If you’re starting out as a babysitter, working through the legal side of things can be intimidating. This is especially true if you’ve never worked for yourself before.
Is babysitting considered self-employment? Babysitting is generally considered self-employment because you’re not being treated like an employee. You have more control over your own schedule in terms of what gigs you decide to take on, and you work on your own terms. Nannies, however, are generally considered to be employees of the family.
In this article, I’ll share the guidelines on what constitutes an employee and a self-employed independent contractor. I’ll also explain the implications of both of these as it relates to what you need to do.
Why Knowing is Important
The obligations and entitlements of working as a self-employed independent contractor compared to an employee are very different. This is something that needs to be correctly understood by both you and the parents right from the get-go.
For example, if you’re working as an employee, the parents need to be paying into worker’s compensation. The parents will also need to withhold a percentage of your earnings to put towards your income tax for the year.
As an independent contractor, though, you’ll need to take care of all of this yourself. You’ll be on your own for paying taxes; you’ll need to make sure that you’ve set enough aside at the end of the year if you’ve exceeded the minimum threshold for paying taxes. You also need to keep good records.
The point is, this is something that you need to straighten out right away. Otherwise, the end of the year could be a real headache for you. You could be missing out on things that you’re entitled to, or you could be in a bind. This distinction will also set the tone for your working relationship with the family.
Criteria for Self-Employed vs Employee
Generally speaking, babysitters are considered self-employed whereas nannies are employees. However, there could be a lot of grey areas that blur the distinction between the two.
Here are a few of the guidelines for determining what you are/will be for the family:
Self-employed independent contractors are identified by the following:
- They decide when they’ll be working; instead of a regular schedule that’s dictated to them, they can decide if they’re going to accept work on a particular day or not.
- They decide what they’re willing to do for the family; it’s up to them whether they’re going to do things like clean the house or take the kids on outings.
- The caregiver is generally expected to offer a replacement if there’s a last-minute cancellation.
- The caregiver isn’t financially dependent on a single family; it’s not guaranteed income from this one primary source.
- No notice is required if the child caregiver isn’t going to accept further work from the family.
Employees are identified by the following:
- Their schedule is determined for them. At the job interview, they’re told what hours they’ll be working. The family can also change their schedule if needed.
- The job description is posted from the beginning and the caregiver decides whether or not to accept the position.
- An employee is allowed to call in sick, and the parents are responsible for accommodating this.
- Notice is expected (generally 2 weeks) if the caregiver is going to quit the job.
This should, for the most part, make it pretty clear whether you’re an employee or if you’re self-employed.
The general rule of thumb for this is: Are the parents your customers or your boss? While you’re probably going to do your best to make everyone happy, there are definite differences between the two.
It’s worth noting that, if it isn’t very clear which category you fit into, the IRS will typically tend to class you as an employee for tax purposes.
Working Through a Service
If you’re working through a service that places you with a family, generally they’ll tell you the terms, whether you’re a contractor or an employee.
It’ll be pretty clear right from the hiring process whether the company will treat you as an employee or as a contractor.
Whether or not you’re an employee will really come down to how involved the company/service is. Some are basically a job board service and are uninvolved as soon as you start working. Others are very much in an employer position. They might process payments, vet their own child care professionals, and give you rigid instructions on how to do your job.
What Being Self-Employed Means
You might be wondering now what the implications of all this are. Here’s an outline of how you’re affected if you’re working as a self-employed private contractor.
You might want to look into some kind of insurance if you’re doing a significant amount of work as a child care provider. If something goes wrong, the parent’s insurance might not cover the expenses. This means that you might be on the hook if something unexpected happens.
Read our guide for more information: Do babysitters need insurance?
You’re also responsible for tracking all of your own earnings and expenses. Being self-employed means that you’ll need to be much more organized so that you’re not caught off guard in tax season.
All of this extra work in tracking earnings and expenses come with some perks, though. For example, lots of things can be written off as business expenses. These can potentially include things like vehicle expenses, utility bills, phone bills, internet, even part of your mortgage or rent.
Learn what purchases can be claimed on your tax by reading our babysitting expenses tax guide.
You also have a lot more personal freedom. The family you work for is your customer, not your employer. This means that it’s up to you to keep them happy, but much of this relationship is done more on your terms. You decide if you want to work or not, and what services you’re offering.
What Being an Employee Means
Working as an employee is a totally different scenario.
For one, your employer is responsible for you, legally speaking. While you can always be held accountable for what you do (or don’t do), the employer is much more “on the hook” for the employee compared the customer-contractor relationship.
Here are a few other differences:
- Employers have the right to direct and control the work that you do. That doesn’t mean that this right will be exercised, but it is there.
- Expenses are more likely to be reimbursed for employees, compared to simply being tax write-offs for the self-employed.
- The family is under obligation to withhold a percentage of your earnings for taxes, social security, and possibly Medicare. There could be other things withheld too based on the agreement, although those are the most common. Tax withholding isn’t optional; it’s a legal requirement.
- Getting loans (mortgages, car loans, etc) is a bit easier for employees. A general trend is that an employee would only have to show two pay stubs, whereas someone that’s self-employed may need to show the results of two years of work. This may or may not be important to you, but it’s definitely a nice perk!
- The employee is legally entitled to be paid on time for the agreed upon pay period, which is anywhere from one week to one month in duration. There is much less payment protection in place for unpaid bills to contractors.
Essentially, there’s a lot more legal protection and regulation for employees than there is for contractors.
At the end of the day, though, different people will prefer one or the other. If you’re organized and like more control over what you do, then being an employee might appeal to you more. If you want to be taken care of and simply be provided with instructions and tax information, then you might prefer being an employee.
It's worth noting though that it’s the nature of the work that determines whether you’re an employee or self-employed. Really, it doesn’t matter what the contract says or which you or the family would prefer. Using the comparisons mentioned earlier, the relationship that you have with the family is the sole determining factor.
If you’re improperly identified, either you or the family could be facing fines or back taxes, depending on the nature of the mix-up.
What to Do if the Parents Want You to Work as a Contractor When You’re Actually an Employee
This could also technically come up the opposite way, with the family wanting you to work as an employee instead of a contractor, but it’s really rare.
More commonly, the family doesn’t want to do the extra work of withholding taxes and take care of the other obligations that they’d have. It could also mean that they incur more expenses. Essentially, hiring a contractor is cheaper and less hassle than hiring an employee.
So the tendency is that parents will, if anything, try to deal with nannies and regular sitters as contractors.What do you do if this happens?
You essentially have two choices.
You decide that you really don’t care. While technically not legal, you might be in a position where you don’t really have a lot of options. This isn’t a very nice situation to be in since you should be getting more out of your job. It’s really not ideal, and it’s one of those things that shouldn’t happen, but it does.
The family should be taking more responsibility towards both you and their legal obligations. Misclassifying an employee as a contractor with no reasonable justification will make the family liable for unpaid employment taxes.
An SS-8 form can be submitted to the IRS that will give you a concrete determination of the nature of your work. Once you have that result in hand, you can talk to your employer to see if they’re willing to correct the situation.
If not, file an 8919 form to the IRS to work out your share of uncollected social security and Medicare compensation that you’re owed.
This means that the IRS will be notified and that the family is under strict obligation to correct the issue. They will have to retroactively pay what they owe and submit proof of this.
Either way, this can be a tricky situation. For example, the parents might decide that hiring a nanny isn’t worth it for them because of these added obligations. Or, while not legal, they could simply try to find a new nanny that won’t report them.
This is a situation that will require some forethought. Since you probably want to keep your job and relationship with the family intact, try to work out a tactful way of bringing up the issue. Coming in “guns blazing” will rarely work out well.
Really this isn’t a fun situation to be in, but it does actually happen fairly often.
Tips for Working as a Self-Employed Independent Contractor
If you’re working as an independent contractor, there are a few useful things to know that can make your work a lot easier.
Be well organized and keep your receipts!
This might seem obvious, but you’ll want to make sure that you’re ready for year-end taxes. Unfortunately, this is one of those things that most people know but even still they set themselves up for the year-end panic and guesswork.
So how can you avoid this?
Go over the income reporting requirements for your country now. That way you can know what you can deduct from your income so that you’re ready and organized for when it’s time to file.
For example, there’s often a fuel allowance if you’re using your own vehicle for work. However, you might need to keep a log of mileage, along with dates and explanations. This means that you should get a notebook so that you can keep track of this now. You might also need to keep gas receipts. You might want to keep your notebook and some binder clips in your glovebox so that it’s always on hand.
You can also probably deduct other expenses. For example, if you are bringing in craft materials, activities, or even things like hand sanitizer, you can likely deduct this off your income. If you have a notebook and binder on hand, then you won’t miss any receipts and you can maximize your return.
Since these laws change every year and vary by country, you’re going to have to do your own research on how all of these applies exactly to you. Spend a little time at the start of every year to see if there are any changes that apply to you so that you don’t miss out on any tax breaks!
Keep a file on every family you work with
If you only babysit for one family, and it’s very casual, then you might be able to remember most of what you’ll need to know. Other things, though, like medical history and emergency contacts might be a little trickier.
If you’re babysitting for multiple families, this will be nearly impossible.
If you have a binder with all the family’s information, then you’ll be able to take really good care of your clients. Plus, you’ll present yourself as highly professional. The parents will be really confident in your ability to care for their kids.
You can also use this to store your reference information (like tips on getting kids to bed or CPR reminders). And add your own information to give to the parents, including copies of any certificates that you have.
If you haven’t already, take a look at our guide on setting up the ultimate babysitting binder. There are also a lot of free babysitting printables so that you’ll be ready to go in no time!
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