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Pros and Cons

Being in business for yourself is exciting and also satisfying. You call the shots, including the hours you work, the clients you take on, and most importantly, the fees you charge.

For many independent senior caregivers, the hourly rate they can charge, versus what they’ll earn working for an agency such as HomeCare of the Rockies, looms large. We totally understand the difference a few dollars more an hour can make to a tight budget.

But, being an independent caregiver also has its costs – of which you may not be aware.

The biggest cost: Not understanding IRS rules concerning household employees

According to IRS Publication 926, a household worker – babysitter, housecleaner, nanny, or caregiver – is considered the family’s employee when the family controls the type of work to be performed and where and how the work is to be done.

For example, the family employing you instructs you to perform certain housekeeping duties, to make lunch at a specific time, and to run x number of errands.

A person is not considered an employee if he or she has a commercial business, determines how they’ll perform their work and when, brings their own tools, and works with the general public.

Tax implications for independent caregivers

While working as an independent caregiver for a family may net you a higher hourly rate, you’re still subject to withholding taxes if you earn $2,100 or more annually or $1,000 or more for any quarter.

Because the onus is on the family to withhold Social Security and Medicare taxes from your pay, and provide you with a W2 each January, your income is reported to the IRS.

Thus, if you don’t accurately report your income each year, the IRS will know – and you’ll then be subjected to penalties.

Hidden costs and risks: Liability

As an independent caregiver, you might not be carrying the liability, workman’s comp and other insurances necessary to protect you should an accident or tragedy happen while you’re on the job.

These insurances, while necessary, are also costly, which means the family employing you may not carry them either.

Working without the proper insurances is extremely risky: If an accident or tragedy occurs, and the family sues you, you could lose your house, savings, vehicles, and other assets.

You love what you do. What are your options?

Option #1: Work for an agency

When you work for an agency, such as HomeCare of the Rockies, you do become an employee, but you also still retain some freedom. Many agencies like ours allow flexible scheduling hours (e.g. nights or weekends), and you perform a variety of tasks depending on the elderly client.

You also receive many benefits that you wouldn’t receive as an employee of a family, such as:

  • Paid training – All Caregivers receive advanced training through the innovative HomeCare 100 training program.
  • Pay increases – At HCR, the more you learn through training, the more you earn.
  • Employee benefits – Fulltime employees are eligible for 401k and paid time off after meeting a specific number of hours or months employed.
  • Co-workers – You work with an integrated team of Care Managers, schedulers, trainers, and office staff who support you in your job.
  • Self-care – Caring for the elderly can be emotionally draining, which is why you receive training on how to care for yourself.

In addition, as an employee of HCR, you and your assets are protected should something terrible happen while you’re on the job. As an agency, we carry all the proper insurances and vet all clients to ensure a good fit with our caregivers and our company.

Option #2: Set up your own small business

Although the IRS has reclassified independent caregivers as employees, you can still open and operate your own caregiving business. This means you’ll need to perform the following:

  • Set up the business entity – Work with a lawyer to set up the right entity based on your circumstances and needs: e.g. S or C Corporation, Sole Proprietor, Limited Liability Company, Partnership, etc.
  • Obtain an Employer Identification Number – The EIN is used on all tax forms and communications with the IRS.
  • Register with Colorado Secretary of State – See “Starting a Business in Colorado” for explanatory modules.
  • Obtain your business license – Visit your town or city office for information.
  • Purchase insurances – At the minimum, you’ll need business, liability and workman’s comp insurance to provide adequate protection to you and your staff.
  • Rent commercial space – As a legal caregiver business, you’ll need commercial space from which to run your business, meet with client families, and hire staff.
  • Recruit and train staff – Having trained staff will allow you to serve more than one or two families while providing optimal care.

Option #3: Work privately for a family

If you go this route, remember, the family is responsible for deducting your payroll taxes, paying any federal and state unemployment taxes, and issuing your W2 each year.

You’ll need factor in withholding, plus lack of benefits when determining if a private position “pays more” than a job with an agency.

If you’d like to learn more about being a caregiver for HomeCare of the Rockies, please read through our Careers and About Us sections. There you’ll find a wealth of information about our agency, our mission, and the benefits of being a fully trained, well-compensated caregiver to seniors in our local community.

Summary: Private vs. Agency – Pros and Cons

Private Agency
You must comply with IRS Publication 926 – classification of household employees.
Your client must withhold taxes and remit them to the IRS at pre-determined intervals.
Your client must provide you with a W2 on an annual basis.
You’re responsible for carrying all insurances, including liability.
You can be personally sued should an accident or tragedy occur.
You receive paid training and benefits.
You have a support system that includes Care Managers, schedulers, and other staff.