Margaret hired the neighborhood girl down the street to watch her children a couple days a week and run some simple errands for her. She never imagined that when she did that, she became an “employer” with all the legal implications that go along with that title. She is now being audited by the IRS and they are breathing down her neck, imposing fines and back taxes. Don’t let this happen to you.

Before you decide to start paying someone to give you an extra hand, you may want to take a few added steps to be sure you are making the best decision and not creating potential legal problems for yourself down the road.

First, you should be very careful understanding whether you have hired an independent contractor or an employee. There are a lot of considerations and laws to be aware of if you have a household employee, but not nearly as much if you hire an independent contractor. Also, you should be aware that misclassifying your household employee as an independent contractor could lead to fines and tax evasion charges. The IRS looks closely at household employment and has implemented stronger enforcement initiatives to ensure compliance with tax laws concerning household employees. Be sure to consult with a tax attorney or accountant in determining if your domestic helper is an employee or independent contractor.

You may also want to be extra careful about who you hire. After all, you are letting someone into your home. That makes the relationship more intimate in a way than most contract interactions. Beyond the tax and legal issues, the relationship could potentially be fraught with risks. You are bringing this person into your home, around your loved ones, with the potential to see and hear confidential information and have access to your valuables. There is a lot to consider. Are they trustworthy and reliable? Should you have them sign a confidentiality contract in addition to the employment contract?

Don’t cut corners in the hiring process, be sure to collect resumes, do background checks and check references. We recommend the use of an agency to assist you in your recruitment efforts. Advantages of using an agency include increased privacy, greater pool of qualified and experienced candidates, increased convenience and time savings. These advantages don’t come without a cost of course—often 15-to-30% of your employee’s annual wages.

Other Do’s and Don’ts:

1. Do make sure they are legal to work in the U.S.
2. Don’t ask illegal interview questions or discriminate
3. Don’t pay them under the table or fail to be clear about wages and taxes
4. Do review your insurance coverages and obligations
5. Don’t pay them through your business payroll system
6. Do follow all Federal and State employment laws
7. Do make required tax withholding from wages
8. Do consider using contracts and being very clear about expectations
9. Do keep the relationship professional and don’t become too “familiar”

Hiring a domestic worker touches on multiple areas of law. Thinking through all the potential problems that might arise and taking any precautionary actions possible, will only help you and your family. Use of hiring agencies, payroll services and knowledgeable advisors might save you time, money and many possible negative repercussions. Often, the experience can be mutually rewarding and beneficial. Entering into these relationships thoughtfully, and managing them with care, may support the best outcome.

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Disclosure: U.S. Bank and its representatives do not provide tax or legal advice. Your tax and financial situation is unique. You should consult your tax and/or legal advisor for advice and information concerning your particular situation.