Managing the Nanny & Domestic Employee Risk

nanny For busy parents and guardians, upscale childcare and domestic help is a key requirement in the running of the household. The need to hire a Nanny or au pair is already common with many affluent families. There are unique risks surrounding residential employees which are very important to address before hiring a new employee. Your personal assistant, nanny, housekeeper or pool cleaner may make your life easier, but they also represent your greatest threat for a high-priced lawsuit should your employer/employee relationship fail.

Common risks that you may face as an employer of domestic staff: wrongful termination, discrimination, harassment -- sexual and otherwise – bodily injury, and privacy breaches head the list. Many homeowners hire un-documented workers, whom they pay in cash, and fail to check if contractors have workers' compensation coverage, which exposes them to an even broader vista of tax and employment practice claims.

Homeowners that employ the services of domestic staff have two specific options that can properly address employment risks of domestic staff; a traditional Workers Comp policy, or an Employers Practices Liability Insurance (EPLI).

If a household employee is injured while working for me, will my homeowners insurance policy provide any help with the medical bills? What if the employee sues me? Do I need to purchase workers compensation insurance?

You are not required to purchase workers compensation insurance to cover these employees, because the Texas Workers’ Compensation Act specifically exempts “domestic and casual workers” engaged in employment incidental to a personal residence. The law provides no definition of “domestic” or “casual,” but it’s safe to assume the exemption includes cooks, housekeepers, laundry workers, maids, butlers, companions, nurses, baby-sitters, chauffeurs, gardeners and other employees working around your home on either a full time or part time basis.

Even though you are not required to purchase workers compensation insurance, you may want to consider doing so on a voluntary basis. Here’s why.

Your homeowners insurance policy is designed to cover some medical expenses incurred by injured employees, as well as any legal expenses and amounts you become legally obligated to pay should an employee sue you because of the injury.

The policy limit for medical expenses may not be sufficient, however, to cover all the costs in case of a very serious injury. And if the employee is unable to work for a period of time, the policy does not include disability payments.

If you think you may want to cover all medical costs for a valued employee, as well as continue paying their salary during a period of disability, you should definitely consider purchasing workers compensation insurance coverage on a voluntary basis.

Workers’ compensation insurance coverage would pay all medical bills arising out of an employee’s injury. In addition, the employee would continue to receive income during the period of disability. The amount of disability income is prescribed by law.

Another important benefit of providing workers’ compensation insurance coverage is that it limits your liability. Simply put, if a household employee collects workers’ compensation benefits after being injured, that employee generally can’t sue you for damages. If the worker or the worker’s family does sue, the employers’ liability portion of the workers compensation policy will provide your defense and pay any resulting settlements or judgments up to the limit of liability. Your personal umbrella policy will pay any excess costs, up to its limit.

Family Trusts and Limited Partnerships

If you pay household employees through a family trust or limited partnership, the answer is different. Even if the trust or partnership is covered as an additional insured on your homeowners policy, the coverage for household employees may not apply to employees of the trust or partnership. For this reason, we recommend that you purchase a workers’ compensation insurance policy in the name of the trust or partnership.

You are probably aware that Texas employers are not required to purchase workers’ compensation insurance coverage. But employers that don’t purchase the coverage are subject to unlimited liability for employee injuries and still have obligations to make certain disclosures to employees and reports to the state. In our opinion, this is potential liability and trouble that can be easily avoided by purchasing the coverage.

Other tips that center around insurance for domestic employees:

  • Hire smart: A lot of families place too much emphasis on word-of-mouth recommendations, and basic background employment checks. Certain background checks may lack crucial detail, or may not compile international background information that would prove useful for the employer’s hiring decision.
  • Check insurance on all contractors and subcontractors: If an individual or service that you hire does not have a certificate of insurance that lists their employer as having worker’s compensation, if they get hurt on your property, they can sue the homeowner.
  • Don't think that an undocumented worker can't sue you: They can and do, often with the help of a growing number of grassroots organizations that will provide a lawyer pro bono.
  • Routinely pull a credit report: Doing so will alert you if a member of your household staff has used your financial information to apply for a credit card in your name. Also, financially strapped employees may be more likely to steal from you.
  • Don't treat employees as independent contractors: The Internal Revenue Service will hold you accountable if you're not picking up the tax burden for your employees. If you control their schedule and the supplies they use, you're an employer in the eyes of the I.R.S.
  • Ensure that the Nanny carries adequate insurance (auto and property): Homeowners face the risk of domestic staff running errands and driving their children and family members during their duties of employment. Many personal employees way have basic coverage or no liability coverage at all.
  • Always have a back-up plan: In the event that your nanny is sick, quits, her car is broken down, etc. –make sure that you have a person or service where you have checked out that will be able to help until your employee returns or the position has been replaced.