RISKS AND BEST PRACTICES WHEN HIRING CAREGIVERS
by: Begley Law Group
by Thomas D. Begley, Jr., Esquire, CELA and Marianne Johnston, Esquire
The employment of a caregiver for an elderly or disabled person is often handled on an informal “handshake” basis. This arrangement is fraught with risk. The article will discuss some of those risks and set forth some best practices to avoid them. If all laws and best practices are not followed, the individual making the hire could be held responsible for significant financial penalties and the eligibility of the disabled or elderly person for governmental benefits may also be jeopardized. Considerations include the following:
- Is the caregiver an employee or an independent contractor? Different rules apply. The answer is usually employee unless the caregiver is hired through an agency. The U.S. Dept. of Labor considers the following 6 factors in determining employee status under the Fair Labor Standards Act:
- the nature and degree of the potential employer(s) control;
- the permanency of the worker’s relationship with the potential employer;
- the amount of the worker’s investment in facilities, equipment, or helpers;
- the amount of skill, initiative, judgment, or foresight required for the worker’s services;
- the worker’s opportunities for profit or loss; and
- the extent of integration of the worker’s services into the potential employer’s business.
- Tax Responsibilities. While the typical handshake agreement usually involves “under the table” payment, this results in substantial risk on the part of the employer. The employer is responsible for withholding, depositing, and reporting employment taxes. These include the following:
- Federal Insurance Contributions Act (FICA). FICA taxes fund the Social Security and Medicare systems. The tax applies whether the worker is part-time or full-time.
- Federal Unemployment Tax Act (FUTA). This tax funds the federal unemployment system. The FUTA tax rate is 6% and it applies to the first $7,000 of wages paid to an employee each year.
- State Unemployment Tax Act (SUTA). SUTA is state unemployment insurance tax that funds the state unemployment system. The rate and tax base varies from state to state. Both New Jersey and Pennsylvania have SUTA tax.
- Medicare Tax. The Medicare tax rate is 2.9% of income. The employer pays half, 1.45% of wages, and the employee pays the other half.
- Federal Income Tax Withholding. The employer must withhold tax from the employee’s wages and deposit those periodically.
- Non-Tax Employer Responsibilities. Non-tax employer responsibilities include the following:
- Worker’s Compensation Insurance. If the caregiver is injured on the job, the employer is responsible. Obtaining worker’s compensation insurance to cover this possibility is good practice.
- Paid Medical Leave. Employers must provide paid medical leave for qualified medical and family reasons.
- Paid Family Leave. Employers do not contribute financially to this program but must allow the employee time off when appropriate.
- Minimum Wage. Employers must pay the minimum wage. The federal minimum wage is $7.25 per hour, and that is also the minimum wage in Pennsylvania. However, in New Jersey in 2023 the minimum wage is $14.13 per hour.
- Overtime. If an employee works more than 40 hours per week, overtime rates apply.
- Immigration Status. Employers must check the immigration status of each employee, including caregivers, and complete a Form I-9 to verify the identity and employment authorization of individuals hired for employment in the United States. This includes citizens and non-citizens. Both employer and employee must complete the form.
NOTE: It is important to understand that the employee cannot waive any of these tax or non-tax protections.
- Best Practices.
- Perform Background Checks. Performing a criminal and credit background check before hiring a caregiver will reduce the risk of having your loved one become the victim of physical, sexual and/or financial harm. A background check cannot be conducted until after a conditional offer of employment has been extended. Employees must be presented with federal and relevant state disclosure notices and sign an authorization form consenting to the search.
- Put it in Writing. A written agreement that spells out the scope of the work to be performed and the arrangement for compensation is a must.
- Retain Records. Keep detailed records of the work performed and the compensation paid.
- Handle Terminations Carefully. Termination is usually difficult, but in some instances handshake agreements become legal headaches.
- A disgruntled employee may report tax and labor law violations to government agencies and file lawsuit against employer;
Denial of Medicaid benefits. Medicaid law presumes an applicant’s payments to individuals whether by check or in cash are gifts subject to penalty unless the applicant can prove receipt of fair market value of goods or services. The imposition of a Medicaid penalty means the applicant will not receive benefits for a certain length of time.
- Penalties for violating employment laws can be significant and come out of the employer’s pocket. While handshake agreements are simple, they do not offer protection if the employer is sued or the loved one needs Medicaid benefits. Compliance with IRS and labor laws and following best practices are vitally important.