“Can I pay my nanny or housekeeper as an independent contractor rather than an employee?” This is a frequently asked question. The simple answer is, it depends, but probably not. It is often advantageous to hire an independent contractor rather than an employee. After all, with an independent contractor, you are not responsible for getting an employer ID number, checking immigration documents, getting unemployment and workers’ comp insurance, and most of all – paying taxes.
However, you may not legally be able to call your nanny or housekeeper an independent contractor, regardless of the contract or terms you and your worker agree upon. For example, if you are in charge of what work is done, how it is done, the equipment that is used, and if you are the only family she works for, you have an employee. It does not matter whether she works full time or part time or whether she is paid hourly, weekly or in a lump sum.
On the other hand, if your worker controls how and when the work is done, provides her own supplies and works for multiple families, she is probably an independent contractor. For example, your weekly window washer is probably not your employee, but your Monday – Friday babysitter probably is. There is an exception: If you pay an agency to provide a worker, such as a home healthcare nurse, and that agency determines her pay rate, scope of work and controls payment of her salary, your home healthcare nurse is probably not your employee.
Now here’s the hard part: There is no single definition for who is considered to be an “employee.” The IRS, unemployment bureaus, workers’ compensation bureaus, and state and federal labor departments each have different guidelines for identifying an employee. However, all of these agencies consider the amount of control the worker has over the job she is doing. As a result of the numerous agency guidelines, beware of the many tax, insurance and wage implications that are determined by the distinction between independent contractor and employee. Keep in mind, also, that you must pay at least the state minimum wage to your domestic employee, and she may even qualify for overtime.