Caregiving: How To Lose Everything By “Saving Money” – Part 1

A Cautionary Tale, Based On A True Story

Tom and Helen Conway loved their home, their family and their life. Raising three wonderful children in their home and having Helen’s widowed father living nearby, they were the storybook American family. Tom’s thriving downtown art gallery and Helen’s successful online advertising agency provided a very comfortable income for the family and their life was wonderful…

This is the first installment a story that I wrote for FamilyAffaires.com, published in installments, about what can go wrong for you and your family when you hire caregivers privately (or through non-employer “referral agencies” or “registries”), if you do not know and follow the various state and Federal labor laws and tax withholding and reporting laws.

Many people don’t know that when they are “household employers” they are responsible for following virtually all the laws that apply to commercial employers.  Those laws include wage and hour laws, minimum wage laws, overtime pay laws, payroll tax withholding laws and more.  

To be honest, a lot of families probably don’t bother with all that.  They figure that there’s little risk that anyone will report them.  They especially don’t expect their household workers, such as housekeepers, nannies and caregivers, to report them because the workers and the families all agreed to the arrangement.  

This is often referred to as the “underground economy”.  No taxes, no pesky labor laws, no one gets hurt.  Right?  Well, not so much any more.  Families may not always get caught, but there is a growing likelihood that they will.  And when that happens, the worker always ends up better off.  The worker never pays any back penalties or wages or taxes.  But, oh my goodness, the family sure does.  And the worker often ends up receiving a portion of these penalties that the family has to pay.

First of all, state and Federal governments are cracking down on this “underground economy” more and more because they are being cheated out of taxes.  Let’s face it, the government hates being cheated out of taxes.

Second, other powerful special interest groups also are increasingly lobbying for more ways to end the underground economy.  These entities, such as labor unions and health insurance providers, want to end the underground economy because when workers are paid “under the table”, they’re not paying other things like union dues or health insurance premiums. 

Finally, there are more and more attorneys who specialize in suing middle-class families on behalf of workers, demanding back wages and overtime, plus penalties and interest, when the families have assets or income that make them an attractive financial target.  In some ways, that may be the greatest threat to these families, perhaps more probable than running into trouble with the government. 

Think this all sounds far-fetched?  Read and see for yourself:  Caregiving: How To Lose Everything By “Saving Money” – Part 1, published on FamilyAffaires.com.

Photo by Horia Varlan