Part 4: How to reduce your client’s liabilities with their payroll and workers comp options.

Note: This post is part of an educational E-Series for Care Managers that outlines the Legal, Financial, and Practical sides of private-hire live-in care. Every other week, a new set of questions will be addressed. 

In Part 1 and Part 2 of the series, we learned when private live-in care is an option for your clients, and just as importantly, when it is NOT an option. In Part 3 we learned about what are the major costs involved.

Today, in Part 4 of the e-series we will discuss:

How Payroll and Workers Compensation Insurance are Managed on the Private Market.

When we first ventured into the “hidden world” of private-hire homecare many years ago, it seemed that the vast majority of clients and caregivers had agreed on either cash payments (off the books) or if on the books, it was paid as a 1099 independent contractor. With either case, there was rarely a formal written contract and the terms were verbal.

It was like the Wild West, with little enforcement of the few regulations that actually existed at the time. Much has changed in the last decade, some for the better, some for the worse, but overall the private-hire industry has mainly come out of the shadows and gone legit for those families who are willing to pay the extra upfront cost of lowering their long term risks and liabilities.

In last week’s blog, I referenced a survey that we sent out to over 1000 private-hire live-ins across the country during the first quarter of 2019. Within those results was the breakdown of how families paid the live-in caregivers. Between cash, 1099, and W2, what do you think the breakdown was? I will tell you that 10 years ago, it was about  95% cash or 1099, and just a trickle of W2s.

Ready? Here is today’s breakdown. The largest percent was 1099 at 37%, “off the books” was second at 33%, and W2 employee was a close third at 30%. What I read into those numbers, knowing that W2 is the most costly and perceived as the most troublesome (payroll, paychecks, tax deductions, quarterly tax filings, timesheets, overtime, etc…) is how much W2 has grown in that time, from a very small % to 30%. What is pushing this growth?

First of all, 10 years ago, the private live-in care sector was still operating like the old west. It was primarily unregulated and freewheeling.

Someone could easily find an experienced live-in for $1,000 a week. Most families would choose to pay them themselves either by cash or under a 1099 agreement. Either way, there was just one amount; it never varied, even if the live-in had to get up 10x a night, or took an extra day off one week. It was very simple, but it broke many labor laws. Griswold Homecare and later HomeHero and Honor, greatly expanded the 1099 model for paying caregivers. It quickly became the norm on the private market as well and overtook “off the books” as the number one way live-ins were paid. 

Fast forward to today, and in that time so many things have changed. In my memory, it all started around the time that the Fair Labor Standard Act (FLSA) was updated in 2013, and part of those changes in the law specifically addressed domestic live-ins, and how they had to be paid. There was a big roar from the home-care industry at the time about these new requirements. The law was put on hold until 2015, when it was finally enacted. 

The second “big thing” that has changed over the last decade, is that the federal government started putting pressure on (and providing millions of dollars for) states to go after 1099 misclassifications. The IRS and the DOL decided to join forces, and they gave states millions of dollars in 2010, and again in 2017, to set up local offices to find, educate, deter, and fine 1099 misclassifications. Griswold was forced to change from its 1099 model, Honor has morphed into a type of homecare agency back-office B2B business, and HomeHero closed its doors, not being able to compete on the w2 employee platform. 

Though you still may be able to pay an hourly caregiver by 1099 under special circumstances, it would be challenging to pass a live-in caregiver as a 1099 in today’s labor courts or IRS audits. It makes no difference if the live-in has signed a 1099 contract with the family.

“An orange is an orange even if a contract claims that it’s an apple.”

We will go more into the legal aspects later in the series, but for this section I am just trying to address the pay methods that your clients may ask you about.

Cash / Off the books

Pros: Cuts short-term costs by about 30%. The preferred method of payment on the private-hire market. Gives clients access to caregivers who don’t accept other payment methods. It’s simple and is usually based on an agreed-upon flat daily amount, ignoring the sometimes complicated labor laws.

Cons: Where do I begin? Let’s start with the obvious. It’s against the law. Your client won’t go to jail, but they risk large penalties, fines, and caregiver lawsuits. Even more scary, what happens if the caregiver gets hurt on the job? Off the books means no workers comp insurance. Will homeowner’s insurance cover it? Maybe. What if it happens while they are off the property, like when helping the care-recipient out of the car at an appointment? What happens when the job ends and the caregiver applies for unemployment? How about receipts for Medicaid spend-down? When the client applies and the state’s forensic accountants do their 5-year look back, where did all that cash go? Where are the receipts? Expect lots of delayed enrollment penalties. 

1099 Independent Contractor

Pros: Cuts short-term costs by about 20%. It’s simple and is usually based on an agreed-upon flat daily amount, ignoring the sometimes complicated labor laws. It provides receipting for Medicaid spend-down, and LTC insurance. 

Cons: In today’s labor courts, especially after a 2018 California Supreme Court ruling, it would be challenging at best to claim that a live-in caregiver is an independent contractor, and not an employee of the family. Contracting with a live-in as a 1099 may give the family a false sense of liability protection. The courts have ruled that a 1099 contract itself makes no determination on the worker’s W2 employee status.  (Toyota Motor Sales v. Superior Court (1990) 220 Cal.App.3d 864, 877). If the caregiver is treated as an employee by the family, the family risks future lawsuits or a wage claim for back pay and lost wages from the employee who they 1099’d, and didn’t pay according to labor laws. Some states allow the worker three years after the job ends to file misclassification wage claims. We will discuss this in more detail when we get to the legal part of this series.

W2 Employee

Pros: Peace of mind that you don’t have to worry about being caught and fined for employee misclassification, sued, or both. You can pay a payroll service to handle all of the employment obligations for you, and easily secure liability protection through a workers comp insurance policy. It provides receipting for Medicaid spend-down, and LTC insurance. By far, the least expensive pay method if a liability occurs. 

Cons: The most expensive for short term costs. 

Workers Comp Insurance (Liability Protection) on the Private Market

“Workers’ Compensation Insurance covers the expenses that come with an employee’s work-related illness or injury. This may include immediate costs like an ambulance ride to the ER and long-term costs like physical therapy or lost wages. There’s even a portion that covers your legal fees if an employee decides to sue.”

Luckily, workers comp insurance has become very easy to obtain for families hiring a live-in caregiver. This is mainly thanks to the large increase in demand in the private hire market, since the FLSA changes in 2015 caused many agencies to either stop offering live-in care, or greatly increase the cost of providing it.

In which states is workers comp mandatory for household employers and what are the estimated monthly costs*?

Alaska (N/A) , California ($42), Colorado ($178), Connecticut ($254), Delaware ($542), Hawaii ($268), Illinois ($190), Iowa ($175), Kansas ($126), Kentucky ($224), Maryland ($152), Massachusetts ($42), Michigan ($166), Minnesota ($150), New Hampshire ($254), New Jersey ($393), New York ($60), Ohio (N/A), Oklahoma ($237), South Dakota ($155), and Utah ($134). Washington (only required if the family has two or more full-time employees) 

*estimates based on an annual policy for a live-in grossing 77k , divided by 12 months. Does not include the insurance broker’s fees which are about $160 a yr. Some policies have a minimum premium. 

Whether your client is in one of the above mandatory states or not, it’s always a good idea to obtain a policy for your client’s liability protection, and peace of mind. Want to know about the costs your state? Call me.

How do families obtain a policy?

In all but five states, a family can obtain a policy directly through an insurance broker. In Alaska, North Dakota, Ohio, Washington, and Wyoming the family needs to request a policy themselves, directly from their state’s workers compensation bureau. 

Note: CA residents are best getting their policy as an add-on to their homeowner’s insurance. NY residents are best getting their policy through the state’s workers comp bureau website, instead of an insurance broker, as it will be half the cost of using an agent. 

 If you have a client who wants to obtain or get a quote on a policy, call me and I can refer you to someone who specializes in private-hire caregiver policies that will help them get what they need. 

Well, that’s all for this week. Now you know more about how families can pay their live-ins and get workers comp on the private market, to lower their risks of liabilities.  Please join us next week when we answer the following questions:

  • Does LTC insurance or VA Aid and Attendance reimburse your clients for a private-hire live-in?
  • Can the family reduce the caregiver’s pay for “room and board” expenses?
  • Is the family required to provide the live-in with health insurance or other benefits?

Thanks again for joining us, and for all the vacation well wishes that I received last week!

David Petroski

888-250-2631 x700

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