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How the California Domestic Worker Bill of Rights Affects Families

by Breedlove October 7, 2013

Recently, California Governor Jerry Brown signed AB 241, the Domestic Worker Bill of Rights, into law effective January 1, 2014. Originally the bill included provisions for overtime, off-duty meal breaks and a 30-day notice of termination.

The off-duty meal breaks and 30-day termination notices were struck from the final bill. However, the new law stipulates that all domestic employees in California will be entitled to overtime.

The specific overtime requirements will vary depending on the type of worker. For most families, the following overtime stipulations will apply to their employment situation.

Personal Attendants (nannies, baby nurses, senior caregivers, etc.)

·         Live-Out – Overtime is required if the employee works more than 9 hours in a day and/or 40* in a 7-day workweek.

·         Live-In – Overtime is required if the employee works more than 9 hours in a day and/or 45 hours in a 7-day workweek.

* Federal law governed by the Fair Labor Standards Act (FLSA) entitles all live-out domestic workers to overtime rates for all hours worked over 40 in a workweek. Therefore, the weekly overtime threshold of 45 hours mandated in AB 241 is only applicable to live-in personal attendants.

All Other Domestic Workers (housekeepers, personal assistants, chefs, estate managers, etc.)

·         Live-Out – Overtime must be paid to the employee if they work more than 8 hours in a day and/or 40 in a 7-day workweek.

·         Live-In – Overtime is required if the employee works more than 9 hours in a day.

NOTE: There are additional overtime requirements for employees that work 12 or more hours in a day or 6 or 7 consecutive days in a workweek. Please call our office for details if this employment situation arises for you.

Financial Illustrations of the Cost Impact to Employers

Not all families with overtime situations will be impacted by these changes. If a family employs a nanny 5 days per week and she works 10 hours per day, her payroll will not change:

2013 Wages                                      2014 Wages
Hourly Rate = $16/hr                      Hourly Rate = $16/hr
Regular Hours Worked = 40          Regular Hours Worked = 40
Overtime Hours Worked = 10       Daily Overtime Hours = 5
                                                           Additional Overtime Hours = 5

Total = $880                                     Total = $880
(40 X $16) + (10 X $24)                   (40 X $16) + (5 X $24) + (5 X $24)

However, if the same family employs a nanny 3 days per week and she works 11 hours per day, her payroll will be affected by the 2 additional hours of daily overtime each day she works:

2013 Wages                                     2014 Wages
Hourly Rate = $16/hr                     Hourly Rate = $16/hr
Regular Hours Worked = 33         Regular Hours Worked = 27
Overtime Hours Worked = 0        Daily Overtime Hours = 6

Total = $528                                    Total = $576
(33 X $16)                                        (27 X $16) + (6 X $24)

As you can see from the above illustrations, these changes may not affect many families. However, if you need any assistance with this new overtime legislation, please give our office a call. We're here to help! 

A Toast to Nanny Appreciation Week

by Breedlove September 27, 2013

This weekend draws a close to Nanny Appreciation Week – a time to show the hard-working, unsung heroes of our society how much we appreciate the effort they put into caring for our children. We hope you’ve shown your caregiver how much you appreciate the way she cares, instructs, teaches, nurtures, inspires and protects your loved ones.

We also want to thank all the families that give the gift of professional pay to their nanny year-round. It is one of the best things you can do for her because she has all the protections and benefits that other professionals enjoy (retirement income and insurance through Social Security and Medicare, unemployment benefits, etc.).

Questions and Answers about the Affordable Care Act for Household Employers

by Breedlove September 17, 2013

Beginning October 1, the first stages of the Affordable Care Act will go live. Americans looking for health insurance will have access to an online health insurance exchange where they can compare policies and ultimately purchase a plan that suits their individual needs. Because this is a new change to the way health insurance is administered, many families are confused or concerned about how the changes will impact them as a household employer.

To help these families feel more comfortable moving forward, we’ve created the following Frequently Asked Questions for household employers:

What is the Affordable Care Act?

The Patient Protection and Affordable Care Act, commonly referred to as the Affordable Care Act, is a federal statute which was signed into law in 2010. The statute is primarily aimed at reducing the overall cost of health care and decreasing the number of uninsured individuals living in the United States by enacting a number of different mandates, subsidies and tax credits.

Am I required to offer health insurance to my employee(s)?

No, employers are not required to offer health insurance if they employ fewer than 50 employees. However, you are required to provide your current employee(s) and, at the time of hire, any future employee(s) with notice of the new Health Insurance Marketplace.

Is my employee required to have health insurance?

Yes, beginning in 2014, your employee may be charged penalties if she does not have health insurance coverage. However, you are not responsible for making sure your employee has health insurance.

What is the Health Insurance Marketplace?

The Health Insurance Marketplace, or The Marketplace, is a “one-stop shop” where individuals can compare and purchase health insurance policies. Open enrollment for The Marketplace begins on October 1, 2013 for coverage beginning January 1, 2014. Your employee(s) will be able to purchase health insurance through The Marketplace until open enrollment ends on March 31, 2014. For more information on The Marketplace, or to complete an online application for health insurance coverage, please visit www.HealthCare.gov.

How much will health insurance cost?

The cost of health insurance will vary depending on your state and the amount of coverage your employee chooses. After completing an application through The Marketplace, your employee will be able to compare prices and coverage options for   different health insurance policies. Depending on your employee’s income and family size, she may be eligible for the Advance Premium Tax Credit if she purchases insurance through The Marketplace. The credit can be applied directly to her monthly premiums which results in immediate cost savings. If she qualifies for the Advance Premium Tax Credit, her savings will be reflected in the prices displayed on The Marketplace.

If I contribute to my employee’s health insurance policy, will I be eligible for any tax breaks?

If you set up a health insurance policy for your employee through SHOP (Small Business Health Options Program) on the Marketplace and pay at least 50% of your employee’s premiums, you may be able to take advantage of the Credit for Small Employer Health Insurance. To take this credit, you’ll attach Form 8941 to your personal income tax return. Beginning in 2014, the credit will increase to up to 50% of the contribution you pay. For more information regarding the requirements for contributing to health insurance, please contact our office.

Changes to Healthcare Law May Benefit Families

by Breedlove August 20, 2013

A new era of health insurance is set to begin on January 1, 2014. The Patient Protection & Affordable Care Act (also known as "ObamaCare") will usher in dramatic changes to coverage requirements and policy procurement. This month, The Legal Review takes on a different look as we demystify our new universal healthcare system and examine its effect on household employment.
 
Coverage Requirements
 
Next year, every U.S. citizen will be required to have health insurance coverage - either their own policy or through a spouse, parent or group plan. The consequences for not having coverage will be a fine, which will become increasingly punitive over the next few years. Unfortunately, many household employees currently don't have health insurance - due to expense, difficulty obtaining coverage or simply a lack of perceived need.
 
Beginning October 1, 2013, each state will provide access to an online health insurance exchange, which will provide a marketplace where individuals can compare health insurance plans and purchase a policy that suits their needs. Links to the exchange in each state can be found on our state-specific web pages.
 
How Employers Can Help AND Save Money
 
While household employees will be required to have health insurance coverage, household employers are NOT required to offer or pay for the coverage. However, Congress has created incentives for employers to make health insurance contributions part of the compensation package.
 
First, the employer contribution is considered non-taxable, so neither the employer nor the employee is required to pay any taxes on that portion of the compensation.
 
Second, families are eligible for a health insurance tax credit (HITC) - as long as they pay for at least half of their employee's health insurance premium and the annual wages they pay to the employee (or average annual wages if they have more than one employee) is less than $50,000. Currently, the HITC provides a tax credit of up to 35% of the employer's health insurance contributions. However, this credit will increase to a maximum of 50% starting in 2014.
 
The combination of non-taxability and tax credit make employer-paid health insurance a very attractive benefit option for most families. Take a look at the following example to see how a nanny's income and a family's cost can be affected by the family covering the full cost of a health insurance policy at $300 per month (or $3,600 annually):

 

 

As you can see, the nanny takes home more money and the family saves money. It's a win-win for both family and caregiver.
 
How Families Can Pay for Insurance and Receive the Credit
 
Generally, a household employer is not able to set up a group health insurance policy to offer their employee. Instead, the employee should find and purchase an individual policy of their choosing. The family may pay up to the entire monthly premium for their employee and should make payments directly to the health insurance company in order to keep accurate records of their contributions. At tax time, the family will file Form 8941 with their personal income tax return to claim the tax credit for their health insurance contributions.
 
What if the Employee Purchases Insurance on Their Own?
 
If a family does not wish to contribute to their employee's health insurance premiums or the employee wishes to purchase coverage on their own, they can still be eligible for a subsidy to offset the financial burden if they purchase a policy through their state's exchange. The amount of the subsidy is based on the employee's income level and will usually be credited to them at tax time. (In certain circumstances the employee may be able to receive their subsidy earlier)
 
How We Can Help
 
At Breedlove & Associates, we're always happy to help our clients understand the tax benefits of including health insurance in the compensation package and how to handle the payroll logistics. Saving families and caregivers money is our favorite part of the business!

Back-to-School Tip: NannyShare Arrangements Make Childcare More Affordable

by breedlove August 15, 2013

We talk to a lot of families who express a desire to upgrade their childcare situation from a daycare to a nanny.  They cite flexibility of hours, quality & consistency of caregivers, exposure to illnesses and convenience as the primary reasons to make the transition.


With 2 young children, the cost of a nanny can be reasonably close to the cost of daycare – so the decision is pretty easy.  With 1 child, a nanny is quite a bit more expensive, making it difficult for many families to make it work financially.

For this reason, NannyShares have become very popular.  By splitting the cost of a nanny, more and more families are finding that high-quality in-home care is within reach. 

But, to make it work, both families need to work together to build consensus on a wide variety of issues, including diet, activities, schedule, discipline, communication, compensation and more. 

From a legal perspective, it’s important to know that each family in a NannyShare is considered an employer and, therefore, each needs to handle the “nanny tax” obligations separately.  The good news is that each family gets to take advantage of the childcare tax breaks, which typically more than offset the employer tax costs in NannyShare situations (visit our free nanny tax calculator for an estimate of your employer taxes and tax breaks).

The bottom line is that NannyShares can be a great solution for hard-working families trying to get the quality of a nanny at a price that is comparable to daycare.

Nanny Hiring Tip: Capitalizing on Tax Breaks

by Breedlove August 14, 2013

When families start the nanny hiring process, there are lots of questions about the cost.  Are there tax breaks available?  Which one should I use?  Are there income restrictions?  How much should I budget?

 

Here’s what you need to know. 

 

All families who pay their employee legally are entitled to at least one tax break, regardless of their income level.  The only restrictions are that the children under care must be under age 13 and both parents must pass the “work-related test,” meaning each is employed, looking for employment or a full-time student.

 

For many families, the tax savings offset most of the employer tax cost.  For some, the savings can even exceed the cost of their employer taxes (yes, it’s possible to come out ahead financially).

 

Here are the two childcare tax breaks: 

 

1) Dependent Care Flexible Spending Account (FSA). Many companies offer their employees the option to contribute up to $5,000 of their pre-tax earnings every year to an FSA. Because paying nanny taxes qualifies as a childcare expense, you can take advantage of paying these expenses tax-free. Depending on your marginal tax rate, this tax break can save as much as $2,300 per year.  If you think your company offers an FSA program, we recommend that you talk to the benefits manager about enrollment.  Open enrollment usually occurs in the fall for the subsequent tax year, but there are exceptions for life-changing events such as the birth of a child that may allow you to enroll in this tax year.

 

2) Child and Dependent Care Tax Credit. Household employers are entitled to a 20% tax credit on childcare expenses of up to $3,000 for one dependent ($600 savings) or up to $6,000 for two or more dependents ($1,200 savings). You can claim this tax credit by completing IRS Form 2441 as part of your personal income tax return at year-end.

 

Notes:

If you only have one dependent under age 13, you’ll have to choose between the two tax breaks.  For most families the FSA is the best option. 

 

If you have two or more dependents under age 13, you can take advantage of both tax breaks if your childcare expenses were greater than your FSA contribution. Excess expenses (up to the $6,000 expense limit) may be applied to the Child and Dependent Care Tax Credit on Form 2441.

 

To calculate your employer budget, visit our free Nanny Tax Calculator.  With these significant breaks, most families find that paying a nanny legally is not only the right thing to do, it’s also the wise thing to do.

Back-to-School Tax Tip: Worker Classification and Your Tax Responsibilities

by breedlove August 13, 2013

It may seem like summer vacation began a couple of weeks ago, but back-to-school season is here and many parents are getting a head start on their nanny hiring process. Here at Breedlove & Associates, we want to arm you with all the information you’ll need to budget correctly and make the right tax and payroll decisions.


The first thing to understand is that the IRS considers nannies, senior caregivers, housekeepers, etc. to be employees of the families for whom they work. Some families make the mistake of misclassifying these workers as independent contractors (by providing them with a Form 1099 at the end of the year).  This legal error can be very expensive for both parties – the employer is exposed to tax evasion charges and large IRS penalties while the employee has a higher tax rate and fewer benefits. Instead, families should report wages paid to their employee using Schedule H and provide her with Form W-2 at year-end.

You may be wondering how much to budget for employer taxes. The good news is, thanks to tax breaks, it’s probably much less than you think. The employer taxes fund benefits for the employee (i.e. Social Security, Medicare, Unemployment) and average about 9% of the gross wages. The childcare tax breaks can offset most of that 9% cost – some families even come out ahead. There are several factors that will affect your individual employer budget. Use our free Nanny Tax Calculator for a quick estimate. Most people are pleasantly surprised.

Finally, there’s quite a bit of confusion surrounding the terms “gross wages” and “net pay.” Gross wages refers to the amount paid to an employee before her taxes have been withheld. The government requires that all compensation be reported in terms of gross wages. Net pay (a.k.a. “take-home pay”) is the amount the employee gets each payday after taxes have been withheld. When discussing compensation with a prospective employee, we strongly encourage families to use gross wages. If you want to help an employee understand what her net pay will be, feel free to run scenarios with her using our Employee Paycheck Calculator or print out sample paystubs.

Hopefully, these tips and tools will be helpful. If you have questions, please don’t hesitate to give us a quick call at Toll Free 1-888-273-3356. We’re here to help.

Business Payroll is no Place to Pay a Nanny

by Breedlove July 10, 2013

We often speak to families who think that adding a household employee to their business payroll provides an easy, one-stop solution. However, doing this is illegal in almost all instances and there are several snags that can come up when household and business payroll are not maintained separately. The following case illustrates one of them.

 

The Mistake

A family in Colorado hired their first nanny to care for their two children. The family owned a small business with 10 employees and had been told it would be okay to add the nanny to their company’s payroll. They wanted to “make things easy” as well as provide the nanny with access to their company’s healthcare plan. The placement agency the family worked with thought this seemed out of place and advised the family to call Breedlove & Associates for a second opinion. Unfortunately, the family never called and set their nanny up as an employee of their business.

 

The Law

Business owners are allowed to take a business tax break on their company’s payroll expense because the employees are direct contributors to the success of the business. The IRS has ruled that household employees are not direct contributors to a business and, therefore, their wages – as well as the accompanying care-related tax breaks – must be handled through the personal tax process. In addition, household employees cannot be filed with a business’ employment tax returns (unless it is a sole proprietorship or for-profit farm).

 

Furthermore, company group health insurance policies may not include non-employees. If a household employee is interested in health insurance, the nanny must obtain an individual policy. However, just like a commercial employer, a household employer can contribute up to 100% of the employee’s health insurance premiums and have it be considered non-taxable compensation. This means that neither the family nor the nanny would pay any taxes on that portion of her compensation. As an added bonus, as long as the family covers at least 50% of their household employee’s health insurance premiums and their nanny makes less than $50,000 a year, they can take a tax credit of up to 35% of their total yearly contribution.

 

The Mess

Approximately six months into the relationship, the nanny broke her ankle while skiing one weekend. She required surgery and an overnight hospital stay which resulted in around $20,000 in medical expenses.  The insurance company ultimately discovered she was a nanny and refused payment on the grounds that she was not an employee of the company and, therefore, not covered by the group health plan. The nanny was distraught with the thought of having to cover these medical bills and contacted the family.

 

Having remembered the conversation they had with their placement agency, the family contacted Breedlove & Associates to try to find a solution. A consultant informed them that their nanny needed to have an individual health insurance policy in order to be covered for the majority of her medical expenses. Additionally, the family needed to establish themselves as household employer with the IRS and Colorado state tax agencies to accurately report their nanny’s wages and take the correct tax deductions.

 

The Outcome

The family felt horrible that their payroll mistake caused their nanny so much stress. Because they were so happy with the work she was performing and because it was their mistake, they paid their nanny’s medical expenses. The family also had to pay their CPA to amend their business tax returns for the previous two quarters in order to reverse their illegal payroll deductions.

 

Because their CPA was not familiar with household employment taxes, the family signed up with Breedlove & Associates to process their nanny’s payroll going forward. We filed two quarters of late Colorado state income and state unemployment tax returns to catch the family up on their tax obligations. The family had to pay interest on their late tax payments, but we were able to get the state penalties waived for them once we explained why the tax returns were late.

 

The family continues to employ the nanny and even pays for 75% of her health insurance premiums.

 

How the Whole Thing Could Have Been Avoided

Had the family taken their placement agency’s warning about adding the nanny to their business payroll, they would have avoided this extremely expensive experience.  As the husband said to the Breedlove & Associates consultant who helped him, “My gut told me to call you months ago, but I convinced myself that it was not a big deal. I wish I had it to do over again!” Many well-intended families have made this mistake based on advice they received from a trusted source. This case serves as a reminder that tax and employment law for households is unique and outside of the core competencies of most tax professionals.

We Are Here to Help - Everyone!

by Breedlove July 9, 2013

As millions anticipate wedding bells on Modern Family, we’ve already started to experience the impact of the Supreme Court’s recent decision on the Defense of Marriage Act (DOMA). Last week, a same-sex married couple that files jointly on the state level was able to complete the filing status portion of our registration without any confusion.

If you need to change your filing status, just give us a call and we’ll be happy to make the adjustment for you.

Happy Belated Birthday to the FLSA!

by Breedlove July 3, 2013

Last week was the 75th anniversary of the passing of the Fair Labor Standards Act (FLSA). Although it was originally drafted in 1932, most of the worker rights were adopted on June 25, 1938. For household employees, the FLSA holds special significance because it specifically distinguished domestic employees as “non-exempt” workers, meaning they’re entitled to many protections, including minimum wage standards and overtime pay (time-and-a-half) for hours over 40 in a 7-day work week.

 

With Domestic Workers’ Bill of Rights legislation being debated in a number of states, many people don’t realize that our federal wage and hour law has been providing many of the proposed worker protections for 75 years.  Happy Birthday, FLSA!

 

If you have any questions about labor law and how it applies to your employment situation, please give us a call. We’re here to help!



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