1. Higher Education
Hiring Household Employees:
An ever increasing need
but not without accompanying regulatory requirements
James R. Hanna, CPA, CVA

2. www.smartdevine.com 1
Today, families are faced with an increased need
to hire nannies, gardeners, maids, executive
chefs, house cleaners and private nurses to help
to run their households. Those responsible for
hiring household employees need to be aware of
important, pertinent considerations, to include
regulatory requirements, in order to minimize
present and future complications.
Sometimes, hiring decisions are based on friendly
recommendations of well-meaning friends or
neighbors, accompanied by stellar opinions on the
worker’s honesty, work ethic, and their very
reasonable charges for household services.
Accepting such references as the total basis for
making a hiring decision can be deceptively risky,
resulting in problems which may surface well after
the worker has been hired, or, even more
seriously, after his/her termination.
Before you hire
Prior to extending an offer of employment, one
should begin by seeking guidance on budgeting all
costs involved in engaging household help.
Attentiveness to periodically changing regulatory
requirements and related costs for household
help, mandates securing answers to questions
such as:
■ Is the candidate a United States citizen or a
properly documented resident alien, eligible to
work in the United States?
■ Has an acceptable background check
clearance been obtained with respect to legal
matters?
■ Is the candidate insurable for liability and
worker’s compensation?
■ Are compensation arrangements and IRS
reporting requirements clearly understood?
Additionally, the following topics will need to be
properly addressed:
■ Complying with federal and state minimum
wage requirements;
■ Maintaining required records for the
household worker’s labor hours worked;
■ Filing quarterly, and year-end tax reporting,
for the worker(s) and the employer;
■ Procuring insurance protection for the
employer and the worker;
■ Optimizing income tax planning for the
employer to avoid losing valuable tax credits
available in the case of child care; and
■ Reducing all terms and conditions in a letter
agreement to be signed by all parties.
Background Check
A background check conducted by an
independent, reputable, specialty firm is essential
for any stranger who is permitted access to one’s
home. Customarily, household workers are
trusted without question, and have free range of
most, if not all, of the rooms in the home. Under
the auspices of allowing household cleaners to
perform the required tasks, or permitting maids
and private nurses to be of maximum service,
unlimited access, premise-wide, is typically
permitted. However, this can result in exposure to
mail, valuable papers, personal possessions,
family heirlooms, and even inadvertent divulgence
of information believed to be secure on a home
computer.
In the case of hiring a nanny, most parents are
diligent about conducting a background check.
However, investigating the integrity of the firm

3. www.smartdevine.com 2
conducting the independent background search is
imperative, since the well-being of the entire family
is at stake, as amply illustrated by the following
vignette.
Mount Desert Island, Gladwyne and
Palm Beach Reality
A young professional with a family of four needed
live-in help for an aging grandfather. The live-in
was required to have a flexible schedule in order
to travel between multiple homes every few
months. In order to find a trustworthy household
employee, the family retained a local recruiting
firm to help with their search. After many
interviews, the family found a match for the
grandfather’s needs. The recruiting firm provided
the family with a satisfactory background check
report, and the employee, “Felicity,” moved into
the grandfather’s three homes.
Unbeknownst to the family, the background report
provided by the recruiting firm had been fabricated
– “made up” without any foundation! After a few
weeks, when Felicity had settled into her position,
she began to intercept the grandfather’s mail and
completed pre-approved credit card applications
in the grandfather’s name.
For months, she perpetrated a fraudulent credit
card scheme, borrowing money for herself, from
credit card companies in the name of the
grandfather, in amounts just below limits sufficient
to escape detection. Once the fraud was
discovered, the family hired an attorney and
suffered not only losses from the fraud but
significant expenses to restore the grandfather’s
credit.
Record and Time Keeping
Compensation that is paid in cash, in the absence
of proper reporting, presents a minefield of
potential problems. Complications can extend
from the current inability to procure proper liability
and worker’s compensation insurance due to
improperly maintained payroll records to
unexpected claims for social security benefits,
traceable back to an employment relationship of
some earlier era when cash was paid but no
withholding funds were remitted to the social
security fund. Some individuals may try to
sidestep the entire question of employment taxes,
attempting to establish an independent contractor
relationship, as opposed to an employment
relationship. Please beware - although the
difference between the two may appear subtle, the
IRS has established very clear, well established
guidelines.
Finally, a clear definition of work expectations and
compensation must be understood by all parties.
For example, depending on the level of payroll
funding, an employer who provides room and
board as part of overall compensation, may
inadvertently fail to meet minimum wage
requirements even though the combined value of
room, board and the dollar payments far exceed
the minimum wage requirement.
When engaging household help, exposure to risk
arises right from the beginning of the hiring
process, continues as long as services are being
provided, and often extends well beyond
termination of the relationship.
SMART DEVINE provides the specialized
guidance needed to eliminate unpleasant
surprises and ensure manifold employment
hurdles are addressed. Beginning with legal
formalities to include citizenship documentation
and adoption of appropriate employment, payroll
and income tax practices, we can assist in
controlling the risks associated with having
household help working within one’s home. As a
result, peace of mind is attained by establishing a
harmonious, legal working relationship with the
prospective household employee right from the
very outset of service arrangements.

4. www.smartdevine.com 3
About the Author
James R. Hanna, CPA, CVA
Managing Director
With over 40 year’s public accounting experience, Jim has the versatility to provide
long-term strategic planning solutions for owners of closely-held businesses as well
as to provide critically important lifetime financial planning solutions for individuals.
His vast range of business experience spans individual income tax planning,
business valuation, complex estate and trust planning, and forensic investigations.
Suitable as an advisor for every life cycle stage, whether in the course of business
entity selection, merger guidance, succession planning, or sale of an entity, Jim
provides solutions that are directed towards growth, accumulation and protection
of wealth, with preservation achieved using an independent watchdog protection
protocol.
Jim is a graduate of Georgetown University where he earned his Bachelors of
Science in Business Administration. He is a Certified Valuation Analyst and a member of the National Association
of Certified Valuation Analysts, the American Institute of Certified Public Accountants and the Pennsylvania
Institute of Certified Public Accountants. As President of the Dad Vail Regatta Organizing Committee, Jim
oversees staging the largest annual collegiate rowing regatta in North America.
For more information contact Jim at 267.670.7450 or email at jhanna@smartdevine.com.
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James R. Hanna, CPA, CVA
Managing Director