8 Tips to Avoid Household Employee Pitfalls

As an advisor in our Exclusive Family Office group, I sometimes help clients manage their household staff. While this work is usually routine and goes quite smoothly, we occasionally get thrown a curve ball.

Once, we learned that a household employee had falsified some of her work experience. We ended up letting her go but still felt it was fair to write a basic recommendation.

Later, we got a call from a placement agency asking us to verify the information in the recommendation letter. I thought, I better look at it. Sure enough, the employee had changed our recommendation letter with false information!

Lesson learned that you can’t be too careful when hiring household employees. Very often, as a family’s wealth slowly builds, so does their household staff, and before they know it, they can be mired in management headaches and legal complications.

Remember, hiring domestic service workers is a financial decision that goes well beyond the wages you pay. And it comes with a number of risks that you need to be aware of and manage.

I spoke with Teresa Leigh, a household staff advisor who specializes in serving high net worth and ultra-high net worth families, for hiring and management tips. Here are some of her top 10 best practices to avoid costly pitfalls.

  1. Clearly describe the job responsibilities in the offer letter

    Before you start the hiring process, write a clear job description that details responsibilities and expectations. Include tasks that might require heavy lifting, driving, work schedules, etc. Then, once you’ve found the perfect candidate, be sure to extend the job offer in a formal offer letter that includes these responsibilities. A detailed job description and signed offer letter are more important than an employment contract, which can lead to slippery situations and often don’t hold water in court, Teresa says. You’re on firmer ground if you need to terminate someone for failure to perform their job duties. It’s much harder to argue when their duties have been clearly defined and documented from the interview process.

  2. Do a thorough background check

    As I described above, it’s imperative to carefully verify a service worker’s employment and personal history. Documents can be forged; references can be made up. Call several references and ask detailed questions about the jobs they performed to be sure they are capable of doing the work you want them to do. Teresa recommends calling a minimum of eight work references and eight personal references for each candidate.

    After you’ve identified a good candidate, then hire a professional firm to do a criminal background check.

    Once the candidate has accepted and signed the offer letter, then you can run a credit check, but only if it is relevant to their position, for example, if they will be managing any financial accounts.

    One thing you don’t want to do, says Teresa, is rely solely on domestic staffing agencies to screen candidates. The more reputable agencies will perform a background check and call references, but nothing replaces a professional investigative firm. As for online caregiver search sites, she calls these businesses the “dark web of caregivers.” Despite charging 20% to 45% of the employee’s total compensation as their fee, junior staffers may be responsible for minimal, “worthless” background checks. You might get lucky, or you might end up with somebody with a gambling problem or other addiction.

  3. Don’t give out your Social Security number

    Before you hire even one employee, you should set up a limited liability company (LLC). Unlike the name implies, it’s not a shield against liability, Teresa says. The important feature is the LLC will obtain its own employer identification number (EIN) for payroll and tax purposes. This helps to protect your identity because otherwise you would need to provide your Social Security number for payroll documents.

  4. Be fully insured

    Also before you hire anyone, be sure you have appropriate insurance coverages. Each state is different, but most require some form of workers compensation. Many wealthier families think that they can afford to cover expenses if a worker gets hurt on the job. But the risk is too high, and emotions can get in the way when settling claims. What would you do if the employee says they can’t do the job they were hired to do anymore because of the injury? Another slippery slope. In addition to worker’s compensation coverage, you’ll want to add your new LLC and its employees to your homeowner’s insurance policy and automobile policy if they will be driving your cars.

    And then there’s Employment Practices Liability Insurance (ELPI). This coverage protects you from disputes that would fall under the jurisdiction of the U.S. Equal Employment Opportunity Commission (EOCC), such as discrimination, sexual harassment and wrongful termination.

    Teresa says the No. 1 reason workers sue their employers is for retaliation, according to the EEOC. And over $439 million was paid out in legal judgements to employees in fiscal year 2020!

    “Many high net worth families are unknowingly waving a red flag saying, ‘Sue me!’ if they don’t have complementary hiring and employment policies in place,” Teresa says.

  5. Have household policies and rules in writing

    In addition to having a clear job description, accepted offer and adequate insurance coverage, you should also detail your household rules and policies in writing, including grounds for termination. Here are a few must-haves Teresa says you should include in your household rules and guidelines:

    • How employees should take their breaks, meals and parking
    • How they must record their time worked
    • How they ask for a day off

    She also advises to include conduct that is not acceptable, such as going through trash, removing items from the home, improper use of a credit card, and use of household amenities (household washer and dryer, sauna, cars and the pool). Having employees sign a confidentiality and non-disclosure agreement prior to hire is also recommended.

    It’s better to be proactive in your management of employees instead of reactive to their poor judgments.

    Today, there’s a lot of concern about whether you can require an employee to be tested or vaccinated for COVID-19, or even to wear a mask. If it’s not in writing, you will probably have a hard time enforcing it. And even requiring it for new employees can make it harder for you to find experienced household help, Teresa says.

  6. Don’t let your employees live on your property

    Once you allow employees to live on your property, you are not just an employer, you are a landlord. And state landlord/tenancy laws will apply. These are two different legal relationships, and terminating one doesn’t automatically terminate the other. That means you can’t automatically expect a live-in employee to vacate the property if they quit or are fired. You will have to follow eviction laws, which can take months, or even years.

    It is okay to let employees stay overnight temporarily, but you should have a written temporary overnight policy. And you will probably have to pay them even for sleep time. In California, you would have to pay minimum wage for at least eight hours sleep time. If they wake up in the middle of the night to feed the baby or care for grandma, then they’re on the clock at their full wage.

  7. Have all legally required paperwork

    Naturally, you should have all legal documents such as proof of work eligibility and tax forms. But this should also include timesheets, even for salaried employees. As the employer, you are responsible for supplying records if anything goes south. Follow state and federal labor laws regarding required sick leave and whether an employee qualifies to be paid salary or must be paid as an hourly employee. Teresa states about 90% of domestic workers are hourly employees per their daily job responsibilities and must be paid overtime wages.

    In California, overtime is over eight hours in a day, and only managers with manager responsibilities could be “exempt” from overtime wages and paid an annual salary. This goes back to having a clear written job description where the employee’s management responsibilities are clearly spelled out.

  8. Know when to get help

    In my experience, it can be hard to pull clients and their household employees out of situations where poor habits have developed. If you’ve been employing professionals for years and haven’t been following these best practices, or the law, consider hiring a human resources advisor who understands wealthy families and the service sector to help plan the best course of action and get the employees under the proper documentation and rules. This may involve a financial settlement to get on the right track, but it is well worth it. A wealth manager who is experienced in serving family offices could also be a great ally.