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New Jersey Fact Sheet Household Tax Compliance Tips

HOMEWORK SOLUTIONS IS HERE TO HELP!

Payroll tax compliance for your new employee does not need to be terrifying, time consuming or expensive. HomeWork Solutions is a nationally recognized “household payroll” service company, providing household employers nationwide with trusted and time saving payroll and payroll tax solutions.

WORKER CLASSIFICATION IS THE KEY

You become a household employer when you hire an individual to perform duties and provide services under your direction in your private home. Generally, these workers are your employees, not independent contractors. Failure to properly classify the worker and make the appropriate employment tax filings and payments is considered tax fraud by the IRS.

PAYROLL TAX RESPONSIBILITIES

You are responsible for federal employment taxes when you pay household workers as little as $1,000 in a calendar quarter or when you pay any individual employee age 18 or over $2,700 in a calendar year.

You have both Federal and State tax filing responsibilities. Federal employment taxes are reconciled with the household employer’s annual Federal Income tax return. Your state may require quarterly unemployment tax filings, as well as reports and remittance of state income taxes withheld, if applicable. Employee wages are reported to the Social Security Administration. Your employee is due a W-2 form in January.

Social Security and Medicare Taxes

The household employer is responsible for the payment of all Social Security and Medicare taxes to the IRS. You may choose to either collect your employee’s taxes via payroll deductions or fund these taxes yourself.

Unemployment Taxes

You will make contributions to the IRS and New Jersey to fund unemployment and worker re-training programs.

Income Taxes

Federal and state income taxes are ultimately the responsibility of the household employee; however, best practice is to deduct these taxes from your full time employee’s wages to help them avoid owing large sums when they file their annual income tax returns.

OTHER LEGAL RESPONSIBILITIES

Verification of Work Eligibility

All U.S. employers are required to verify a candidate’s employment eligibility using Form I-9.

Fair Labor Standards Act (FLSA) Compliance

Maintain accurate and contemporaneous records including time tracking, gross pay calculations, and detailed records of all deductions from the employee paycheck.

Pay no less than minimum wage on an hourly rate basis.

Health Insurance

You are not required to provide employee health insurance, however there are financial and retention advantages to contributing some or all of your employee’s health insurance premium. HWS is happy to discuss this with you.

NEW JERSEY LABOR LAWS

Minimum Wage

New Jersey defers to the FLSA, which requires that all household employees, including senior caregivers and companions, be paid at no less than the greater of the state or federal minimum wage.

New Jersey minimum wage is $13.50/hr for employers with 5 or fewer employees.

Overtime Pay

All workers are to be paid an overtime differential of 1.5 times the hourly wage for hours over 40 in a 7 day week. Live-in employees must receive overtime compensation. Overtime or premium pay is not required for hours worked in excess of 8 per day or on weekends or holidays.

Paid Time Off

New Jersey employees will accrue one hour of paid sick leave for every 30 hours worked, up to a maximum of 40 hours in one year. You may choose to give 40 hours upfront, instead of using an accrual system. Additionally, you may prevent employees from using paid sick time until they have worked at least 120 days for you. Accrued sick time does not have to be paid out at termination.

You must give employees this paid sick leave notice at the time of hire. The full provisions of the sick leave law can be found here. There are additional requirements in some parts of New Jersey:

Jersey City: You must provide a written notice to your employees of their right to paid sick time, accrual rate and amount of paid sick time, terms of use, a statement of right to be free from retaliation for requesting or using paid sick time, and an explanation of the right to file a complaint or bring a civil action for violations of the ordinance by you, the employer. The full ordinance can be found here.
Morristown: You must provide a written notice to your employees explaining their right to paid sick time, the accrual rate, their right to be free from retaliation, and their right to file a complaint or bring an action in municipal court if paid sick time is being denied by their employer. The full ordinance can be found here.
Plainfield: You must provide a written notice upon hiring about sick leave. The notice can be found here.

Mileage Reimbursement

The federal government establishes and updates a maximum rate for non-taxable mileage reimbursement each year. The current rate is $0.67 per mile.

Payroll Frequency

New Jersey allows you to pay your household worker daily, weekly, bi-weekly or semi-monthly, but does not allow monthly pay cycles. Pay upon separation is due immediately.

Payroll Documentation

You must provide your employee with paystubs detailing their earnings and any deductions from pay. You are also subject to the recordkeeping requirements of FLSA.

Employment Contract Requirements

New Jersey does not have employment contract requirements. However, a free sample work agreement can be found here.

Workers’ Compensation Insurance

New Jersey requires that all household employers obtain Workers’ Compensation Insurance. HWS ALWAYS recommends obtaining a Workers Compensation Insurance policy for the protection it provides in the event of a work-related injury sustained by your employee. You may purchase the insurance from a commercial insurance company approved by the NJ State Insurance Commission. More information can be found from the New Jersey CRIB (https://www.njcrib.com/). Alternatively, a policy can usually be obtained easily and cost effectively by contacting your Homeowner’s or Renter’s Insurance provider. HWS can help you obtain this insurance through our insurance partner (just give us a call).

State Unemployment Insurance

New Jersey requires a new employer state unemployment insurance tax of 3.1% for the first $43,300 wages paid to each employee. This may vary if you have previous employees.

Frequency of Tax Filings

New Jersey requires quarterly tax filings for unemployment insurance taxes and annual filings for income tax withholdings.

HWS WILL HELP YOU DO THE RIGHT THING

HWS knows that most families want to pay their household employees legally and ensure that the employee receives workers compensation and unemployment insurance protections. You also want to establish a principled relationship with your employee who is caring for and interacting with precious family members. Getting the relationship started on the right footing, including complying with legal and tax formalities, helps set the tone for the relationship.