Hire A Teacher Without IRS Fines And Avoid Legal Risk

You found the perfect teacher for your home learning pod.

First, congrats! Give yourself a pat on the back.

But! Now you have to manage all the legal, financial, and administrative risks of employing your teacher to protect everyone without blowing your budget.

Thankfully, Scoot at Home has a new option available that handles all that risk for you without breaking the bank.

Before we get into that almost too-good-to-be-true option, let’s explore the pros and cons of 4 common ways to hire a learning pod teacher:

1. Pay the teacher in cash (i.e., under the table)
2. Engaging the teacher as an independent contractor (i.e., 1099)
3. Classifying the teacher as a household employee
4. Employing a teacher through a company, such as Scoot at Home

Spoiler alert: Scoot at Home has introduced a best of both worlds option for families to hire their preferred teacher and reduce liability without increasing learning pod costs. Scroll to the bottom to learn how! 

1) Pay in cash

Let’s be honest. Most of us have paid a house cleaner, babysitter, or gardener by check or cash (hello Venmo!). While this might be acceptable for some low-risk, irregular jobs that don’t often interact with family members (particularly young family members), it is the option that exposes a family to the most risk.

Pros

• The cheapest option as there’s no insurance or payroll taxes
• Has no more administration other than going to the ATM or writing a check
• No state or federal filings

Cons

• It’s illegal (tax evasion is a felony)
• If an incident occurs (teacher slips over and suffers an injury) the pod family is likely liable and the teacher has no medical/lost income protection
• The pod family could easily be sued in the event of an injury, allegation, or complaint and the family is unlikely to have insurance protection
• No access to complete criminal background checks

While very common, strongly consider if this option is the right one for a home teacher. Do cost savings outweigh the risks? Almost definitely not if an incident occurs.

2) Hire as an independent contractor

Since the rise of Uber, classifying gig-workers as independent contractors has become common. However, for better or worse, in January 2020 California Assembly Bill 5 (AB5) came into action to clarify and challenge when a worker can legally be classified as a contractor. Some items to consider:

Pros

• The family is not responsible for payroll taxes or income withholding
• The contractor cannot be eligible for benefits from the family
• Less paperwork than hiring a household employee (but make sure you have a written agreement with the contractor outlining each party’s liability and responsibilities)
• Ability to cease working with a contractor at any time for any reason

Cons

• The IRS aggressively pursues abuses of the tax system and that includes the misclassification of household employees as contractors. The IRS charges back-taxes, with interest, and penalties upwards of $25,000
• Families need to collect a W9 form and provide a 1099-MISC annually
• Families are still responsible for providing a safe workplace and could be on the hook for injuries and allegations
• No protection for the contractor – if they’re injured when working, become unemployed, or contract COVID-19 there is little to no access to state benefits
• No access to complete criminal background checks

Strongly consider and seek advice from an employment attorney regarding compliance with AB5. In-home teachers will likely fail the ABC test and therefore not comply with AB5.

3) Hire as a household employee

A household employee is an individual who is paid to provide a service within the employer’s residence or premises. This classification is most similar to a traditional W2 employee and is not an independent contractor. Nannies, babysitters, housekeepers, and in-home teachers are normally considered household employees.

Pros

• Likely the most compliant/accurate way to classify an in-home teacher so will avoid government and labor law scrutiny
• The teacher will be eligible for injury and lost-income protection through workers’ compensation insurance
• The teacher will be eligible for state benefits, such as unemployment insurance
• Families have the option of purchasing insurance to protect against lawsuits

Cons

• A lot of administration; around 60 hours of paperwork annually per IRS estimates
• Families will need to pay the ‘Nanny Tax’ which is payroll and employment taxes of $7-$15 per $100 paid in additional taxes on top of the teacher’s income
• Families will need to register for an employer identification number (EIN) and comply with all state and federal filings such as year-end tax forms and quarterly payroll reports
• Collect and keep on file a I-9, W4, and identification documents for the teacher
• Families will need to calculate employee income withholding for each payroll
• Insurances will have to be purchased including workers’ compensation insurance
• Potential wage and hour lawsuits and incorrect dismissal disputes
• Families are responsible for providing state mandated paid sick leave
• No access to complete criminal background checks

If you’re only open to directly employing an in-home/learning pod teacher then classifying them as a household employee will cost a bit more than alternatives but can protect all pod participants from financial risk and reduce liability exposure.

4) Employ through a company

There are a few companies, such as Scoot at Home, that will source and employ a teacher for your home learning pod on your behalf. This means the company takes on responsibility for the cons listed in the above options.

Pros

• This option could cost a bit more in the short term but help your pod avoid significant expenses should things go wrong
• Pod families don’t have to worry about any administration, taxes, filings, liability exposure, or buying new insurance
• The company should have thoroughly vetted the teacher including interviewing, professional reference checks, and live-scan criminal background checks (the best available)
• Gain confidence from knowing the company has worked with the teacher previously and can vouch for their expertise and professionalism
• Start/end your commitment to the teacher as required without concern of legal retaliation for dismissal

Cons

• Likely a more expensive option
• May have to choose a teacher who the company already employs
• Must abide by the company’s rules and policies

When choosing this option perform due diligence to select a reputable company with a robust history and expertise in this field. For example, be sure to ask the company if they classify their in-home teachers as contractors or employees and what type of criminal background checks they use.

There is a way to get the best of both worlds:

If you’ve already found the perfect teacher but want to avoid the risks of self-employment then Scoot at Home will hire the teacher you’ve found, bring them onto payroll as a W2 employee, and cover both the pod and teacher with Scoot at Home’s various insurance policies.

To keep costs under control, Scoot at Home:

• Lets the pod decide what the teacher gets paid
• Pays the nanny taxes without markup
• Applies a small additional cost to cover our admin expenses and additional liability of protecting the pod and teacher

This option can cost as little as $20 per day more than classifying the teacher as a household employee but saves a lot of time, risk, and stress!

To learn more, schedule a free consultation and let Scoot know that you’ve already found an educator.