Are you a W2 or 1099 Caregiver?
Is your homecare agency classifying you as a W2 or 1099 independent contractor? (Hint: if they are withholding taxes from you, you are a W2 employee). If you are a 1099 Independent Contractor, that could be a big problem. Maryland’s Department of Labor, Department of Health (Medicaid), and Attorney General just released a joint Guidance Document which says, “Maryland’s RSAs sometimes wrongly classify PCAs (that is, anyone paid to provide personal care services) as independent contractors rather than employees. When this happens, it is called worker misclassification and it is illegal.”
Who cares if I am a W2 or 1099 Caregiver? For starters, the state of Maryland and the IRS. They want to make sure people are paying their taxes and receiving the benefits they are entitled to. With a 1099 model, it is easier for agencies and its 1099 contractors to underpay their taxes and to ignore other required benefits.
In addition, there are many employment laws in Maryland to protect workers from dishonest business owners. This is another reason you should care. As a W2 employee, you are entitled to many benefits and protections that 1099 contractors do not receive. For example, employees are entitled to earn 150% of their base rate when they work over 40 hours per week (overtime). Is your agency paying you for this? Also, employers must provide workers compensation insurance if you are injured on the job. Employers must also give their employees paid leave time under the Maryland Healthy Families Act. There are several other employee protection laws that W2 employers must provide that 1099 agencies do not. In addition to the required programs, there are many voluntary programs that employers can offer that a 1099 agency cannot to its independent contractors. A few examples include health insurance, retirement plans, and training and development. All of those things must be paid by you as an independent contractor. This is why you should care.
What Does This Mean for Me?
As a 1099 caregiver, you are not violating the wage and hour laws. Your agency is violating them. However, you may be misstating your tax returns if you don’t understand the estimated tax laws. If you are not sending quarterly estimated taxes to the IRS, you could be at risk for unpaid taxes, penalties, and interest during an audit. This may have seemed unimportant before the Guidance Document was published. However, you will now be much easier to find. Why? Because as part of the new requirements, your agency now needs to tell Maryland how they classify their caregivers (see the last page of the Guidance Document). As a result, it will be easy for Maryland and the IRS to find you.
But a W2 Pay Rate is Lower than a 1099 Rate.
Many times, 1099 agencies do pay a higher hourly rate that W2 agencies. Why? Because the required benefits they aren’t giving you are expensive. For example, paid time off from the Maryland Healthy Family Act is expensive and all W2 agencies are required to offer it to you. Is your agency giving you paid time off? In addition, as a 1099 contractor, YOU are required to pay 100% of the payroll taxes from your earnings. In a W2 agency, the AGENCY must pay half of your payroll taxes. That is expensive. In another example, 1099 agencies do not pay overtime if you work over 40 hours per week. A W2 agency is required to pay you at 150% of your regular rate if you work over 40 hours per week. This is expensive. In total, the benefits that W2 agencies offer can be $2.00 per hour or more in addition to your wage rate. That is why W2 agencies generally have a lower base rate than a 1099 agency. However, when looking at agencies, you should compare the total compensation you’ll receive, including overtime, taxes paid on your behalf, and benefits, not just the base rate.
What Should I Do?
If you are wondering whether to be a W2 or 1099 Caregiver, here are some things to consider. Ask your current 1099 agency about this Guidance Document and what they plan to do. The conversion from a 1099 agency to a W2 agency is a very complicated process. It could take your current agency many months to execute this difficult change. Your agency will be at risk during this time. If they do decide to convert, ask them if your pay will be disrupted during the conversion. Also ask them what your new pay rate will be. If they tell you it will not change, be careful.
If they do not plan to convert, ask them how they plan comply with Maryland’s Guidance Document. You might also ask them if you will be entitled to overtime pay, paid time off, and if they will reimburse you for all the prior overtime pay you are entitled to. If they do not, consider engaging an attorney that specializes in Wage and Hour cases. You could be entitled to significant damages.
Overall, if you are not comfortable with your agency’s plans or their answers, consider finding an agency that already uses the W2 Employee model. There are many reputable, high quality home care agencies in Maryland that would love to work with you.
HomeCentris has been a W2 agency for a long time for two reasons. First, we believe it complies with all wage and hour laws and makes it easier for our employees to comply with their tax requirements. Second, we simply believe it is a better model for our clients and our employees. Under the employee model, we can offer benefits that 1099 company cannot offer.
- We pay overtime at 150% of your regular rate when you work over 40 hours in a week;
- We offer paid time off;
- We offer health benefits;
- We offer a 401k retirement plan;
- We pay on time, every time,
- We offer training and career development plans that 1099 agency cannot. This is quite possibly the most important difference for our clients. By definition, a 1099 agency cannot train or supervise its staff. However, an employer can offer training and development to ensure we are delivering the best care possible to our clients. HomeCentris has its own in-house University to help its caregivers develop skills and progress in their careers.
If your agency is misclassifying you as a 1099 contractor or, if you just want the benefits that you are entitled to and deserve, call HomeCentris. You can reach any of our Maryland agency offices by clicking here or check our available positions here. To reach our HR Department and Recruiters directly, call 410-486-5330.