Many of us are paid on a fixed salary at our jobs — meaning we earn the same pay each pay period regardless of how many hours we work. So using this same logic, when families hire a nanny, senior caregiver, housekeeper, or other household employee for the first time, many assume they can pay a set amount weekly or bi-weekly. But what these families don’t realize is there are specific labor laws in place that require these workers be paid hourly and receive overtime. The difference here is huge because making a payroll mistake can potentially affect a family’s tax situation and place a damper on the employment relationship.
Why Paying Your Caregiver Hourly is Always the Right Call
Let’s start with what the law requires. The Fair Labor Standards Act (FLSA) classifies household employees as non-exempt workers, which means they are subject to minimum wage and overtime. Because overtime kicks in for most household employees after 40 hours worked in a seven-day workweek, an hourly rate of pay must be established to ensure families don’t accidentally exclude overtime from their employee’s pay. If a set salary is paid each week and the employee’s hours frequently fluctuate — as is common in caregiving situations — it’s as if the employee is making a different hourly rate each pay period.
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Imagine the confusion this could cause an employee that normally works between 25 and 27 hours each week if they suddenly had to work 45 hours per week for three straight weeks. At some point during that three week timeframe, they would probably ask the family why they’re being paid the same amount of money for working an additional 18 to 20 hours.
To avoid this potentially awkward situation, families can simply take the “salary” they were planning to offer their employee and turn it into an hourly rate based on the number of hours they expect their employee to work each week. For example, the Johnson family has a nanny that will work between 30 and 35 hours per week caring for their children. They have a $500 per week budget for care. To stay within their budget and make sure the nanny is paid appropriately, they could assume 35 hours will be the norm and offer to pay $14 per hour.
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Now that there is an established hourly rate, it does not matter how many hours the nanny works, she will be compensated fairly. At the expected maximum of 35 hours per week, the Johnsons will pay $490. If the nanny works only 30 hours, the family will pay $420 for that week. Then if the nanny ends up working over 40 hours for the Johnsons, her overtime rate is simple to calculate — it is 1.5 times her hourly rate — or $21 per hour. Ideally the Johnsons will present both the hourly and overtime rate to their nanny in an employment contract when she’s hired so everyone is on the same page.
Because payroll is so easily calculated using an hourly rate, families can file their employment tax returns with peace of mind knowing the wages they report for their household employee are accurate.
Stephanie Breedlove is the VP of Care.com HomePay, where she helps families to simplify and understand their responsibilities as employers of caregivers or household workers. She is one of the country’s leading experts on household employment tax and labor law. When she isn’t busy keeping up with her two grown boys, Stephanie enjoys spending time outdoors in and around the Austin area hiking, biking and fishing.
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