Although many consumers are unaware of it, agencies that offer non-medical home care come in two very different “flavors”: those that use bona fide employees to whom they issue W-2’s at the end of each year and those that use independent contractors. Because home care agencies of this latter type issue IRS 1099-MISC non-employee compensation forms to the workers, the agencies are often referred to as “1099 companies” or “registries.”
Independent Contractor Agencies
Companies that use independent contractors do not have to withhold income taxes, pay employment taxes or insurance. Because they don’t incur these and other types of employment-related costs, they can often provide services at a lower charge to clients. However, there are several pitfalls when using a 1099 agency:
- The use of independent contractors makes it unlawful for such companies to supervise their personnel. According to the IRS, if a company trains and instructs its personnel to perform services in a certain way, then they cannot be designated as independent contractors.
- Licensing requirements for home care agencies in many states require certain kinds of training and regular supervision. This is certainly true for companies providing home care in Virginia. Companies that use independent contractors therefore evade the necessity for licensure by the Virginia Department of Health. They do not have to comply with the many licensure regulations designed to protect consumers.
- The consumer may be liable for worker-related injuries, since independent contractors do not have to be covered by Workers Compensation insurance. On-the-job back injuries, for example, are extremely common among home caregiveers. The costs of medical treatment for such injuries can be enormous.
- Companies that use independent contractors may not necessarily purchase general or professional liability insurance for their personnel. Some independent contractors purchase such coverage themselves, but there is no uniformity in the amounts or types of coverage.
- Finally, it bears mentioning that 1099 companies are skirting the law by deliberately misclassifying their workers as independent contractors. State and federal agencies are cracking down on the practice of misclassifying workers as contractors when in fact they carry out the same functions as employees.
Because of the many drawbacks to using 1099 agencies, consumers should be very careful to inform themselves in advance. According to the National Private Duty Association, “Consumers who receive home care, and caregivers who work in the industry, face increasing risk because of the growing use of companies who refer, but do not hire, workers.”
Agencies That Hire Their Workers as True Employees
In contrast to 1099 companies, home care agencies like Ready Hands Home Care that hire their workers incur all the legal obligations of employers, rather than passing some of these on to the consumer. They must withhold income taxes, pay Social Security, Medicare and unemployment taxes, and cover their employees with Workers Compensation insurance.
An agency that uses employees has much more control over the performance of its personnel. It can provide training and supervision; give period performance reviews; and, require adherence to agency policies and procedures.
Since agencies that employ their caregivers must be licensed in Virginia by the Department of Health, they offer numerous additional protections for consumers. For example, licensed agencies must comply with minimum credentialing standards, supervisory and continuing education standards, record-keeping procedures, quality assurance requirements and many, many other regulations. Licensed agencies are subject to periodic unannounced inspections to be sure they are in compliance.
Given the significant advantages for consumers that licensed W-2 companies provide, the small cost savings offered by independent contractor agencies is probably not worth the risk.