Business Responsibilities of Hiring an Employee

September 2004

It should be so simple: a family child care provider wants to hire someone to help her care for children on a part- or full-time basis. But hiring an employee is a complex process involving numerous tax, insurance, and legal issues that many providers ignore at their own peril.

What is an Employee? 

Anyone who works for pay in your home helping you care for children is your employee, with a few exceptions. Someone presenting a puppet show (or dance or swimming lessons, etc.) or other special event is not your employee. Someone who is in the business of providing substitute care is also not your employee. A substitute caregiver needs to operate as a self-employed business, meaning that they should have a registered business name, a taxpayer identification number, work for several other providers, and use their own contract. Many providers make the mistake of assuming that they can treat workers as independent contractors if they pay the person less than $600 in a year. This is not true. You have an employee regardless of how little you pay the person. 

Tax Issues

There are a number of federal and state tax issues involved when you hire an employee. As a provider, you must:  

  • Obtain a taxpayer identification number (Form SS-4)
  • Fill out Form I-9 to verify that the employee is eligible to work in the U.S.
  • Have the employee fill out Form W-4 to determine if you must withhold federal income taxes from the employee's pay
  • Withhold social security and Medicare taxes quarterly (Form 941) or annually using Form 944
  • Pay federal unemployment taxes annually (Form 940)
  • File annually Forms W-2 and W-3 to report social security and Medicare taxes (to obtain these forms, contact the IRS at http://www.irs.gov).
  • File any forms required by your state for state unemployment taxes and other state taxes
  • Pay at least a federal minimum wage of $7.25 per hour (state minimum wage laws may be higher) (Valid 9/29/15)

Your state may have rules that require you to:

  • Withhold state income taxes
  • Pay state unemployment taxes
  • Purchase workers’ compensation insurance

Contact your state department of labor further information.

When faced with all of these forms and taxes, many providers feel like throwing up their hands in frustration! (All forms can be downloaded from http://www.irs.gov) you can get help from a local tax preparer.

It's Not Just the Taxes

Although the taxes due on hiring a part-time employee may be small (about $8 in federal taxes for every $100 of salary), providers should be aware that the bigger issue to them is the risk of an employee becoming injured on the job or being accused of child abuse. To protect themselves in these situations providers should make sure that they comply with state workers compensation insurance laws, and have business liability insurance that covers their employees.

Employee Checklist

Once you have resolved the tax and insurance issues involved in hiring an employee, here is a checklist of other items you should review. 

Before You Hire:

  • Ask your insurance agent whether your business liability policy provides coverage for child abuse by all your employees or unpaid workers.
  • Contact your licensor and ask if there are any state regulations about the qualifications of the workers you hire. Your state may also require background checks.
  • Check with your state attorney general's office for guidelines on hiring and firing employees (illegal discrimination).
  • Find out if you are subject to any deed restrictions, homeowners association covenants, or zoning laws that might restrict your right to hire employees.
  • Carefully screen potential employees (criminal background check, credit check, past work references, previous co-workers references, education credentials)

After You Hire:

  • Write an employee manual that includes your state's law about corporal punishment. Your manual should also spell out your state's child abuse mandated reporting law.
  • Share your health, safety, and emergency procedures with your employees. Make sure that they understand who is authorized to pick up each child and any special custody arrangements for the children in your care.
  • Give your employees training (or send them to workshops) on child abuse and neglect, CPR, child development, and appropriate discipline measures.
  • Closely supervise your employees and conduct regular reviews of their performance. Be sure to discuss stress and how to reduce it.
  • Discuss your policies regarding privacy and your commitment to confidentiality in dealing with the families of the children in your care.
  • If your employee uses her car in your business, you can buy "hired and non-owned liability" coverage that will protect you against lawsuits if this person is at fault and hurts someone else. If your employee will drive your car for your business, make sure this is covered by your vehicle insurance policy. 

Is this all worth it? Yes. Many providers enhance the quality of their program or are able to increase their income by hiring employees. By following these steps you are also taking reasonable precautions to protect yourself from unwanted risks. For further help on the legal and insurance issues surrounding hiring employees, see my book Family Child Care Legal and Insurance Guide.

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