employee if the agency is responsible for who does the work and how it is done. But if you find a cleaner through an agency or association that merely provides a list of housecleaners and does not regulate the hours of work, collect the pay, or set the standards and methods of work, the cleaner may very well be your employee. Likewise, if you hire anindividual on the basis of a referral from a friend or neighbor, it’s very possible that the cleaner is your employee.
Employee Versus Independent Contractor (Non-Employee)
There are good (or at least practical) reasons to prefer that your housecleaner
not
be your employee: It’s less complicated and less costly. When someone is your household employee, you must collect, report, and match Social Security taxes, and sometimes pay federal unemployment taxes. Worker’s compensation coverage must be provided for also.
Obviously it’s much easier for you to call the housecleaner a non-employee or self-employed person. The proper term in this case is an independent contractor. If your housecleaner is an independent contractor, you do
not
have to withhold or pay any payroll taxes or file any employment reports or forms. All those things are the responsibility of the housecleaner—not you.
How Do You Tell the Difference Between an Independent Contractor and an Employee?
Ah! There’s the rub. A typical example of an independent contractor is a lawyer hired to write a will. Although you are paying the lawyer, you don’t have much control over his or her work—for example, how to write the will or what specific hours to work. And as long as the lawyeris doing the job properly, it won’t be simple for you to dismiss him or her until the job is completed. For the IRS, control over the work of another person is probably the most important single distinction between an independent contractor and an employee.
In the case of housecleaning, if a worker performs services that are subject to your will and control—in terms of both what must be done and how it must be done—then that worker is your employee. It doesn’t matter if you actually exercise this control as long as you have the legal right to control both the method and result of the cleaning services. Nor does it matter if you call the housecleaner an independent contractor. Nor does it matter if the housecleaner works full-time or part-time.
A few characteristics of an
employer
of a housecleaner are that the employer:
• has the right to discharge the cleaner
• supplies the cleaner with tools and a place to work
• directs the cleaner’s work by means of instructions
• sets the hours or day of work
• or pays by the hour or day, not the job.
A ruling in any one of these traits may mean that your cleaner is an employee of yours. (For a list of all twenty factors the IRS takes into consideration, see IRS Publication 937—“Business Reporting.”)
If you treat an employee as an independent contractor and you shouldn’t have, it’s possible that you’ll get a bill for all of your housecleaner’s Social Security taxes plus a fine of 100 percent!
Keeping a Secret
So, you ask, who cares about all this? You have no problems, right? You like your housekeeper and he or she likes you, and your way of paying wages has been working out just fine. So far.
Problems can and do arise a few years down the line when your housecleaner reaches retirement age and wants to start collecting Social Security benefits. If no one has been paying into that Social Security account, the housecleaner has no basis for collecting benefits.
Of course, what happens next is a stimulating discussion between the housecleaner and the IRS representative: The housecleaner has spent the last twenty years cleaning houses, so where are the retirement benefits that she or he has worked so hard to collect? Let’s assume the housecleaner had paid income taxes every year, as many do. But no one had ever paid into his or her Social Security
Employee Versus Independent Contractor (Non-Employee)
There are good (or at least practical) reasons to prefer that your housecleaner
not
be your employee: It’s less complicated and less costly. When someone is your household employee, you must collect, report, and match Social Security taxes, and sometimes pay federal unemployment taxes. Worker’s compensation coverage must be provided for also.
Obviously it’s much easier for you to call the housecleaner a non-employee or self-employed person. The proper term in this case is an independent contractor. If your housecleaner is an independent contractor, you do
not
have to withhold or pay any payroll taxes or file any employment reports or forms. All those things are the responsibility of the housecleaner—not you.
How Do You Tell the Difference Between an Independent Contractor and an Employee?
Ah! There’s the rub. A typical example of an independent contractor is a lawyer hired to write a will. Although you are paying the lawyer, you don’t have much control over his or her work—for example, how to write the will or what specific hours to work. And as long as the lawyeris doing the job properly, it won’t be simple for you to dismiss him or her until the job is completed. For the IRS, control over the work of another person is probably the most important single distinction between an independent contractor and an employee.
In the case of housecleaning, if a worker performs services that are subject to your will and control—in terms of both what must be done and how it must be done—then that worker is your employee. It doesn’t matter if you actually exercise this control as long as you have the legal right to control both the method and result of the cleaning services. Nor does it matter if you call the housecleaner an independent contractor. Nor does it matter if the housecleaner works full-time or part-time.
A few characteristics of an
employer
of a housecleaner are that the employer:
• has the right to discharge the cleaner
• supplies the cleaner with tools and a place to work
• directs the cleaner’s work by means of instructions
• sets the hours or day of work
• or pays by the hour or day, not the job.
A ruling in any one of these traits may mean that your cleaner is an employee of yours. (For a list of all twenty factors the IRS takes into consideration, see IRS Publication 937—“Business Reporting.”)
If you treat an employee as an independent contractor and you shouldn’t have, it’s possible that you’ll get a bill for all of your housecleaner’s Social Security taxes plus a fine of 100 percent!
Keeping a Secret
So, you ask, who cares about all this? You have no problems, right? You like your housekeeper and he or she likes you, and your way of paying wages has been working out just fine. So far.
Problems can and do arise a few years down the line when your housecleaner reaches retirement age and wants to start collecting Social Security benefits. If no one has been paying into that Social Security account, the housecleaner has no basis for collecting benefits.
Of course, what happens next is a stimulating discussion between the housecleaner and the IRS representative: The housecleaner has spent the last twenty years cleaning houses, so where are the retirement benefits that she or he has worked so hard to collect? Let’s assume the housecleaner had paid income taxes every year, as many do. But no one had ever paid into his or her Social Security
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