Massachusetts court rules au pairs fall under domestic employment law
Host families in Massachusetts are scrambling after a recent ruling from the U.S. Court of Appeals for the First Circuit. The court ruled that the Massachusetts Domestic Workers’ Bill of Rights and other state labor laws apply to au pairs. Families that host au pairs under the federally regulated au pair cultural exchange program will still find the program to be one of the most — if not the most — affordable forms of child care. But the new ruling will likely raise the cost for most host families and create some new compliance obligations.
Key financial changes for families with au pairs
There are two important wage and hour law protections that will impact most host families. First, state minimum wage now applies to au pairs. Prior to the ruling, most families paid their au pair the State Department’s minimum stipend amount of $195.75 per week (plus meals and lodging). Now, the Massachusetts minimum wage ($12.75 per hour in 2020) will apply to au pairs and families must track every hour they work to comply with the law. Families can decrease the number of hours their au pair works, but they still have to comply with the federal minimum stipend threshold of $195.75 per week, which amounts to just under 16 hours worked per week at the minimum wage rate.
Note that host families may deduct up to $77 per week for meals and lodging in order to reduce minimum wage requirements. However, this reduction should be accepted voluntarily by the au pair in writing and reported on each paystub. Additionally, if meals and lodging are used to reduce minimum wage, that value must be reported to the state and IRS for tax purposes.
The second major financial change for host families is overtime. Under Massachusetts law, if a domestic employee works more than 40 hours in a seven-day work week, the hours over 40 must be paid at 1.5 times the regular rate of pay. In 2020, based on a minimum wage of $12.75 per hour, that would mean $19.13 per hour. Au pairs are not allowed by law to work more than 45 hours per week, but this overtime requirement may cause families to look at schedule adjustments in order to try to reduce their au pair’s weekly hours to 40 or less.
Other labor law changes au pair host families need to know
In addition to the wage and hour law changes mentioned above, host families now need to make sure they comply with other Massachusetts DWBOR requirements. If the au pair works 16 hours a week or more, host families will be required to obtain a workers’ compensation insurance policy, provide a written work agreement, issue pay stubs to their au pair every pay period, and make sure they provide adequate time off for rest and sickness and track and report it correctly. A list of all these laws can be found on Care.com’s Massachusetts state requirements page.
Tax reporting obligations for families with au pairs
Families with au pairs have fewer tax obligations than most household employers, but there are a few obligations that are worth noting:
- Au pairs and their host families still have a significant tax advantage by being exempt from Social Security and Medicare (FICA) taxes. That means each party saves 7.65 percent in taxes. Also, host families are exempt from paying federal unemployment taxes.
- Families must withhold the Massachusetts Paid Family Leave tax from their au pair’s pay. They should also withhold federal and state income taxes each pay period so their au pair does not have a large tax obligation at year-end.
- If income taxes are withheld, families should report the wages on their federal income tax return (Form 1040) using a Schedule H. Families should also provide their au pair with a Form W-2 so they can prepare their 1040-NR at year-end.
- Families are required to pay state unemployment insurance taxes and a Workforce Training Fund tax. These taxes are remitted to the state each quarter along with the withheld employee taxes.
The court’s ruling is good for au pairs, but will raise weekly payroll costs for many host families. How much will depend on how many hours the au pair is asked to work.
While this ruling may seem like a blow to many host families, the good news is that, even in a worst-case scenario, au pairs are still one of the most affordable forms of child care. The hourly minimum wage in Massachusetts is far below the market rate for nannies. And when families comply with all the household employment requirements for au pairs, they can take advantage of child care tax breaks to significantly lower their tax liability.