With more and more families every year having both parents work full time, there has been an increasing need for help around the house with childcare and chores like cleaning, laundry and running errands. If you’re hiring household help it’s important to understand how having domestic workers (including nannies, housekeepers, caretakers, etc.) around your home can impact not only your insurance coverage- both your auto and your homeowners- but also how it could have tax implications for you. If you don’t understand these issues, the result could be something quite atrocious.
Who’s The Boss?
No, not Tony, not Angela and not even Mona. You are the boss. Yes, that’s right- though you may not immediately think of it in those terms, if you hire a full time nanny or house keeper they will most likely be considered your employee. The IRS has criteria to help you determine who is and isn’t an employee, which can be found on their website. If your housekeeper or nanny is your employee, you are responsible for verifying their employment eligibility and paying employment taxes (notably, failure to do this has prematurely ended the careers of several politicians in the past few years). It’s important that when hiring help around the house that you determine these things up front so that you can comply with the law and avoid having to pay penalties or fines down the road. Just like you have an Insurance Agent to help you with your insurance, you should contact a tax professional with questions on the tax implications of hiring household help.
Do I need to provide my household employee with Worker’s Compensation Coverage?
It really depends on what state you live in, but most states exempt household employees from the worker’s compensation laws. However, you may have more peace of mind if you choose to provide this type of coverage voluntarily. In most cases, your homeowner’s insurance policy would provide household employees with some medical payments if they were injured during the course of their work, but it may not be adequate depending on the injury. Unless prohibited by your states worker’s compensation laws, you can voluntarily purchase a worker’s compensation policy to cover your household employees, which could provide you with some immunity from having your employee take action against you under most states worker’s compensation laws. Some states though will not allow you to enter the worker’s compensation system while at the same time exempting you from the worker’s compensation laws, in which case there is additional coverage you can add to your homeowner’s policy. This additional coverage is called the “Voluntary Compensation and Employers Liability Coverage for Resident Employees Endorsement.” Because these scenarios will vary from state to state, it’s best that you review your situation with your Trusted Choice agent, who can help you decide the best way to provide coverage for your household employees.
Are household employees covered by my auto insurance?
Whether it’s a housekeeper running to the store for more cleaning supplies or a nanny picking your kids up from school, chances are that at some point a household employee will use a car that you own. The good news is that coverage follows the vehicle, and so your auto policy would provide coverage if your employee was found liable for an accident in your vehicle. There would also be coverage if your employee was injured- unless you have worker’s compensation for them, in which case that would be the policy that would provide them with coverage.
If your household employee is driving their own vehicle they would have coverage under their own auto policy, but more importantly, so would you if they were found liable for negligent actions in the course of driving their own car while performing employment related duties. With the potential that you might be held liable for the actions of your employee, it’s critical that you know what kind of insurance coverage they have. If your employee is providing child care, you also want to make sure that their auto policy has appropriate amounts of coverage for your children in the event they are injured in an accident while in the nanny’s car. If they’ll be driving their own car, strongly consider requiring that as a condition of their employment that they have enough coverage that you feel comfortable with. An insurance agent can help obtain coverage that works for both you and your employee.
Are household employees covered by my homeowners insurance?
Some of that depends on whether the employee lives with you in your home. If you furnish a nanny or housekeeper with living quarters, contents that you own and provide to them to use, such as furniture, would be covered. As long as they’re staying in your home as part of their employment (and don’t have a separate rental agreement with you) your policy would also provide some coverage for any personal items that they bring with them, but the policy will only provide coverage up to a certain amount, so for valuable items, such as jewelry or electronics, you want to make sure any live-in employees also carry their own insurance for their possessions.
If your household employee does not live with you, there are still other parts of your homeowner’s policy that could be impacted by their status as your employee. In several lawsuits across the country household employees have sued their employers for invasion of privacy for the use of so-called “nanny cams,” which are hidden cameras in the house to record the employee’s behavior. Many homeowner/employers see the use of these cameras as a way to monitor potential abuse of trust on the part of an employee. Because a standard homeowner’s policy only provides liability coverage for property damage and bodily injury, you should make sure that you ask your Trusted Choice agent about adding a “Personal Injury Endorsement” to your homeowner’s policy to give you additional protection from this type of action.
A standard homeowner’s policy may not provide coverage to your household employee though if they were sued while working for you except in very limited circumstances. Therefore it’s important that both you and your employee understand that they may want to have their own liability insurance – either a commercial liability policy or business owners policy. Their own personal homeowners or renters insurance wouldn’t apply since they preclude business activities.
The Magic of an Umbrella
Finally, having what’s known as a personal umbrella policy can help sooth some of the anxiety of household employees. Like the name implies, umbrella policies offer additional coverage above what is typically in a homeowner’s or auto policy. While personal umbrella policies are not uniform from one insurance company to another, they’re worth looking into for the additional coverage for you and your employees.
Families that hire household help should be aware of the implications of having someone working for them in their home. Having an Insurance Agent to help you understand these issues could be just the spoonful of sugar you need to help the medicine go down.