Employing a caregiver is a significant responsibility, and it's crucial to do it the right way. While it might be tempting to pay your caregiver "under the table" to save money or avoid paperwork, this approach can lead to serious legal and financial consequences.
Let's explore why employing your caregiver legally is not just the right thing to do, but also the smartest choice for your family's long-term security and peace of mind.
Legal Risks of Improper Employment
Lawsuit Vulnerability
When you pay a caregiver off the books, you expose yourself to significant legal risks. If your caregiver is injured while working for you, such as slipping on your property, you could be personally liable for their medical bills and lost wages. By employing your caregiver legally, you can protect yourself with workers' compensation insurance, which covers work-related injuries and illnesses.
Tax Evasion Penalties
Failing to pay proper taxes for your caregiver is considered tax evasion, which can result in substantial penalties from the IRS. Both you and your caregiver could face legal consequences for not reporting income and paying the required taxes. Failure to file or pay state and/or federal taxes could result in penalties exceeding $10,000 - or up to $100,000 and 5 years jail time if prosecuted as tax evasion.
Legal employment ensures all necessary federal, state, and local taxes are withheld and deposited throughout the year, protecting both parties from potential tax issues.
Want to learn more about payroll, taxes and compliance? Read our overview of payroll and compliance in California here.
California-Specific Employment Laws
California is renowned for its comprehensive and employee-friendly labor laws, which often go beyond federal requirements. These state-specific regulations create a unique landscape for employers and employees alike, with significant implications for compliance and workplace practices. Let’s take a look at some of the requirements of employing caregivers in California and the penalties for breaking them.
Overtime Regulations
California has strict overtime laws that apply to caregivers. Personal attendants are entitled to overtime pay (1.5 times the regular rate) for any hours worked over 9 hours per day or 45 hours per week.
Meal and Rest Breaks
California law requires employers to provide meal and rest breaks to domestic workers. While there are some exceptions for caregivers due to the nature of their work, it's crucial to understand and follow these regulations to avoid potential lawsuits.
Minimum Wage Requirements
All domestic workers in California are entitled to at least the state minimum wage, which may be higher in certain cities or counties. Paying below the minimum wage can result in wage theft claims and substantial fines
You can read more about the costs of in-home care for older adults in this breakdown by guest author, Amanda Lambert.
Penalties
In California, violations of employment laws can result in severe penalties:
- For overtime violations, employers may be required to pay back wages plus interest, and can face additional civil penalties
- Failure to provide required meal and rest breaks can result in penalties of one hour of pay for each violation
- Minimum wage violations can lead to penalties of $100 per underpaid employee for each pay period of violation, plus 25% of the unpaid wages
In fact, violating laws pertaining to overtime pay and meal/break times could cost the employer more than $30,000, and could even result in jail time if prosecuted as intentional wage theft. For instance, in 2019, a couple in California had to pay their in-home caregiver $265,000 in backpay, in addition to both parties' legal fees, when their aide sued them for breaching labor laws.
Medicaid Eligibility
If you or your loved one may need to apply for Medicaid in the future, paying caregivers under the table can jeopardize your eligibility. Medicaid has a five-year look-back period to ensure that applicants haven't improperly transferred assets. Without proper documentation of caregiver payments, these transactions could be viewed as gifts, potentially resulting in penalties or delayed eligibility for Medicaid assistance.
Benefits for Your Caregiver
Employing caregivers legally provides numerous benefits for your caregiver. A happy, safe, and secure caregiver will provide better care for you or your loved.
Social Security Credits
Legal employment ensures that caregivers earn Social Security credits, which can significantly impact their future retirement benefits.
Unemployment Insurance
Caregivers employed legally are eligible for unemployment benefits if they lose their job through no fault of their own, providing a crucial safety net.
Verifiable Employment History
Legal employment allows caregivers to build a verifiable work history, which is essential for future job opportunities and financial matters such as loan applications.
Workers' Compensation Insurance
When employed legally, caregivers are covered by workers' compensation insurance, protecting both the caregiver and the employer in case of work-related injuries or illnesses.
Access to Health Insurance
Legal employment may provide opportunities for caregivers to access employer-sponsored health insurance plans or qualify for subsidies on health insurance marketplaces.
Legal Protections
Caregivers employed legally are protected by labor laws, including minimum wage requirements, overtime regulations, and protection against discrimination and harassment.
Conclusion
While it may seem easier or cheaper to pay caregivers under the table, the risks far outweigh any short-term benefits. Legal employment protects you from lawsuits, tax penalties, and Medicaid complications while providing your caregiver with the benefits and protections they deserve. It's an investment in peace of mind and long-term security for both you and your caregiver.
To ensure compliance with California's complex employment laws, consider seeking assistance from employment counsel or a qualified CPA. Alternatively, you can find a caregiver with Clara. Clara handles all the employment overhead so you can focus on the care being delivered.
