Independent contractor/1099 classification in home care
Employees versus Independent Contractors
In general, the difference between independent contractors and employees is whether or not the entity paying for services has the right to control or direct the manner and means of work. If a home care agency pays a caregiver an hourly wage to perform personal care and oversees their work, the worker should usually be classified as an employee.
Labeling caregivers as independent contractors
Home care agencies frequently mislabel their employees as independent contractors. As a business owner, it is important to note that independent contractor misclassification is payroll fraud. Numerous courts have found home care companies' classification of their workers as independent contractors to be improper because few home care workers are truly running their own business.
Home care workers perform work that is an integral part of a home care agency’s business and generally have little, if any, ability to set their duties, hours, and wages. Agencies and other entities maintain the ability to intervene if the level of services provided does not meet expectations, and they typically interact with the clients to recover payments and set up the care or services needed.
Correct classification of workers as employees is key to avoiding legal consequences.
Implications and consequences of 1099 status
Being classified as an independent contractor, also known as having 1099 status, has many consequences. If a home care agency treats a home care worker as an independent contractor, that person is considered to be running his or her own business and this means that the individual is responsible for:
Paying upfront the employer and employee-side of Social Security and Unemployment (FICA and FUTA) taxes, along with income taxes. W2 employees, in contrast, pay only half of that rate and the other half is paid by their employer.
Additional state and local tax and reporting burdens placed on any worker running their own business, including requirements to pay for workers’ compensation and other state licensing and insurance requirements for businesses.
Calculating and remitting quarterly estimated self-employment taxes in addition to filing an annual return, as well as any individualized business tax deductions and credits.
Only workers who run a separate business should be classified as independent contractors. Workers who are paid an hourly wage to provide services through an entity, such as a home care agency whose business is to arrange and oversee the services delivered by the worker, should generally be classified as employees. Courts have found that agencies that treated their home care workers as independent contractors have violated the law.
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