Domestic Staff: Risks, Rewards and Retention
By JULIA S. WEAVER, J.D., LL.M., Chief Wealth Planning Officer & Family Office Fellow and JAY E. OUELLETTE, JR., CPA, CGMA, Private Family Services Supervisor
Domestic staff. The people who care for your family, your pets, your home, legacy properties and luxury assets. Your staff sees you at your best. They see you at your worst. Managing domestic staff is unlike any other employer-employee relationship. However, for both the family’s protection and for the best interest of the staff member, it is crucial to maintain the same parameters of professional employment as in any other employment relationship, perhaps even more so.
This article focuses on areas to consider in maintaining these professional boundaries, such as compensation issues and tax implications, liability protection, resources to enhance key staff retention, as well as services available to assist families in streamlining this onerous process.
Many families use local agencies or personal references to source talent for their domestic staffing needs. Once sourced however, families should consider the scope of background checks and the proper onboarding of new staff. Ideally, this process should mimic that of the proverbial ‘corporate America,’ with an extensive background check and verified employment eligibility prior to hiring, followed by an overview of job responsibilities and all policies and procedures. For the ultimate protection of the family, and to set proper expectations for staff, these items should be memorialized in a thoughtful Employee Manual that includes compensation topics, paid time-off, behavior expectations, disciplinary and termination procedures, benefits and your policy for employee evaluations and potential merit pay raises.
In determining compensation, it is important to understand the keys to properly classify domestic staff. If a family wrongfully assumes they can compensate staff as an independent contractor, and not as an employee, the family is at risk for various employment liabilities and becomes responsible for the employment taxes due.
The IRS lists criteria for the proper classification of a worker, including the following:
Behavioral Control – A staff member is an employee when the family directs or controls the work performed.
Financial Control – A staff member is an employee if they receive a regular wage amount based on hourly, weekly or other periods of time. They are also likely to use equipment provided by the family.
Relationship – A staff member is an employee if the relationship will continue indefinitely or for a period of time, rather than for a specific project.
The burden of proof is on the family to prove independent contractor status. Using the right-to-control tests above, we find that most domestic staff are, in fact, W-2 employees. As such, a family is required to withhold Social Security and Medicare taxes and pay employer payroll taxes. Fortunately, there are an abundance of payroll resources for this aspect of domestic staffing, including online payroll service providers or a family’s CPA firm.
Further, by properly categorizing your staff as employees, they have the protection of receiving unemployment compensation should circumstances arise where your family no longer needs their services. Also, workers’ compensation insurance will reimburse your staff for qualifying medical expenses and lost wages if they are injured on the job. Without these protections in place, the family may be personally liable for such claims. Further, many homeowner’s policies exclude employees working in the home from coverage. The family must also be attentive to the minimum wage requirements in their state. The employee’s hours for all time worked should be maintained on a weekly time card, lest the family be liable for unpaid overtime claims.
Unfortunately, many families erroneously believe their work is done once they address these compensation issues. However, just as the family desires a highly professional staff, the family should provide the staff with a highly professional HR structure. By creating and educating staff on your policies and procedures, your family is better protected from wrongful termination, discrimination and harassment claims. Further, for your coveted key staff, a professional employment structure protects your family from the high financial and emotional cost of staff turnover. Retention of key talent is as relevant for your family as it is for a business.
Most families, however, are not equipped with the knowledge, or the time, to deal with HR responsibilities such as proper hiring and non-discrimination procedures, knowing the laws around mandated sick pay and paid leave programs, creating proper policies and procedures or drafting an Employee Manual, to name but a few. There are service providers, however, for outsourcing HR services for domestic staff, which can significantly reduce the risks associated with being an employer.
Some of these providers assume the role of Employer of Record for the family’s domestic staff, thereby assuming the duties, functions and risk relative to payroll and compensation, as well as HR services including health insurance benefits, 401(k) plans, Employee Manuals customized with the family’s preferences, new hire packets that ensure compliance with labor laws, mandatory maintenance of employment and payroll records, as well as ongoing HR support for the staff and guidance for the family.
Ensuring your domestic staff receives the highest level of professionalism will help your family source and retain the most professional domestic staff. Your Oxford team of advisors can guide you through the decision points and can educate your family on service providers available to enhance the successful employment of your domestic staff.
The information in this presentation is for educational and illustrative purposes only and does not constitute investment, tax or legal advice.