If you decide to hire an individual– not a company or agency– to work in your home, the question arises as to whether the worker is considered your employee or an independent contractor. The answer will make a big difference in which tax laws and other rules you have to follow. Generally speaking, you have more responsibility for an employee than you do for an independent contractor.
To complicate matters, there’s no one definition of who qualifies as an “employee.” Different government bodies have different definitions, which you’ll have to familiarize yourself with in order to follow the appropriate laws.
The IRS and state tax agencies’ definition of an employee determines whether you’re required to pay and withhold taxes from your worker’s paychecks.
State and federal labor departments’ definitions of who is an employee are key in determining whether your employees are entitled to certain protections, such as minimum wage and overtime provisions, to which independent contractors are not entitled.
State unemployment insurance or workers’ compensation boards’ definitions of “employee” matter because, someday, the worker may file for unemployment or be injured on the job, and you’ll need to have insurance to cover these situations.
In general, the more control you exercise over the worker, the more likely it is that you’ll be considered the “employer” by any of these agencies. If you hire the person to work certain hours, direct what the person does and how it’s done, and the person works only for you, you’re probably an employer. A nanny you hire to watch your children each day will more than likely be considered your employee.
On the other hand, if the person offers services to the general public, furnishes the needed equipment or tools, and controls how and when work is done, the person is more likely an independent contractor. Gardeners or trained professionals like electricians are commonly independent contractors.
Usually, if you hire a company to do the work, the company will send over qualified workers and be in charge of paying them. It’s not uncommon to hire companies to clean your home or garden or to service your pool.
Hire a worker through an agency. If you want a skilled professional but don’t know where to look or want one already individually vetted by a third party, you can hire through an agency. For commercial projects it may even be a good idea to consult an attorney.
Other agencies may charge you a fee to find you a qualified employee, but you will be the employer and handle these tasks. This is common when hiring a nanny.
Hire an individual. If you want to screen and select your own service provider, pay and negotiate directly, and direct the person’s work, your best bet is to hire an individual. As we’ll explain below, you have more obligations as the employer if you elect this route.