Meet our writers

 







Money October 2014

Dollar Sense

Could Your Housekeeper Sue You?

By Teresa Ambord

Many people assume their homeowner policies will help if an employee is injured in while working in the home. Generally that is not true. Homeowner insurance will cover injuries to guests. It might also cover some injuries to a contractor working at your home, but homeowner insurance does not usually cover a domestic worker, like a housekeeper

If you have household workers – like housekeepers, nannies, medical help, caregivers – you need to be aware that they could indeed sue you. And depending on how you pay them, they could also inadvertently cause you to end up in hot water with the IRS.

The first thing you need to do is determine whether the people who come into your home to work are independent contractors or are they really employees? The implications are important.

 

What’s the Difference Between and Employee and an Independent Contractor?

A person who brings his or her own equipment, for example, a gardener, is most likely an independent contractor. Such a person probably also does work for other people as well. Independent contractors must supply their own insurance. Still, it is up to you to ask to see a certificate of adequate insurance, in order to protect yourself. Otherwise, a contractor who is injured in your home could still sue you if the cost of his injuries exceeds the limits of his insurance. Protect yourself by asking to see an insurance certificate before you hire.

If a worker, such as a housekeeper, comes into your home and you provide cleaning supplies and control her work, chances are she is your employee. If you pay her at least $1,900 in 2014, you must also pay employment tax on her wages and withhold tax from her check. Depending on the state you live in, you might also be required to cover her with Workers’ Compensation insurance. Even if the law does not require you to have this coverage, you’d be smart to carry it to protect yourself from serious losses.

More and more, the IRS is cracking down on people who have workers who are paid under the table but who are technically employees. If you are caught, you could be looking at not just back taxes, but substantial penalties as well. People who pay under the table are frequently caught by accident, when their former workers file for unemployment. Many of these workers fail to realize that, if you are paying them under the table, they cannot get unemployment benefits based on those earnings. So when the job ends, they file for benefits listing you as the employer. That’s when the authorities start poking around.

If you are not sure if your worker is your employee or not, talk it over with your insurance agent. Not only are you risking substantial penalties from the IRS, but you’re also taking even bigger risks by not properly insuring the worker against injury.

 

Risks Include Multiple Grounds for Lawsuits

Two experts in the field of household insurance spoke to reporters at Bankrate.com, providing helpful information.

Teresa Leigh is the owner of a household risk management company. She advises clients with household employees that it’s foolish to not have adequate insurance. “There’s tremendous risk. The uninsured are foolishly living with risk for no reason. There is no economic reason to do so.” Risks include lawsuits for wrongful termination, discrimination, harassment (of various kinds), breaches of privacy. Many homeowners, said Leigh, hire undocumented workers. Even if the worker is employed by someone else such as a labor agency, you need to make sure the employer carries Workers’ Compensation insurance on your worker.

What about your homeowner insurance? Many people assume their homeowner policies will help if an employee is injured in while working in the home. Generally that is not true. Homeowner insurance will cover injuries to guests. It might also cover some injuries to a contractor working at your home, but homeowner insurance does not usually cover a domestic worker, like a housekeeper. You might, however, be able to add this coverage.

Lilia Rocha, the vice president of a Los Angeles insurance agency (Momentous Insurance Brokerage) told Bankrate.com, “Personal and general liability coverage primarily deals with bodily injury and property damage. Unless there is a specific endorsement, a homeowner policy won’t address these exposures,” (that is, wrongful termination, discrimination, harassment, breaches of privacy).

 

Two Ways to Protect Yourself

Rocha advises clients who have household workers to carry employment practices liability insurance. Or, if you already have a personal umbrella or liability policy, talk to your agent about getting an endorsement added.

A standalone policy will cover more risk, and is based on the number of employees you have, but may come with a high deductible and require a lot of information from you. An endorsement comes with lower premiums and lower deductibles, and requires less information from you, but of course, the coverage is limited.

 

Tips to Avoid Hiring Troublesome Household Help

Teresa Leigh offers these points to remember before you hire people:

  • Hire smart. Do a background investigation. Keep in mind, with workers from other countries, this may not be possible. In fact, said Leigh, you might not even be able to prove who this person is, let alone verify that he or she has a clean background.
  • For contractors and subcontractors, don’t assume the person has adequate insurance, including Workers’ Compensation on employees who will be sent to work in your house. Ask for proof before agreeing to take on the worker.
  • Be aware that undocumented workers can sue you. Not only can an undocumented worker sue you, but often, said Leigh, they get help to sue employers from grassroots organizations who donate their time see a lawsuit through.
  • Finally, Leigh advises household employers to monitor your credit reports regularly. Naturally this is always wise, but even more important when you bring people into your home to work, who might gain access to your personal information. You need to ensure nobody is using your name to apply for credit.

“For most, the best insurance they could have is good common sense,” said Leigh.

 

Teresa Ambord is a former accountant and Enrolled Agent with the IRS. Now she writes full time from her home, mostly for business, and about family when the inspiration strikes.

Meet Teresa