You Might Be an Employer and Not Know It
The line isn't clear, but here are the legal guidelines
on March 19, 2018
Updated on May 17, 2022
Are you an employer? Hiring people to work for you—a gardener, caretaker, even potentially a babysitter—could make you a small business owner, with all the risks and responsibilities that come with that role.
The New York State Department of Labor warns as much on its website: “You may genuinely believe that you have hired people to perform services for you as independent contractors. You may discover that by law they are considered employees and that you are liable for unemployment insurance contributions and interest.”
Top employment attorneys warn the same.
“The rules that apply to IBM, can make you responsible for health insurance or enrollment in retirement plans,” says employment and labor attorney Laurie Berke-Weiss, of Berke-Weiss Law. “Some very nice people have ended up in my office because the nanny they hired went on maternity leave, applied for disability and health care coverage, discovered there was none—and they got hit with a hefty fine.”
“People often confuse these relationships, because the work is more personal in the home,” says Jane B. Jacobs, of Klein Zelman Rothermel Jacobs & Schess. “They see it as quasi-employment, but only employers see it that way.”
That’s the bad news. The worse news? The line between contractor and employee is a little fuzzy—and dependent on several factors, including how much supervision and control you have over the employer plan and the employer offer.
“Whether someone is an employee or an independent contractor can be vague and is a difficult analysis,” Berke-Weiss says. Federal law and labor departments apply multifactor tests, which may change over time. “Basically, at the heart of this issue is who controls the employee’s work, health plan and retirement benefits or is the individual economically dependent on the employer?”
If in doubt, you can check with a lawyer or the New York State Department of Labor.
New York law does exempt casual babysitters from being considered employees, but “there is no such exemption for ‘casual labor’ under the age of 21 doing yard work and household chores in the employer’s home,” says Berke-Weiss. “Therefore, even young leaf-rakers and snow-shovelers should be paid minimum wage and overtime. This is true even though the New York tax law and unemployment insurance law exclude babysitters and casual labor from their definition of employment.”
There are, however, “many traps for the unwary which exist for all employers,” she says, “let alone for individuals who hire babysitters, nannies, cleaners, et cetera for their homes and families.”
Jacobs notes, “Some people hire sitters to be on call, meaning that they definitely work X hours a week but are paid for more than X hours to guarantee their availability the rest of the time. I think that person would likely be an employee.”
If it turns out you do have an employee, certain responsibilities go along with that. “The bottom line is, even with just one employee, the employer is responsible for withholding for state and federal taxes,” says Sandra W. Cohen, of Cohen & Buckmann. “You also need state unemployment and disability insurance. These requirements differ by state, and New York state requires both.” You also need to confirm work-eligibility status by requesting proof and documenting the worker’s status.
As an employer, you are required to contract for and record hours, wages and sick days. “The biggest mistake, from a legal standpoint, is not being clear what you will be paying and how you will be paying,” Jacobs says. You should also ask your accountant or hire a payroll company to set up proper tax and payroll systems.
“The reality is that every day, people are complaining they haven’t been paid correctly,” Berke-Weiss says. “And they have rights. If you don’t follow the requirements of the state of New York and the federal government, frankly, you are living with a cloud over your head. At some point, the rain is going to fall.”