So, your elderly parent or grandparent has hired some full-time help to assist with things around the house. Basic medical needs, daily upkeep of the home, or merely to take them on outings to the local coffee shop. You’re worried about this arrangement because your parent/grandparent may be paying the person under the table and doesn’t even know it. Should they be withholding taxes as an employer, or is it the responsibility of the helper as an independent contractor? There is an answer, and it may not be what you are hoping for.
The IRS breaks down the difference between employment and independent contractors into three categories. 1) Behavioral Control, 2) Financial Control, and 3) Relationship.
Each of these categories then has subcategories. However, for basic informational purposes I am going to provide the general meaning of the three categories as they fit towards the above stated hypothetical.
1) Behavioral control is determined by who has the right to direct and control the work performed by the worker, even if that right is not exercised. In the situation of a home health aid or home care assistant, while you want them to have experience and an understanding of their profession, it is ultimately your parent/grandparent who is directing the services to be performed. I.e. when to eat, what to eat, nap time, when to go out to the movies, what they may want to wear. Obviously the level of assistance needed will affect the type of services and amount of need; however, you do not want this new person in your family member’s life making every waking decision for them and virtually controlling their every move. The point of such assistance is so that your loved one still has a level of independence. As for behavioral control, that belongs to the hiring party, and that means employee.
2) Financial control is determined by what measure of control or direction the hiring party has over the financial and business aspects of the worker’s job. Sure it would be great if the person who was hired to assist paid whenever they went out to eat, or bought groceries out of the goodness of their heart, or buys a bouquet of flowers to liven up the kitchen. However, you and I both know that if any one of these situations came about, the hired person is going to want to be reimbursed. The equipment used for doing laundry, the car used for going to the store, the gas in the car. If it is not provided directly by your loved one, your loved one will be paying for the use of the equipment and/or tools necessary to perform the service; and that means, employee.
3) Relationship is decided as to how the worker and the hiring party perceive their interaction with one another. Are there any benefits provided by the hiring party for the hired person? Is the length of the service for a predetermined length of time? Is the service to be performed for a single specific job or an ongoing repetitive service? All of these are examples of the relationship agreed upon by the parties. If there is an exact set date of completion i.e. Monday June 30, 2019, or upon the complete healing of a broken clavicle, then you are looking at an independent contractor. If there is a continuous service to be completed with set rate of pay bi-weekly/monthly etc. for the duration of one’s life, one’s termination, or one’s resignation, then you guessed it, employee.
Above are a few of many examples of the difference between an employee and an independent contractor. One of the easiest ways to avoid the issue altogether is to hire from a home care service. If a service is not an option, reach out to your local tax attorney and discuss the necessary forms to be filed so that you and your loved one remain tax compliant.