California Tax & Labor Law Summary
Basics and Requirements
Learning all the nuances of California nanny tax law is no easy task. To help, we've created this overview of everything you need to know about being a domestic employer in California. If you're not crazy about government paperwork, don't worry. We've also created a comprehensive, family-friendly service that specializes in handling all the nanny tax paperwork.
When a family hires someone to perform duties in or around their home, they are considered a “household employer.” The IRS views the worker — whether a nanny, health aide, housekeeper, senior caregiver, gardener, chef, personal assistant, estate manager, etc. — as an employee of the family in nearly every case. Misclassifying an employee as an “independent contractor” (using Form 1099) is considered tax evasion, so please call us if you're not sure how to classify your worker.
Household employers have four primary tax responsibilities. These are sometimes referred to as the California “nanny tax” obligations:
1. Withhold Social Security, Medicare and California state disability insurance taxes from their employee’s paycheck each pay period. Federal and state income taxes should be withheld based on the employee’s selections on Form W-4 and Form DE 4.
* It is not legally required that income taxes be withheld. However, we strongly advise it so that the employee does not have a large tax burden at the end of the year and is not subjected to underpayment penalties.
2. Pay the employer’s portion of Social Security and Medicare, as well as federal and California unemployment insurance taxes (FUTA and SUTA) and the California Employment Training Tax.
Good news! There are some tax breaks for dependent care that can help offset these employer taxes. For an estimate of your employer costs and your tax breaks – as well as your employee’s take-home pay – give us a call. Additional state tax credits may be available for certain families. Please call for details.
3. File tax forms with the California Employment Development Department (EDD), typically on a quarterly basis, and with the IRS in April, June, September and January. With these filings, employers remit (pay) the employee taxes withheld and the employer taxes accrued. If the state income tax withholdings exceed $350 during a calendar quarter, the EDD requires employers to deposit the state withholdings on a monthly basis instead of waiting until the end of the quarter.
4. At the end of the year, prepare Form W-2 and distribute to each employee, file Form W-2 Copy A and Form W-3 with the Social Security Administration and file Schedule H with your personal income tax return.
LABOR LAW REQUIREMENTS
The Fair Labor Standards Act (FLSA) provides the framework for federal and state wage and hour law. Household employees are classified under the FLSA as non-exempt workers. Non-Exempt workers in all 50 states are covered by the rules and protections of the FLSA. The state of California, as well as city governments, may supplement the federal law with additional state and municipal labor law.
The current California minimum wage rate: $10.50 per hour
Belmont minimum wage rate: $12.50 per hour
Berkeley minimum wage rate: $13.75 per hour
Cupertino minimum wage rate: $13.50 per hour
El Cerrito minimum wage rate: $13.60 per hour
Emeryville minimum wage rate: $15.00 per hour
Los Altos minimum wage rate: $13.50 per hour
Los Angeles county minimum wage rate: $12.00 per hour
Malibu minimum wage rate: $12.00 per hour
Milpitas minimum wage rate: $13.50 per hour
Mountain View minimum wage rate: $15.00 per hour
Oakland minimum wage rate: $13.23 per hour
Palo Alto minimum wage rate: $13.50 per hour
Pasadena minimum wage rate: $12.00 per hour
Richmond minimum wage rate: $13.00 per hour
San Diego minimum wage rate: $11.50 per hour
San Francisco minimum wage rate: $15.00 per hour
San Jose minimum wage rate: $13.50 per hour
San Leandro minimum wage rate: $13.00 per hour
San Mateo minimum wage rate: $13.50 per hour
Santa Clara minimum wage rate: $13.00 per hour
Santa Monica minimum wage rate: $12.00 per hour
Sunnyvale minimum wage rate: $15.00 per hour
Note: Whenever more than one rate applies, employers are required to pay the higher rate.
Household employers in California are required to provide up to 24 hours of paid sick time each year to their employees. Employers can choose whether to offer all 24 hours upfront or accrue sick time at 1 hour for every 30 hours of work performed. Employees can accrue up to 48 hours per year, however, employers may limit sick time usage to 24 hours per year if they choose. Sick time can roll over to the next year if it is accrued. Employers do not need to pay for unused sick time if the employee is terminated. Employees can begin using their sick time 90 days after they begin working.
Note: These sick time provisions are valid statewide, but several cities have additional laws that slightly alter the state law.
Berkeley - Employers may offer at least 48 hours of sick time upfront. If sick time is accrued, carryover is required and sick time usage can be capped at 48 hours per year.
Emeryville - Employers may offer at least 48 hours of sick time upfront. If sick time is accrued, carryover is required and sick time usage can be capped at 24 hours per year.
Los Angeles - Employers may offer at least 48 hours of sick time up front. If sick time is accrued, carryover is required and sick time usage can be capped at 48 hours per year.
Oakland - Employers must allow their employees to accrue sick time.
San Diego - Employers may offer at least 40 hours of sick time up front. If sick time is accrued, carryover is required and sick time usage can be capped at 40 hours per year.
San Francisco - Employers may offer at least 40 hours of sick time up front, or per 1,200 hours worked. If sick time is accrued, carryover is required.
Santa Monica - Employers may offer at least 40 hours of sick time up front. If sick time is accrued, carryover is required.
As part of the Wage Theft Prevention Act, California employers are required to provide all household employees with a written notice at the time of hire. The California Wage Notice must include:
- Hourly and overtime pay rates per hour, as well as any special pay rates;
- The regular pay day;
- The employer's name, physical address, and telephone number; and
- The name, address, and policy number of the employer's workers' compensation insurance carrier.
Employers are required to complete the form and have their employee sign two copies – one for their records and one for the employee’s records. The wage notice does not need to be filed with any state agency, but is referenced in the event of a wage dispute.
A new Wage Notice must be provided to all employees (regardless of when the employee was hired) when there is a change to any of the information listed above.
California law requires employers to provide a paystub each pay period showing:
- Gross wages earned;
- Total hours worked by the employee;
- All deductions;
- Net wages earned;
- The dates included in the pay period;
- The name of the employee and last 4 digits of his or her social security number (SSN) or other individual taxpayer identification number (ITIN);
- Employer’s name and address; and
- All applicable hourly rates in effect during the pay period and the corresponding number of hours worked at each hourly rate by the employee.
Overtime requirements are not determined by the amount of hours or by the type of pay (hourly or salary); they are determined by the type of work. The FLSA requires domestic workers be protected by overtime laws. Household employees in California have some additional overtime protections. Combining both federal and state laws, the requirements for California household employers are as follows:
- The standard workweek is defined as 40 hours in a 7-day period.
- California labor law does not allow non-exempt workers to be paid a fixed salary. Household employees should have their paystub itemized each pay period with the number of regular and overtime hours worked.
- California employees should be paid at least 1.5 times the regular hourly rate (time-and-a-half) for all hours worked over 40 in a workweek.
- California overtime law requires many workers to be paid time-and-a-half if they work more than 8 hours in a workday and double-time if they work more than 12 hours. However, “personal attendants” are excluded from the state’s double-time law. A personal attendant is defined as someone who spends at least 80% of their time caring for a child or elderly person. Therefore, caregivers and nannies in California are only entitled to the federal weekly overtime and California daily overtime.
- Daily overtime is required for live-out personal attendants if the employee works more than 9 hours in a day and/or 40 hours in a 7-day workweek.
- Overtime compensation is required for live-in personal attendants if the employee works more than 9 hours in a day and/or 45 hours in a 7-day workweek. All other live-in domestic workers must be paid overtime for hours worked over 9 in a day.
- Overtime is not required to be paid when work is performed on a holiday.
Note: There are additional overtime requirements for employees that work 12 or more hours in a day or 6 or 7 consecutive days in a workweek. Please call our office for details if this employment situation arises for you.
Household employers in California are required to provide a Change in Relationship Notice to their employee at the time they are fired or laid off. A sample notice can be found at http://www.edd.ca.gov/payroll_taxes/pdf/NoticetoEmployeeastoChangeinRelationship.pdf.
California employers must reimburse employees if they are required to drive their own vehicle on the job. The current federal mileage reimbursement rate is 54.5 cents per mile and covers the cost of gasoline as well as general wear and tear on the car. Mileage reimbursement is not considered taxable compensation, so neither the employee nor the employer is required to pay any taxes on that portion of the compensation.
Note: Miles driven while commuting to and from the jobsite are not considered “on the job.” If the employer reimburses the employee for commuter mileage, it is considered taxable compensation.
Workers’ Compensation Insurance: Household employers in California are required to carry a workers’ compensation insurance policy, which assists with medical expenses and lost wages if an employee has a work-related injury or illness. It also provides protection to the employer since workers who accept benefits generally forfeit their right to sue the employer – regardless of fault. Some level of workers' compensation is usually provided in homeowner’s insurance. Household employers should contact their insurance provider to see if their current plan is sufficient. If not, an enhancement can usually be added to cover a household employee.
Disability Insurance: The California State Disability Insurance Program (SDI) provides Disability Insurance (DI) and Paid Family Leave (PFL) benefits to eligible workers who cannot work for non-work-related reasons (i.e. maternity leave, accident, illness). The SDI Program is funded by mandatory payroll deductions from employee wages (as noted in Tax Responsibilities).
Unemployment Insurance: California unemployment insurance is a state-managed program that provides financial assistance to help laid-off workers make ends meet until they can find another job. This “insurance” is funded through taxes that employers are required to pay on wages paid to employees. These taxes flow into a general fund and unemployment benefits are distributed from the fund to employees who are “let go” from their job due to no fault of their own. The California Employment Development Department (EDD) determines whether or not an applicant qualifies for benefits after reviewing their online or paper application and/or by conducting a telephone interview. Benefits paid to a former employee by the EDD may trigger a future tax rate increase for the employer.
Health Insurance: Household employers in California are NOT required to pay for their employee’s health insurance. However, there is a tax incentive to do so. Families with only 1 employee can make contributions toward their employee’s health insurance premiums and treat the amount as non-taxable compensation. In this scenario, neither the employee nor the employer are required to pay any taxes on that portion of the compensation.
Note: Employers with 2 or more employees must purchase a policy through SHOP (Small Business Health Options Program) to gain this benefit.
Families can direct their employees to www.care.com/benefits where they can search for health insurance policies and purchase coverage for themselves.