Have you recently hired an estate manager, private housekeeper, nanny, or other employee to work in your home? If so, you have officially become a household employer and it is important to ensure your employee’s payroll and tax details are set up accurately. That means you need to pay them on the books – legally – from day one. If you decide to pay them ‘under the table’ to save on taxes, or if you only report a portion of their wages, both you and your employee could be at risk for problems later down the road.
Underreporting wages affects unemployment benefits
Unemployment benefits are based on wages recorded legally. So, if your employee needs to claim unemployment benefits at some point, and the wages that the Department of Labor has do not match what was filed legally, there will be an issue. They will need to open an investigation of the case, which will cause a delay in when your employee can obtain necessary benefits. This could cause financial difficulties for them, and it also causes stress for everyone involved.
You could face fines or penalties
Paying under the table is not legal. If you are caught underreporting wages or not reporting them at all, you may need to undergo a state audit which could uncover discrepancies that cause fines or penalties. You will also need to readjust your tax filings and pay backed taxes. This is a costly and timely process that simply isn’t necessary if you were to report everything properly from the first day of employment.
It impacts your employee
If your employee needs to rent an apartment, buy a car or house, or take a loan out for any of life’s many purchases, they need to show proof of verifiable income. This needs to be done with paycheck stubs or direct deposits. If their income doesn’t match the claim, they may not be able to move forward with purchasing things they need in life. In addition, if they are not paid legally, they may need to go back and amend tax returns and pay additional income taxes, which can be stressful and cause financial strain. And last, when your employee wants to retire, they may not be able to receive the full social security benefit amount.
Underreporting wages impacts your employee both now and well into the future. It also opens the door for you to undergo scrutiny and extra work to amend the mistake, which can be tense and time-consuming.
We know your time is valuable and that setting up tax and payroll details can be confusing. So, once you find the ideal employee after working with our team at Household Staffing, ask us about our household payroll and tax company partners. Paying your employee on time and accurately with proper taxes withheld is part of establishing a long-lasting working relationship with them. We look forward to working with you to find the right employee for your home, so contact us today!