Hiring independent contractors for home health care?

Not going to be Independent Contractor. No 1099. They are w-9 now and then w-2 at tax time.

To be ok for IRS, independent contractor status has to be validated.
IRS has a 20 Factor Test & Form SS-8 to do this. Google it.
CA put out guidelines on their approach to determining & it’s called the “ABC test”. Can Google that too. Pretty straightforward to understand how determination made & CA kinda is the gold standard for how to do IC validation run (is for my main industry)

IMO someone providing care in your home or care in your elders home will not ever be Independent Contractor for you. The big hurdles are working on-site at 1 fixed location, schedule determined by you, paid hourly/weekly (not by project completion); and they are not providing their own tools & materials.
AND
As an IC you have to, HAVE TO, have a realization of profit or loss. That caregiver isn’t going to meet this requirement either as they don’t have a business (like their very own LLC, inc. or sole proprietorship); they aren’t getting a slew of other 1099 from other companies for performing the same work.

Whomever is paying them, whatever it’s you or your elder, need to do a w-9 on them and then do FICA & whatever tax filing required by your state. I’d suggest you get them to do an I-9 as well.

Also check with homeowners insurance to see if in home caregivers are covered. Or if you need to get a waiver added on. Or you have to get workmen’s comp insurance policy done, these are expensive. One slip & fall or strain / sprain from lifting or transferring the elder, that caregiver can file a lawsuit for their health care costs incurred and loss of wages. That’s why workmans comp insurance exists & the in home health agencies always have workmen’s comp for their employees. Caregivers hurt themselves all the time. Lots of tort attorney out there trolling to file these.

As an aside, I have an S Corp and have filed 1099 for years for independent contractors I’ve had. All work is not under my direction, all is off-site, and I do not set their schedule; all responsible for whatever tools they need. Everybody does a w-9, I-9, SS-8 as well as a Determination of State Residency form (the main industry I work in has tax credits) every year or I don’t call them.

Grayson, I think you're very wise to consider these issues now.    And there are some major issues to consider, primarily involving liability and potential financial claims.

I assume you're referring to care contractors and not individual contractors such as handymen, electricians, or other tradesmen, so I won't comment on that aspect. 

I believe what you're considering is hiring people who aren't affiliated with an agency, to provide home care?   And you're concerned about the appropriate legal entities and issues?   

You are wise to consider this, especially since I assume you're doing this on behalf of your mother?

My father and I considered this at one point; these are the problems we encountered:

1.   The individual wanted to be paid as an employee.  So, yes, this requires getting an EIN (easily obtained) from the IRS.     It also requires management of  payroll deductions, transmitting and reporting to state and IRS on deductions, and issuing end of year tax statements.

I had no desire to get involved in that, not just for one person.  It can be contracted out, but that's another cost to consider.

2.   My insurance agent told me that in order to get liability coverage for the individual I would have to purchase a commercial insurance policy.  In Michigan, apparently individual, personal homeowners' insurance polices will NOT include coverage for paid employees.

The cost for a workers' comp policy, which would be what I would have to have, was estimated (2 - 3 years ago) at $750 - $1000 annually, and annual increases would be expected.   Two friends in business for themselves very strongly advised me not to get involved in this.  

If the individual were injured and filed a claim, and if it was successful, my father's assets would be diminished for the duration of that claim.   With a w/c claim, that could have been years if the individual was seriously injured.

Dad and I discussed this and decided that we COULD NOT nor did we want to jeopardize any of his assets.    We eventually hired an agency instead.

3.   If you wanted to create a business, you'd have to file papers (more $$ spent).   An assumed name would be more appropriate than an LLC, in which you'd locate partners for initial capital, and disburse revenue among them according to their shares.   But you're paying out, not getting income, so an LLC isn't at all appropriate.

I would strongly recommend that you consult a business attorney, one focused on small businesses, for more advice if you seriously consider this route.  

4.   I know others here have handled direct pay for home health care; hopefully they'll see your thread and respond, as beyond what I wrote I have limited experience in this area.


Some questions and considerations:

1.   What is the reason for rehab?  Is your mother expected to have a prolonged and/or limited recovery that would last longer than the period for which Medicare would provide home care?  And is this your thought, that long term home care is needed indefinitely?

2.   Will your mother be neeing PT, OT, nursing AND home health care?  If so, Medicare will fund this until a certain plateau has been reached.   If you have a Medicare Medigap plan, it will generally pick up the portion that Medicare doesn't pay.    Over probably a dozen or more rehab then home care episodes, we've never paid a cent for home care or home health care.   

We did, as stated above, consider hiring someone for limited health care but primarily for maintenance and cleaning. 

I hope this helps; if you have other issues, please feel free to raise them.   Many of the posters here have gone through rehab, and some also have paid directly for home care.

While you do not technically have to have an EIN, if you hire directly and do not have one, you have to provide your or your loved ones SS number on the aid's W-2.  Many people do not want to that do that.  I live in Florida, LLCs do not have to file tax returns (if owned entirely by individuals), so pretty easy.   You can pick a vague name (like Suncoast 555), without your name or address.  WC costs about 400 a year in Florida (laws are not that favorable to WC claims, at least IMHO).   You may or may not want to pay for a payroll service, but again, with no state taxes, it is much simpler here.   Otherwise, you have to withhold state as well as federal.  Check with homeowners policy, mine covers liability related to one home health care person. 

You can always use a service and switch to direct hire. 

Some people like to hire direct not so much to save money, but results in more money to the aid (and that can result in less turnover)

Grayson, I would recommend that you use a payroll service. These companies earn a percentage of the payroll, but they cover your home health worker. Essentially the worker is their employee and you are the boss, some areas this may be called labor leasing.

It gives full, legal coverage to all parties involved. The worker gets SS/Medicare match, taxes withheld and paid, unemployment, worker's compensation insurance and in some cases they are offered health insurance through the payroll service. It ensures that you or your mom can not be sued for injury while they are doing their job, it also is fully deductible and doesn't interfere with future public assistance, it is obviously not a gift.

The best benefit is that once you get set up it is a weekly or biweekly time sheet transmitted and a check sent to the payroll company. No quarterly and annual filings and payments, no potential for unseen lawsuits, an employee covered by workmans comp can not sue for injury unless there was negligence by the employer or there representative. This is huge in today's climate.

Doing it right protects everyone. Doing it through a service keeps your costs down so you can pay the actual caregiver more, meaning you will have less turnover.

Because time is an issue, you can start this way and figure out if you would rather do it personally. Cost comparisons and all that.

Please come back and let us know what you decide to do, it helps others figure this out.

Best of luck, praying mom gets better soon.

Igloo, I was hoping you'd come along and add your insights!

FloridaDD, thanks for that interesting information on Florida LLCs.  I had no idea those options existed.   

If an LLC is income generating, and owned by an individual, it doesn't have to file a state return?   Am I understanding that correctly?   That's certainly a better business environment than other states, something of which to take advantage if setting up a small business. 

Thanks to all who clarified the issue of income to an LLC and how/whether it's reported.    I learned something new today!