If you employ domestic services, you need to know how to handle household employee payroll. Find out the top ways to pay the in-house staff.
In the United States, there are about 2 million domestic employees who work in their homes.
If you’re thinking about adding a nanny, gardener, or housekeeper to your payroll, you need to know how to pay them.
In this article, we’ll walk you through ways to make household employee payroll a breeze. Read on to learn more.
Determine Your FICA Tax Obligations
If you’re going to employ domestic workers at your house, the first step is to determine whether or not you have a FICA tax obligation. This tax includes social security and Medicare tax, which has to be paid by employees and employers.
In most cases, you have to pay the tax, if your domestic workers more than $2100 a year, of course, this number changes each year.
You are not responsible for paying the FICA tax in the following scenarios:
- You hired the worker through an agency
- The worker works from their home and not yours
- Your spouse is the person who provides the care
- You hire a parent to help you around the house
- Your child under the age of 21 is employed by you
Get the Necessary Paperwork
On top of checking if you’re responsible for paying federal taxes at efile time, you also must have the required paperwork to have taxes withheld.
You should start by obtaining an employer identification number (EIN) which is the equivalent of a social security number for employers.
Your domestic employee will have to fill out a form for federal tax withholding known as a W4.
As an employer, you also have the responsibility to make sure your employee is eligible to work in the United States, so you need to provide an I-9 form. It’s against the law to knowingly hire a person without the proper work authorization.
Don’t forget you also have to register your employee with the state.
You could also hire a domestic worker as an independent contractor. In order to prove your employee is an independent contractor, you need to provide the IRS with a W9.
Every tax year, you need to give your independent contractor a 1099-MISC form if you paid them over $600.
Ways to Pay
You can pay your employees either by paycheck, direct deposit, payroll card, or cash.
A paycheck is an easy way to pay your domestic employee. They don’t need to have a bank account and both of you have a paper trail of the transaction. In order to facilitate the paycheck process, you can use the help of a pay stub generator.
Direct deposit is one of the most common ways to pay an employee. All you need to do is obtain your employees’ banking information, and the money can go into their account.
The only issue with direct deposit is your employees need to have a valid bank account. Not to mention, you could end up paying a direct deposit fee per transaction.
Although you can always pay your employee by cash, you should be aware the IRS could get suspicious. If you decide to go the cash route, make sure you keep excellent records.
How to Handle Household Employee Payroll
Now that you know how to handle your household employee payroll, you will feel confident about hiring staff.
Make sure you determine your tax obligations, fill out the necessary paperwork, determine if your employee is an independent contractor, and find out ways to pay them.