
• Dependent Care Tax Credit (IRS Form 2441)
• Medical Flexible Spending Account (used only for medical care)
• Medical Care Tax Deduction (itemized deduction for qualifying medical expenses)
As with most tax breaks and rules, there are a few notes and exceptions:
1. In order to capitalize on dependent care tax breaks, families must pass the “work-related test,” meaning both spouses must be employed or full-time students.
2. Tax breaks are contingent on determining who the employer is and whether the person receiving care can be considered a qualifying dependent.
3. The same expenses cannot be applied to multiple tax breaks.
To accurately calculate how much a family may save by taking advantage of these tax breaks, they’ll need your help to crunch the numbers.
Other Ways to Save Money
As families budget for their care needs, it’s important to know if certain benefits will kick in to help pay for the cost of hiring a caregiver. Many seniors can qualify for assistance through Long Term Care Insurance plans or Veterans’ Administration programs.
The VA can provide pension benefits that can allocate funds to be used for home care services for a veteran and/or their spouse. Similarly, if a long term care insurance policy is in place, benefits can be paid out by the insurance company to help offset the costs associated with private care. Talk to your clients and see if they are eligible for any of these benefits as it can be crucial to setting a realistic budget for the care they need.
Wage and Hour Law
Senior caregivers are classified as non-exempt workers under the Fair Labor Standards Act. As such, families need to be aware of, and comply with, the following labor laws:
• Employees must be paid at least the federal minimum wage of $7.25 per hour for each hour in the standard workweek. Many states (and some municipalities) have a minimum wage that is higher than the federal minimum wage. In these areas, employees must be paid at the higher of the rates.
• Employees must be paid overtime for each hour over 40 in a seven-day workweek. Federal law exempts live-in employees from overtime requirements, but some states have special overtime provisions for live-in workers.
• Household employers are generally not required to provide benefits such as paid time off (although some states and municipalities have special requirements).
• In many states, household employers are required to carry a workers’ compensation insurance policy.
Please note that there are many state-specific nuances that families should be aware of. Things like daily overtime, paid sick leave and required mileage reimbursement are just some of the items families in certain states will need to comply with.
Additional Note about Companion Care
Following a Department of Labor ruling, third-party employers (senior care staffing firms) are not able to claim the overtime exemption for companionship services. Individual household employers are able to claim the exemption, but only if the worker is engaged in tightly restricted “fellowship” activities such as reading, games, crafts, conversation, etc. Any medically related services and any household work that benefits someone other than the person receiving care will disqualify your client from being able to claim the companion care exemption and, therefore, qualify the worker for overtime pay. This primarily affects senior care staffing firms, but is also a driver toward household employment compliance because many families will find themselves directly hiring a caregiver in order to reduce costs.
Understandably, your clients may feel overwhelmed by all the employer obligations. Most families don’t know where to begin. By understanding the basics of household employment, there is a great opportunity to add value to your service by proactively offering guidance in this area.
Tom Breedlove is director of Care.com HomePay, a service that specializes in handling the tax and HR obligations surrounding household payroll.
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