For many families with young children, COVID-19 has made the idea of in-home child care more appealing than ever before. However, while the convenience and flexibility can’t be beat, the liability exposure is more complicated than you might imagine. Are you prepared to respond to the risks?
The risk of potential employer status
When you drop off your child at a preschool or day care center, the only financial obligation you have is the fee payments. But when a caregiver comes to your home regularly, you gain a brand-new set of financial and insurance obligations.
If you use a babysitter on occasion, it won’t affect your insurance too much since casual babysitters are usually considered independent contractors (though it’s still a good idea to review your homeowners policy to ensure your personal injury and medical payment liability limits are sufficient).
However, if a nanny or au pair works exclusively for you, they’re likely considered an employee. You might have hired them through a service or agency, assuming it would reduce the hassle of legal liability, but that’s not always the case. Depending on the agency’s insurance and your employment arrangement, you might still be considered an employer.
Insurance options to offset your financial liability
It’s important to consider all the insurance angles, both as an individual and an employer. At a minimum, consider adding your child care worker to your home and auto insurance policies. Make sure the limits are high enough to cover your added property and personal injury risk.
Here are two notable coverages to ask your agent about.
Workers’ compensation is traditionally the go-to insurance for employees injured on the job. If your child care provider is injured while in your service, you could be liable. Workers’ compensation insurance can help cover things like medical costs and loss of income. Some workers’ compensation policies include return-to-work programs to help with the injured person’s recovery.
Your state might not require workers’ compensation coverage for in-home staff, but that doesn’t mean you should skip it.
Employment practices liability
Should a conflict arise between you and your caregiver, employment practices liability insurance (EPLI) is the way to go. Workers’ compensation only covers injuries sustained on the job — it doesn’t respond to claims relating to employer-employee disputes.
EPLI can help with legal bills, settlements or court-awarded damages. A policy with a public relations solution can also help with public response to get ahead of sensitive accusations. EPLI responds to allegations like:
- Sexual harassment
- Wrongful termination or discipline
- Breach of employment contract (traditionally a written contract, but it can be oral)
- Failure to hire
- Emotional distress (witnessing a violent incident or harassment, for example)
- Mismanagement of benefits (exclusions apply)
You might want to talk to your lawyer and insurance agent even before you start your nanny search, in case an employment practices claim arises out of the interviewing or hiring process.
A word about employee benefits and tax considerations
Employee benefits are a great way to retain top talent. Employer-sponsored perks like disability insurance, health insurance and retirement plans might not seem like a liability, but you’ll have tax and employment considerations to handle. And even if you don’t offer any optional benefits, you may still be required to provide your nanny with specific tax forms and withhold taxes from their paycheck.
Check with your lawyer and accountant about staying in compliance with employment laws, tax forms, filing requirements, paycheck withholdings and other federal and state laws.
Trust your caregiver, but protect your interests
Great relationships — both personal and professional — are built on trust and transparency. Any individual working in your home should undergo a thorough background check, including confirming references, before any work agreements are enacted. (This is particularly important, of course, when the work involves supervising young children.)
A clear employment contract that specifies work terms such as normal work hours, pay, overtime, holiday schedules, sick and vacation pay, other employee benefits and job duties is essential for clarity. It also helps protect you in case of a lawsuit.
Employment laws vary from state to state, so it’s wise to consult an employment law attorney to create and review any contractual agreements before you sign them.
Call your agent
Walking the fine line of individual and employer status takes some finessing. When it comes to in-home child care, there may be gaps in your current coverage that individual policies weren’t designed to handle. Call your insurance professional to ensure you, your children and your caregiver are protected.