My mother pays someone to come into her house twice a week and do various cleaning chores. I am trying to understand my mother's responsibilities with respect to Calif employment laws -- especially the UI and ETT taxes. I have been reading DE 8829 and other relevant publications. I am very confused -- or surprised. I believe that person, Maria, works 8 hours each of the two days. Maria works in other people's homes on other days of the week. Maria is not an employee of a housekeeping service. I believe she is a US citizen. My mother pays Maria more than $1000 in cash wages per quarter, but less than $9000 annually. Based on those facts, I believe my mother must register with the Calif EDD as an employer, and I believe my mother must pay UI and ETT taxes as well as withholding SDI. (Assume that Maria agrees that my mother will not withhold PIT.) Is that right?
I am surprised that ETT applies to a housekeeper.
I am also unclear about happens with the UI percentage over time. The whole "UI reserve account" thing is unclear to me. As I understand, the UI tax rate starts at 3.4%. It might rise to as much as 6.2%. But under what circumstances? Can the UI tax rate become less than 3.4%? Moreover, if Maria quits all of her jobs (as she did last year after her husband was killed), if she collects unemployment insurance, how does that affect my mother's UI tax rate, if at all? Since Maria worked only parttime for a number of household employers, it is not clear to me whom she can list as "last employer" for the purposes of determining the UI tax rate.
Unfortunately, your mother finds herself in the ugly grey area between the categories of "employee" and "independent contractor." First, until you and your mother have concluded that Maria is an "employee," you should refrain from calling the money your mother pays her "wages." In this instance, use of that term assumes the conclusion you're trying to figure out - namely, whether Maria is, or is not, an "employee." "Employees" receive wages; "independent contractors" receive remuneration or compensation. Second, unfortunately, the publication you refer to, DE8829, is not very helpful. DE8829 only obliquely refers to the fact that the UI provisions only apply if a household worker is a "commonlaw employee" but then never discusses the factors that go into determining when a worker is, or is not, a commonlaw employee, and simply assumes throughout the rest of its discussion that a household worker such as Maria is an employee. For a more nuanced view of the situation from the State of California, take a look at the 24 factors that the State itself uses to determine whether a worker is a commonlaw employee. These factors can be found in Attachment I to the following memorandum:
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Some of those factors simply won't apply to the relationship between your mother and Maria, in which case they should be given a "neutral" weighting; otherwise, you can go over the factors and determine if they favor "employee" or "independent contractor" status for Maria. Unfortunately, it is generally the case that not all of the factors will be given equal weight by a reviewing court. Those factors that are more formalistic, e.g., the labels or terms the parties use, or with respect to which the parties do not have adverse interests, are often given less weight than those factors that represent issues as to which the parties have divergent economic interests, e.g., payment of travel expenses - to the degree that one party takes on the obligation to pay these expenses, the other party has an economic gain commensurate with the payor party's expense. The basic litmus test, which is as easy to state as it is useless, is that an employer/employee relationship exists where the putative employer retains the right to control the manner and means by which the putative employee performs the tasks in question. Some of the more substantial factors most likely include:
1) Giving detailed instructions;
2) Worker's ability to unilaterally substitute another person if the worker needs a day off;
3) Work is performed for a number of different people;
4) Payment is by the job upon completion of the job rather than by the hour;
5) The degree to which the worker provides her own tools and materials;
6) The degree to which the worker has control over costs incurred in performing the work, e.g., in your case, does your mother provide all of the cleaning supplies, or does Maria, and if Maria does, could she significantly increase her net income by buying in bulk or establishing a relationship with a supplies vendor to buy supplies at a discount;
7) Whether the worker offers her services to the public, i.e., holds herself out to the public as being engaged in the business of providing cleaning services;
8) Whether the worker is in a position to make "business decisions," e.g., as a practical matter, is Maria in a position to identify people who would pay her more for the same services, and is she free to stop providing your mother services if she finds a better-paying opportunity.
Unfortunately, you may come to the conclusion, even after going through the California factors, that the issue is too close to call, or else that Maria is an "employee." Based on the nature of the issue and the limited facts you gave, there is no way that I can give you any really reliable advice on the question itself. In that case, you could either accept the conclusions you draw, and act accordingly, or you could seek an employment work status determination from the California Employment Development Department. See Form DE38, which can be downloaded at the following link:
Since the IRS uses a 20-step test, it occurs to me that it is quite possible for someone to be classified as an IC from the state's point of view, but as an employee as far as the Feds are concerned. Or vice versa.
I haven't heard of that happenning. But I have heard of people being determined to be one status for income tax purposes but the other status for unemployment insurance. Stu
As it happens, I met a fellow who claimed his "employees" were indeed ICs for federal tax purposes, but because he was paying UI insurance, they didn't need to have the business licenses (which would otherwise have been required under municipal ordinance). Naturally, I thought he was trying to have it both ways! Do you have any further details?? Anyway, in the general case (different classification criteria for states vs. federal), this must simply be a case of state hubris. One could conclude from your answer that any state criteria ought to be ignored, and the classification simply be made under federal guidelines.
Sorry, I don't have any other information off the top of my head.
The criteria might be different because the purposes and effects (and standards) of the laws might be different. So state laws making someone an employee for unemployment or workers compensation purposes (e.g. real estate salespeople) would be unrelated (though similar) to the federal requirements for income tax purposes. Stu
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