Every day, an estimated 2.5 million individuals—mostly women—work in others’ homes, cleaning, cooking and caring for children and the elderly. Although many people treat them as independent contractors, the IRS and workers’ compensation laws may consider these domestic workers “household employees.” If they are injured while working for you, you may be liable for lost-time claims as well as medical payments.
Household employees include the following workers:
- Cleaning people
- Domestic workers
- Health aides
- Private nurses
- Yard workers
The IRS considers these people “household employees” if you can control not only what work is done, but how it is done. It does not matter whether the work is full-time or part-time or that you hired the worker through an agency or from a list provided by an agency or association. It also does not matter whether you pay the worker on an hourly, daily, or weekly basis, or by the job.
If only the worker can control how the work is done, the worker is not your employee but is self-employed. A self-employed worker usually provides his/her own tools and offers services to the general public in an independent business.
Coverage Requirements Vary by State
Although IRS regulations govern tax withholding requirements throughout the U.S., workers’ compensation requirements vary by state. Some states require employers of domestic workers to provide workers’ compensation, which provides payments to employees for injuries that occur on the job. In addition to covering an injured worker’s medical payments, it will also provide “lost time” benefits when a worker cannot work and collect a paycheck because of a work-related injury or illness.
The following states require workers’ compensation coverage for full- and part-time domestic help: Connecticut, Delaware, Hawaii, Iowa, Maryland, Massachusetts, Minnesota, New Hampshire, New Jersey, Ohio, Oklahoma*, Puerto Rico, South Carolina*, South Dakota* and the District of Columbia. These states require coverage for full-time workers only: Alaska, California, Colorado, DC, Illinois, Kentucky*, Michigan, New York, North Carolina*, Utah and Washington*. Kansas requires coverage on any domestic worker if the employer’s total payroll for the preceding calendar exceeds $20,000 for all workers.
Does Homeowners Insurance Cover Domestic Workers?
Standard homeowners policies include medical payments coverage, which will pay the medical bills of someone injured on your property, regardless of negligence on the part of the homeowner. However, the policy will not pay if you are obligated to provide workers’ compensation.
Even if you are not obligated to provide workers’ compensation, the medical payments coverage under a homeowners policy has some serious limitations if you have in-home help. First, most homeowners policies limit medical payments coverage to $1,000 or $5,000. Workers’ compensation has no such limits. Second, you have a deductible. Third, without workers’ compensation, an injured worker can sue you for expenses that exceed the coverage, including lost wages and pain and suffering. By accepting workers’ compensation insurance payments, an injured employee accepts workers’ compensation as the “exclusive remedy” for his/her injury and (generally) loses the right to file a lawsuit.
Workers’ compensation policies also provide some “employers liability” coverage, which covers you if one of your injured worker’s family members sues you for loss of consortium, loss of services provided, or the like. (Although the policy provides some coverage, it might not be enough to protect you from a large lawsuit. You may want to consider a personal umbrella liability policy, which offers higher limits that will “kick in” once your workers’ compensation policy pays its employers liability limits.)
In conclusion, if you hire in-home domestic help, you should seriously consider purchasing workers compensation for household employees, if available in your jurisdiction, unless your domestic help truly fit the definition of independent contractors or are paid by an agency.
* Kentucky requires coverage if the employer has two or more domestic employees working 40 or more hours per week; Oklahoma requires coverage for all domestic workers if the employer had a gross annual payroll of $10,000 or more in the preceding calendar year for such workers; North Carolina requires coverage for any employer with more than 10 full-time nonseasonal laborers; South Carolina requires coverage if the employer has four or more domestic workers and a total annual payroll during the previous calendar year of less than $3,000. In South Dakota, any domestic worker employed more than 20 hours in a calendar week and more than six weeks in any 13-week period needs coverage; Washington’s requirement applies to employers with two or more domestic workers.