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Employment Classification of Home Health Care Aides

There comes a point for many of us when we turn from being a friend, relative or neighbor to being a caregiver to aging adults who wish to remain at home during their golden years. Part of that caregiving may include turning to home health care professionals—either through an agency or via direct hire. For those who choose the latter route, they should be educated on whether that aide would be considered an employee or an independent contractor. Why? The IRS and the Department of Labor make a big distinction between the two.  


Employee/Independent Contractor Test
If the aide is classified as an employee, the aging adult or his/her support network must file a Form W-2 and provide a copy to the employee; withhold Social Security, Medicare and unemployment taxes; and pay the employer’s portion of unemployment taxes. A common law test based on master/servant principles considers three factors when deciding classification: (1) behavioral control – where the aging adult exerts control over when, how and where the health care aide performs his or her tasks; (2) financial control – where the aging adult can control the business aspects of the worker’s job (where the aide has unreimbursed business expenses and a significant investment in his/her business, then financial control usually lacks); and (3) relationship factors – including a written agreement between the parties, the permanency of the relationship, and whether the worker is provided traditional benefits such as insurance and vacation.


Where behavioral and financial control over the worker exist, along with the presence of an employee-like relationship, the worker is considered an employee. If the distinction is not easily made, the aging adult and or his/her support network should file IRS Form SS-8 to determine a worker’s status.


Workers’ Compensation
Employment classification status also has significant implications when it comes to Workers’ Compensation. What if the aide receives an injury while on the job? If that aide is considered an employee, under Workers’ Compensation, the aide cannot sue the employer for said injury, unless it involved employer malice. Under Workers’ Compensation, the courts again use a test, this time a four-pronged one: (1) degree of control exercised over the worker; (2) payment method; (3) which party provides the equipment; and (4) right of termination. The test also considers the extent of the worker’s economic dependence.

Know the Rules
Where an aging adult hires an aide to spend significant time, if not live in his or her home, to assist with daily activities such as bathing, cooking, cleaning, and laundry, the aide is likely to be considered an employee under most tests. As such, the aging adult and his/her support network should understand the rules in order to comply with all labor and tax laws.

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Richard Cohen is a Partner in the firm’s Not-for-Profit Services Group working extensively with independent private schools, social service and health and welfare organizations, private schools for the disabled and foundations.

Kristen De Noia is a Tax Manager with tax compliance and planning experience focusing on personal and fiduciary income taxation, gift taxation and trusts and estates including high net worth families and closely held business owners.