Automobile insurance provides coverage for family members who cause injury or property damage while driving an automobile. Unfortunately, there are many exclusions and exceptions. A nanny is PROBABLY covered while she is driving the family’s automobile, but to be safe, the family should add the nanny to the policy as an additional insured.

Since a nanny is not a family member, she is not covered by the family’s automobile insurance while she is driving her own car. This can be a significant problem if the nanny is in an accident while driving on family business. The law considers an employer to liable for an injury caused by an employee while doing their work. This is what is referred to as “vicarious liability”. The family’s automobile insurance will not cover vicarious liability and the family can be held personally responsible for paying any damages that are more than the nanny’s coverage limits. Therefore, either the family should not let the nanny use her own car while she is working or, if she will be using her own car, the family should make sure that the nanny has, or buy her, coverage limits at least equal to the coverage limits on the family’s automobile.

Another concern is whether the nanny is driving her own automobile as part of her job. If so, the nanny’s insurance may not provide coverage. Automobiles that are used in a job are assumed to be on the road more and therefore they are more likely to be in accidents, so an automobile insurance policy that provides coverage for business use has a higher premium. A nanny who regularly drives family members as part of her duties may find that this is considered business use and that she has no coverage for an accident that occurs while she is working, especially if providing transportation is part of her contract or she is paid extra for the use of her car or reimbursed for gas/mileage. To be safe, the nanny should check with her insurance agent about including business use in her automobile insurance policy as the premium difference (if there even is one) usually is not very much.

In summary, when it comes to nanny insurance, it is very important to know what is covered, who is covered and how much coverage you have. This can only be done by carefully reading the policy and the “coverage selection” page or “declaration sheet”. Furthermore, is it advised that you double check with your insurance agent to ensure you are covered in any given circumstance!

Have any advice regarding this issue?  Please comment below and share!

Employee or Independent Contractor?

As a nanny, you are always considered the employee of any family you work for (regardless of how many hours).  The IRS allows families to employ nannies without putting them on payroll, if they pay the nanny less than $1,700 per calendar year.  This law is primarily to allow families to have temporary nannies and not have to deal with payroll.  As a nanny, you are required to claim all the wages you make throughout the year.  It is a good idea if you do a lot of temporary work to keep a notebook and log all the families you work for, and how much you made.  If this is your primary source of income, you will want to keep aside a portion of every dollar to pay for your tax portion in April.

Gross vs. Net Pay:

When looking for a long term job, it is very important to understand the difference between Gross and Net pay.  Gross refers to PRE-TAX dollars, and is how most families will make a job offer.  Net pay refers to your take home pay after your tax contribution and your employer’s contribution.  For more information regarding this click here.

For calculating your Gross vs. Net pay click here.

Legal vs “Under the table” Pay:

Being paid legally and advocating for yourself to be paid legally is extremely important.  Not only does it provide you with a verifiable employment history, but you also will have unemployment insurance as well as social security and Medicare benefits.  For more information click here.

For more information, feel free to contact Breedlove & Associates. They are willing to explain this law further and answer any questions you might have.

• Employment History. A legitimate employment history is critical to daily life. It is required for a car loan, a mortgage, a student loan, a credit card application, a health insurance application, an auto insurance application, future job applications, etc. If your employment is not documented, it’s as if you don’t work.? 

A Real Life Example:?  Jill earns $2,000 per month as a nanny but is paid illegally.?  She and her husband applied for a mortgage on their first home.?  Since Jill’s employment is not documented, the bank does not count her income – and they cannot qualify with only the husband’s income.?  In order to qualify, Jill has to put her salary “on the books” and wait 6 months before submitting a new loan application.

• Unemployment Insurance. As a taxpayer, you are entitled to receive approximately 50% of your salary for up to six months if you lose your job due to no fault of your own. This benefit is free to you, as your employer pays for the cost of the program through quarterly unemployment taxes.

A Real Life Example:?  Jane lost her $500 per week job as a nanny when her family moved.?  Since Jane was paid legally, she receives $250 per week in unemployment benefits while she looks for a new job.? 

• Social Security/Medicare Benefits. Every taxpayer contributes 7.65% of their wages into their retirement account with the Social Security Administration. In addition to the employee’s contribution, the employer provides a dollar-for-dollar match. With these employee and employer contributions, plus the compounding of interest over time, employees will accumulate a significant nest egg which will help take care of them in their elderly years. (Nannies who are paid illegally are not entitled to any retirement benefits; sadly, there are many nannies around the country in this situation who will find it financially impossible to ever quit working).

? A Real Life Example:?  Barb earns approximately $30,000 per year.?  Over a 35-year career, she contributes about $80,000 to Social Security.?  When she retires, she will receive approximately $375,000 in Social Security benefits during retirement, assuming she lives until age 85.?  That’s a tremendous investment!

Many nannies don’t discuss this subject with their employers because they’re afraid it will be very expensive and/or difficult for their family.?  In reality, doing the right thing can be simple and inexpensive.?  Families who pay legally are entitled to significant tax breaks, which offset most – if not all – of the employer tax costs and there are services like Breedlove & Associates which eliminate all the paperwork headaches.

? Information supplied by Breedlove & Associates. Founded in 1992 – by household employers for household employers – Breedlove & Associates is a full-service, full-support tax & payroll service. ? They have served more than 11,000 clients and processed more than $1 billion in household payroll.?  For more information regarding employment taxes?  call 1-888-273-3356 or visit www.breedlove-online.com.

As a childcare professional, you have one of the most important and noble jobs in the world – to nurture, protect, educate, guide and inspire children.?  You should view yourself – and demand to be treated – as a professional.?  In part, this means making sure that your compensation is handled accurately, fairly and legally.

? This is especially important for nannies because most families who employ nannies have a limited understanding of the payroll and tax laws governing household employment.?  As a result, it is common for families to incorrectly withhold & remit their nanny’s taxes or to misclassify their nanny as an “independent contractor” by providing a Form 1099 at the end of the year. ? Both scenarios are illegal and potentially expensive and time-consuming for everyone involved.?  Worse, they end up depriving nannies of the benefits that other professional workers enjoy.

? To avoid these types of situations, it is important to understand the basics of the tax process:

• ? Your employer withholds Social Security & Medicare (collectively known as FICA) from your gross wages at a rate of 7.65%.
• Your employer also withholds federal income tax from your gross wages (the exact tax rate depends on how many allowances you choose on Form W-4 and your marital status). By withholding federal income taxes each pay period, you are making pre-payments against your year-end tax liability so that, at the end of the year, you will end up with a very small payment – or better yet, a small refund.
• The family remits your FICA and federal income taxes each quarter – along with a dollar-for-dollar match of your FICA taxes (both your portion and your employer’s portion go directly into your retirement account with the Social Security Administration…because of the employer matching and the compounding of interest, most nannies will receive nearly $5 for every $1 they contribute!).
• The family pays a few small employer taxes, including unemployment taxes, which provide you with financial assistance in case of unemployment.
• ? The employer provides you with a Form W-2 at the end of January. This form itemizes your earnings for the tax year as well as all your pre-paid taxes. You use Form W-2 to complete your personal income tax return.

………Next time we will discuss the benefits of being paid legally!

Information supplied by Breedlove & Associates. Founded in 1992 – by household employers for household employers – Breedlove & Associates is a full-service, full-support tax & payroll service. ? They have served more than 11,000 clients and processed more than $1 billion in household payroll.?  For more information regarding employment taxes?  call 1-888-273-3356 or visit www.breedlove-online.com.

?