New Jersey Tax and Labor Law Summary
Household employment requirements for families hiring a caregiver in New Jersey
From labor law to tax requirements and everything in between, our New Jersey nanny tax overview has all the answers for your household employment questions. And for busy families that prefer this all be handled professionally, we guarantee our comprehensive service will accurately track your taxes and payroll and file your tax returns on time, every time.
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.
NEW JERSEY HOUSEHOLD EMPLOYMENT TAX RESPONSIBILITIES
Household employers have four primary tax responsibilities. These are sometimes referred to as the New Jersey nanny tax obligations:
1. Withhold Social Security, Medicare and New Jersey state disability, unemployment and family leave 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 NJ-W4.
* 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, federal and New Jersey unemployment insurance taxes (FUTA and SUTA), state disability insurance and a New Jersey workforce development 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, your tax breaks and your employee's take-home pay, give us a call.
3. File tax forms with the New Jersey Division of Taxation and the New Jersey Department of Labor and Workforce Development, typically on an annual 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.
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 a Schedule H with your personal income tax return.
NEW JERSEY 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. New Jersey may supplement federal law with additional state and municipal labor laws.
Minimum wage in New Jersey is currently $10.30 per hour.
Paid Sick Time Requirements
Household employers in New Jersey are required to provide up to 40 hours of paid sick time each year to their employees. Families can choose whether to offer all 40 hours upfront or accrue sick time at 1 hour for every 30 hours worked. Other details of the law families should be aware of are:
- Any unused sick time must be carried over to the next year, but employers can limit total sick usage to 40 hours per year.
- Unused sick time does not have to be paid out at termination.
- Employers can restrict usage of sick time until after 120 days of employment if they choose.
Note: Employers in Bloomfield, East Orange, Elizabeth, Irvington, Jersey City, Montclair, Morristown, Newark, Passaic, Paterson and Trenton can restrict sick time usage until after 90 days of employment. Employers in Plainfield can restrict usage until after 100 days of employment.
- Employers must display and provide a notice to employees regarding their sick time rights. This notice can be found here.
Finally, if you live in one of the following cities, you have additional requirements:
Jersey City - Employers should display two required posters in the workplace. For your convenience, we have included the posters here.
Morristown - You are required to provide your employee with written notice of the details of their sick leave. For your convenience, we have included the notice here.
Plainfield - Employers must give written notice upon hiring about sick leave. For your convenience, we have included the notice here.
New Jersey Overtime Requirements
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 performed. The FLSA requires domestic workers be protected by overtime laws. The requirements for New Jersey household employers are as follows:
- The standard workweek is defined as 40 hours in a 7-day period.
- New Jersey 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.
- Overtime compensation is required for live-in employees.
- Overtime is not required to be paid when work is performed on a holiday.
Employment Poster Requirement
The current federal mileage reimbursement rate is 57.5 cents per mile. This rate, which covers the cost of gasoline as well as general wear and tear on the car, should be used to calculate reimbursement payments to an employee who drives their own vehicle while on the job. 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.
INSURANCE FOR NEW JERSEY HOUSEHOLD EMPLOYERS
Workers' Compensation Insurance
Household employers in New Jersey 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. You can obtain an instant quote and purchase a policy online or by contacting our workers’ compensation advisor, Clarke White, at 804-267-1210 or firstname.lastname@example.org.
The New Jersey Temporary Disability Insurance Program (SDI) provides Disability Insurance (DI) benefits to employees who cannot work because of sickness or injury not caused by their job. The SDI Program is funded by mandatory payroll deductions from employee wages and additional taxes paid by household employers.
Family Leave Insurance
The New Jersey Family Leave Insurance Program provides up to 6 weeks of benefits to employees who need to care for a newborn or newly adopted child, or provide care for a seriously ill family member. The program is funded by mandatory taxes withheld from employee wages.
New Jersey 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 withholdings from employees paychecks and 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 New Jersey Department of Labor and Workforce Development (DLWD) 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 DLWD may trigger a future tax rate increase for the employer.
Household employers in New Jersey 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 set up an Individual Coverage Health Reimbursement Arrangement (ICHRA), a Qualified Small Employer Health Reimbursement Arrangement (QSEHRA) or purchase a policy through SHOP (Small Business Health Options Program) to gain this benefit. Visit our health insurance page for more information about these options.
The information herein is general in nature and may not be applicable to or suitable for your specific circumstances. Accordingly, the information is not intended to be providing legal or tax advice, and should not be relied upon without the advice and guidance of a professional tax or legal advisor.
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