Subscriber OnlyYour Money

Hiring cleaners, childminders or carers: What are my tax and legal obligations?

Failing to understand whether you are an employer or they are contractors can land you in hot water

Hiring a childminder in your home could leave you exposed to tax, insurance and employer obligations. Photograph: iStock

Fiona Reddan's face
Fiona Reddan
Tue Mar 19 2024 - 05:00

It’s not something you might worry about when you get painters in, or someone to fix your boiler; typically the onus is on the person carrying out the service to account for their own taxes.

However, if you have a regular domestic employee who comes into your home for housekeeping, child-minding or some other service, you may have obligations to this person, from both a tax and legal perspective, that you may never have realised.

You will likely have to pay employer’s PRSI, for example, while failing to meet certain other obligations as an employer could see you defending a claim in the Workplace Relations Commission (WRC).

Here we set out, just what your obligations are.

READ MORE

In a new briefing, Revenue has clarified just how domestic employees should be taxed. Under the Domestic Employment Scheme, provided that you’re considered by Revenue to be a “qualifying domestic employer”, you won’t need to worry about PAYE, the universal social charge (USC) or having to deduct tax in any other way from a domestic employee’s pay.

So what exactly is a qualifying domestic employer?

According to Revenue, to be covered under this scheme, you must be: 1) an individual; 2) must have only one domestic employee, who is employed solely on domestic duties in the home; and 3) must pay less than €40 a week to that employee.

A domestic employee is someone who works solely on domestic duties, such as child-minding, cleaning or as an au pair etc, and may have other jobs with different employers. According to Marian Ryan, a director with Taxback.com, it typically applies to au pairs or childminders who work for you only. A cleaner will likely have multiple clients and therefore should register as a sole trader and sort out their own taxes.

Given the minimum wage is currently €12.70, the salary limit equates to about three hours of work a week. Under the scheme, bonus payments, such as Christmas, etc, which increase the domestic employee’s pay to €40 or more in a particular week, are also allowed, provided they meet certain requirements.

These are that “the bonus is reasonable and in line with the normal weekly wage, and no more than two bonuses are paid each year”.

If you pay €40 or more a week, or if you have more than one domestic employee concurrently, you must register as an employer and you will be obliged to operate PAYE in the normal way.

Typically, the €40 plus rule will apply to au pairs and childminders – it’s unlikely, for example, that Revenue will chase you for not registering your Saturday-night babysitter

Until 2018, the scheme operated in a slightly different way, as a registration limit applied. This meant that domestic employers had to register for PAYE purposes if they paid €8 a week (€36 a month) or more to an employee who has only one employment; or €2 a week (€9 a month) or more to any other employee.

However, from 2019 onwards the minimum registration limit for all other employers was abolished.

Typically, the €40 plus rule will apply to au pairs and childminders – it’s unlikely, for example, that Revenue will chase you for not registering your Saturday-night babysitter. These days, €40 may just be enough to go out for a few quick drinks.

But if an au pair is being paid €100 or so a week, which is about the going rate, the family hiring them should register them as an employee.

While not completely onerous – as Ryan says, you will get used to it over time – registering as an employer does mean inputting payments on a weekly/fortnightly or monthly basis.

“It is labour intensive; there is going to be work in it along the way,” she says. And given the low level of earnings of au pairs, it’s unlikely to result in a tax liability.

“The au pair won’t be at a threshold that they will have to pay tax,” says Ryan. “It’s more of a reporting responsibility for the parents.”

On the other hand if you have a more formal childminding arrangement, whereby someone comes into your home to mind your children, and just your children, payments are likely to be substantially higher.

Some are in a position whereby they might have their own business, and so it’s easy enough to run a childminder through the books. “Others bury their head in the sand and hope for the best,” says Ryan.

What about PRSI?

If your domestic employee earns less than €40 a week, you may not be liable to sort out any tax liabilities. You will still need to pay employer’s PRSI at the rate of 0.5 per cent (Class J), however.

“This contribution covers occupational injuries benefit only,” Revenue says. This benefit offers payments, up to a maximum of €263 a week, to people who have been injured at work, who acquired an occupational disease at work or who were injured travelling to and from work.

As Ryan notes, this can offer some protection for employees in a home. But while PRSI is required to be paid, it is unclear as to whether or not it is done so in practice.

If you’re a domestic employer, you can register for PRSI with the Department of Social Protection (DSP) at the commencement of the employment. You will typically have to pay PRSI in one lump sum, at the end of the tax year, to the PRSI special collection section.

So, if you pay €35 a week to a cleaner (about €1,680 a year, give or take a few weeks of holidays), you should pay €8.40 in PRSI for that employee to ensure they are covered by the injuries benefit.

Employing someone in your home also brings with it legal obligations.

Unless workers are coming into your home “sporadically and occasionally”, they will be typically considered to be your employee and, according to Michelle Ryan, a partner with RDJ in Cork, this may include cleaners who come to your home on a weekly/biweekly basis.

Childminders who work from their own homes will be considered more as contractors. But for au pairs, carers and childminders who work in your home, you will have employment obligations towards them.

“The reason the law is so protective of those individuals is because they are quite a vulnerable sector and it’s an area where there would be a lot of foreign workers, who could be deemed to be quite isolated and very dependent on their employer,” says Michelle Ryan.

The obligations on the employer include ensuring that the worker gets a written statement of terms of employment, which sets out details on who their employer is, working hours, rates of pay, etc.

“I don’t think it would be unduly burdensome but it is a significant consideration,” says Michelle Ryan of the requirements.

It’s also worth considering any home insurance issues. Typically, if a domestic employee is injured while working in your home, you will be liable

Employees will be entitled to the minimum wage (which may be lower for those aged under 20), plus premium pay on a Sunday, and specific deductions are allowed for au pairs, who may be getting free bed and board. These include €1.14 which can be deducted per hour worked, as well as €30 a week for accommodation costs.

In addition, a household needs to make sure that they have copy of a worker’s permission to live and work in Ireland, where appropriate, and they should retain records of domestic workers details for a minimum of three years.

“You could be liable to criminal prosecution for engaging someone without valid work permits and permissions,” says Michelle Ryan.

While Ryan says there has been a swing towards people fulfilling their obligations as employers on the back of high profile cases in the past, there are “still situations where people aren’t treating them as employees where they should be”, she adds.

According to Ryan, the “bulk” of cases that do make their way to the WRC tend to focus on either the underpayment or overwork of employees. “In my experience I’ve seen it happen, where they come into the household, looking for employment records,” she adds.

Cases that are heard in the WRC can subsequently be appealed in the Labour Court.

It’s also worth considering any home insurance issues. Typically, if a domestic employee is injured while working in your home, you will be liable.

For example, Axa says it will pay up to €2,000 for loss or damage to the belongings of domestic employees while in your home, unless they are otherwise insured. And if they get injured while working in your home it will cover all amounts for such employees – including a chauffeur, gardener, people carrying out repair work and other temporary or casual employees – for up to €3 million. This does not, however, typically apply to construction workers.

Workplace Relations CommissionRevenue CommissionerstaxinsuranceFor You