I must say that practicing “Nanny Law” is not my favorite part of employment law. “Nanny Law” is the term I use for household workers (caregivers), whether they be those who care for babies, kids, elderly parents, or those who function as sober companions or drivers. The reason I don’t enjoy Nanny Law is that these individuals are often referred by trusted friends to care for a loved one, a very personal task. They change diapers (for babies and the sick), they bathe, they sooth, they hold hands. When the Nanny and the individual to be cared for get along, the family wants to make it work. Often the Nanny prefers to be paid off the books, sometimes in cash, almost certainly without deductions for payroll taxes, and almost always without time records, paystubs and pay that complies with the byzantine requirements of California law. It all works fine, until it doesn’t. And that’s when I get the call.
Maybe the Nanny took something from the household. Or didn’t properly care for the individual in their charge. Or is generally unpleasant and doesn’t get along with the family. Or the child has outgrown the need for that Nanny, or the elderly person under their care has passed away. Whatever the reason, it is time to separate employment.
Sometimes, it is fine. Everyone goes their separate ways. But sometimes the Nanny realizes they were not paid consistent with California law, and then the family feels “extorted” when they ask for back pay to cover overtime, meal premiums, unpaid sick time, etc.
Let me be clear. It is not legal to pay a Nanny as a contractor, without payroll taxes, or without any paperwork. Even if that is what the Nanny requested, negotiated, or even demanded. Paying this way is a risk for the household employer. What I care about is that household employers know and understand that risk, so when the Nanny makes a demand upon exit, they know that the gig is up, and they must pay now what they didn’t pay before.
Some households try to mitigate risk by hiring caregivers through a third party, an agency that is the formal employer. But again, let’s be clear. Unless the agency indemnifies the host family, the host family is almost certainly liable as a joint employer and can be sued for any underpayments by the agency. Some agencies are on the up-and-up and will defend such claims for the host family, but others are not sufficiently funded, and they are quick to pass the buck.
Given all of this, if you or someone you know is a household employer, here is some very practical advice depending on your risk tolerance:
- NO RISK OPTION:
- Seek assistance from employment counsel or a qualified CPA, and pay as an employer, with a W2, and with deductions for taxes (and accompanying payroll taxes).
- Keep time and pay records. Provide meal and rest breaks. Get attestations of hours worked and breaks taken.
- Consider implementing an arbitration agreement and confidentiality agreement (especially if the household involves celebrities or other high profile targets).
- Do all of the things an employer is required to do in California.
- MITIGATED RISK OPTION:
- Pay as you will, but understand the risk associated with it.
- Still consider implementing an arbitration agreement and confidentiality agreement, as well as periodic payments in exchange for a release (while the worker is employed and happy).
- HIGH RISK OPTION:
- Pay as you will, and deal with it when and if it becomes an issue.
- Hope for the best.
Whichever option you pick, do it with full understanding of the associated risks. And please don’t be surprised or hurt when/if it backfires. It may be that you actually saved money in the long run, even with a negotiated payout upon the worker’s exit. And also remember, the law requires overtime pay (and other associated requirements); it was your choice as the employer not to pay it.