Mistake #1: Misclassifying the worker as an independent contractor.

If you hire someone to work in your home, the IRS considers that person to be your employee. Classifying the worker as an independent contractor (by using Form 1099) is considered tax evasion. Beware: the IRS recently announced a major enforcement initiative targeting several key industries, including household employment.

Mistake #2: Failure to properly address overtime.

Nannies and other household employees are considered non-exempt workers under the Fair Labor Standards Act. That means their employer is required to pay overtime for all hours over 40 in a 7-day work week (live-in nannies are generally an exception to this rule, although a few states require live-ins to be paid overtime as well). Overtime hours must be paid at a rate that is at least 1.5 times the regular rate of pay.

Many families try to side-step overtime by offering a salary. In their minds, jobs that pay a salary — instead of hourly — are legally able to pay a fixed amount of wages regardless of how many hours the employee works. This is true in most “white-collar,” “highly-compensated” professions because workers in these types of jobs are not prone to abuse. In the case of household workers, however, employers must make sure to properly address overtime pay.

Note about overtime: If the worker and employer agree to a salary based on a schedule that regularly includes more than 40 hours, the family should protect themselves by addressing overtime in an employment agreement that is signed by the employee. For example: Family and nanny agree to $450 per week based on a 45-hour work week. The employment agreement should specify that the weekly compensation was calculated based 40 hours at the regular rate of pay $9.47/hr plus 5 hours at the overtime rate of $14.21/hr. Additionally, it must be stated that any hours over 45 in a work week will be paid at the overtime rate of $14.21.

Overtime issues are particularly dangerous for employers because there is no statute of limitations. So former employees can file a wage dispute many years after the relationship has terminated. Back wages plus back taxes, penalties and interest can make this a very expensive mistake. The good news is a simple employment agreement makes all the worries go away.

Mistake #3: Putting a household employee on the company payroll.

Household employees are not considered direct contributors to the success of a business. And since businesses are entitled to tax deductions on payroll expense, it is an illegal tax deduction to include a domestic worker’s payroll expense as part of the company payroll and tax reporting. Instead, it should be handled separately through the household employment reporting process. If the expense is childcare related, the family can take the tax breaks associated with those wages — but it must be handled on the personal income tax return.

Based on this same logic, it is considered insurance fraud to put a household employee on the company’s group health plan.

Mistake #4: Failing to properly withhold and report payroll taxes.

Household employers are required to administer the payroll tax withholding and reporting process:

1. Establish household employer tax IDs with the proper state and federal tax authorities;

2. File a New Hire Report with your state (usually within 14 days of the employee’s start date although some states mandate the report be done within 7 days);

3. Calculate the proper tax withholdings each pay period and keep track of the totals (Social Security is 6.2%; Medicare is 1.45%; federal and state income taxes are based on the employee’s Form W-4 selections; other employee taxes vary by state)

4. File quarterly tax returns with the state and remit the employee’s state taxes along with your employer state taxes (i.e. unemployment)

5. File 1040-ES returns with the IRS and remit the employee’s federal taxes along with your employer federal taxes (i.e. Social Security & Medicare match)

6. At the end of each tax year:

6a. Prepare Form W-2 for any and all employees who had wages during the year.

6b. File Form W-2 Copy A and Form W-3 with the Social Security Administration.

6c. Prepare Schedule H and include it with your personal federal income tax return.

7. Monitor ever-changing tax and labor law and respond to notices, alerts and inquiries from the state and federal tax agencies.

Mistake #5: Failure to secure workers’ compensation insurance.

Workers’ compensation insurance provides financial assistance with lost wages and medical costs in the event that your employee becomes injured or ill as a result of the workplace or job duty. It is not required for household employers in all states (check your state or our website for a listing of requirement thresholds by state). If you are required to carry a workers’ compensation policy — or if you elect to carry one — check with your homeowner’s insurance provider first. Many umbrella policies already include coverage for domestic workers.

Note about workers’ compensation: A few states (i.e. New York, New Hampshire, and Ohio) require that policies be obtained through the state.

BONUS: When you successfully navigate these potentially-expensive problem areas, you are entitled to one or more significant tax breaks and your employee receives many critical benefits and protections.

Well, you can’t please everybody every time. This also applies to employer/employee relations. Sadly there are times when not everything goes smoothly and, regardless of the reason, the employee, for whatever reason, needs to be let go.

The circumstances surrounding the departure may be contentious or perfectly amicable. Redundancy, in particular, is often the reason for making a compromise agreement. The main point of the agreement is that when an employee leaves the company, the parting can be achieved with employment ending on agreed terms.

Having a compromise agreement ensures protection for the employer, which is why it can be a valued document to obtain. Any further future claims the employee could otherwise make may be prevented. This of course brings a great peace of mind for the employer.

A compromise agreement can be offered to a departing employee either before they leave or after employment finished. The important thing to remember is to include the words: Without Prejudice. This means that if the agreement is not accepted, its terms cannot be used as evidence in any later proceeding.

While this might be good news for the employer, shouldn’t both parties have protection rights? Yes! That’s another good reason for setting up a compromise agreement.

An employee will be offered a settlement sum – often one of the main reasons for entering into the agreement in the first place. This is limited to a specific amount but it is also customary, although not a legal requirement, for an employer to pay the legal costs incurred by the employee. In this way it ensures an employee cannot start making absurd claims, leaving the employer stripped of all funds. In order to settle the matter legally and avoid future problems, before proceeding, it is good for the employer to consider the payment figure due to the employee.

Drawing up a legal compromise agreement is a sensible decision; it offers a simple precaution, avoiding costs of tribunal proceedings that could occur at a later date.

To be valid, the agreement must be in writing and specify the claims being settled. In addition, the employee should seek independent legal advice from specialist compromise agreement solicitors. These solicitors will advise on the terms of acceptance and check that the conditions that regulate these agreements are satisfied.

Employee theft accusations can result in harsh sentences, fines, and unwanted blemishes on your permanent record. The sentences vary by the number of counts of theft as well as the total amount of financial damage caused by the theft. Many times the situations are misread and the person is unjustifiably accused.

Accusations of employee theft against you can lead to the hardship of losing your job. it is very difficult to recover from these kinds of charges. Given this tough economy, not only is losing your job a catastrophe, but finding a job as a criminal can be nearly impossible. If the conviction is unjust and false, these charges can ruin a person’s life for no reason at all. This affects not only yourself, but also your friends and family. Unfair sentencing in employee theft cases is a common occurrence in both singular and multiple charges. It is likely that hiring a defense lawyer can help you reduce or eliminate the sentencing due to stealing the employer’s property.

If you have been accused of abusing company time, stealing products from the company, taking supplies, or taking cash, you have been charged with employee theft. Circumstances of these accusations very widely, but it is important to know that you have many different ways of protecting yourself from false accusations and unfair sentences. There are many great ways of avoiding the burdens that can plague you for years to come. Helpful information on defending yourself against employee theft charges can be found at Austin criminal attorney website of Ian Inglis.

When you are an employer it is important to ensure your employees are being productive and efficient. However, it is also your responsibility to ensure that they are safe and secure, taking care to help them should they suffer an injury as the direct result of their employment. Sadly, this obligation is too often taken advantage of in the form of false workers’ compensation claims. Luckily there are steps you can take to prevent your employees from attempting this form of fraud.

No matter what field you work in or what your office is like it is possible to have employees fall victim to an injury as a result of their employment. Because of this, it is also possible to fall victim to compensation fraud no matter your field or location. The following steps can help you prevent such fraud from occurring:

• Have mandatory comprehensive safety training for all employees, which will not only help prevent accidents but it will also give all employees and employers the knowledge necessary to initially assess the validity of a workers’ compensation claim.
• Have equipment readily available that helps with physical tasks that are particularly strenuous, such as lifting items over 35 pounds in weight, which will give workers the ability to make safer choices, producing less opportunity for fraudulent claims.
• Take efforts to adequately educate your employees on the negative impacts of workers’ compensation fraud. This can effectively discourage workers from negatively impacting the business as a whole through fraudulent claims.

These simple steps can prevent accidents and the opportunity for accidents in the workplace. This can help decrease the chances for a false workers’ compensation claim to be filed. However, if you do have an employee make a claim for compensation you believe may be false, it is imperative you have legal assistance in order to protect your rights and the interests of your business.

Firing an employee is not one of those things managers and business owners look forward to when it comes to handling a business. Although it is very possible to fire an employee for all kinds of reasons, it still stands that in order to prevent lawsuits being filed against the company and in order to keep the integrity of both the company and of the employer, proper termination procedures should be looked into and observed.

First of all, the employer has to firmly discern why this kind of action should be taken. This is essential as firing someone should not come as an easy decision. With firm action and the right way to go about it, it becomes easier to handle the termination efficiently, thus avoiding the difficulty that some businesses face when having to deal with a wronged former employee.

Thus, the employer must provide a reason as to why exactly the employee’s contract needs to be terminated. Usually, this is the case when the employee has done something critical to endanger the company and its reputation or continues to perform poorly despite repeated warnings regarding his or her performance. By putting thought into the reason behind termination, it is easier to get them to understand why it is being done.

Aside from that, during the termination meeting itself, it pays to have a co-worker, usually someone from HR, to act as a witness. Throughout the meeting, the employee must be shown respect and compassion. This way, firing an employee is easier and can end on a positive note.

The Employee Retirement Income Security Act, or ERISA, was passed in 1974 to protect workers who are retiring or need to collect benefits from their employers. The law was introduced as a motion to regulate the laws regarding employee benefits, and has spawned a series of amendments and subsequent laws. In general, ERISA can be referred to in a more expansive sense, as the law is usually used to represent any workers’ benefits legal problems. However, the Internal Revenue Code also contains several similar provisions for benefits and compensation.

The primary function of ERISA is to make it mandatory for employers to inform their employees about the terms and conditions of their compensation and retirement benefits. This can also be extended to require companies to make a certain financial contribution to the well-being of their employees, namely in their compensation and retirement packages.

One of the most visible and widely used aspects of ERISA is its establishment of a more efficient judicial system for workers’ compensation cases. ERISA is commonly used when modifying the judicial administration courts that have jurisdiction over workers’ compensation cases. In addition to solidifying the basic processes of the court, it also establishes a more streamlined manner for employees to file grievances with their employer or benefit provider or appeal denied claims for benefits.

As a result of the law’s wide-reaching importance, several additional laws have been passed to address particular concerns. In 1985, the Consolidated Omnibus Budget Reconciliation Act, also known as COBRA, provided extended coverage plans for employees. In 1996, the Health Insurance Portability and Accountability Act, or HIPAA, reinforced worker’s rights to file certain medical insurance claims, even with some pre-existing conditions. While these are the major amendments, other important laws have refined the original piece of legislation.