Q My dad needs care at home and my sister and I cannot be with him all the time. We hired a caregiver agency and are pretty satisfied. But wow! Are they expensive! One of the caregivers came to me and said she would be happy to work directly for dad as an independent contractor at half the cost. “Jane” is a nice person and is super helpful to dad. If she is an independent contractor, I assume she will pay her own taxes. Why shouldn’t we use her and save a boatload of money?

A This temptation to save money in the caregiver arena comes up all the time. Caregivers go to work for an agency, endear themselves to a particular client and then approach the client with an offer to work directly for them. We have also seen hospital workers make this kind of offer to a patient who is being discharged. This is an extremely dangerous area to venture into, and I caution you not to be penny wise and pound foolish.

First, the “independent contractor” statement is, most likely, untrue or “Jane” is simply not fully aware of the laws. Even if Jane provides a signed agreement stating she is an independent contractor, courts will look beyond the agreement to the actual circumstances to determine if the caregiver is an independent contractor or an employee. The determination is rather simple: If you tell Jane what time to report for work and how the work needs to be done when she gets there, you have an employer-employee relationship. When we have an employee, we have very strict responsibilities that include withholding and paying taxes, paying overtime and making sure employees take meal and rest breaks. Caregivers can (and have) sued their “employers” for unpaid overtime and failure to provide meal and rest breaks. In California, the law encourages such suits by awarding legal expenses to prevailing plaintiffs.

Whether or not we are required to withhold and pay taxes on a caregiver’s wages depends on the amount of pay during the tax year. For 2025, if we pay $2,800 or more, then we are required to withhold and pay Medicare and Social Security Taxes. Additionally, if we pay a caregiver more than $1,000 during a quarter, we must also pay federal unemployment taxes and if we pay more than $750 in wages in a calendar year, we must withhold State Disability Insurance from the wages and remit the withheld money to the Employment Development Department.

Also, consider workers compensation insurance. If Jane injures herself on the job and you do not have workers compensation insurance, she can come after your dad for medical expenses and disability pay. In California, not having this coverage is a serious offense potentially leading to fines of up to $100,000 and even criminal charges.

Finally, the contract you signed with the caregiving agency may well have included a clause stating that if you were to hire one of their caregivers directly, they are entitled to a fee — usually a hefty fee — for stealing their employee. It is questionable if this is enforceable in California but why expose yourself to this legal fight in addition to all the other risks?

Use a good caregiver agency. Not only do they make sure taxes are withheld and pay as required, but they also train their employees, make sure they are competent at the services being provided and they do full background checks on the person who will be alone in your dad’s home providing these important services. Yes, it is costly, but the other option can expose you to considerable risk.

Liza Horvath has over 30 years of experience in the estate planning and trust fields and is the president of Monterey Trust Management, a financial and trust Management Company. This is not intended to be legal or tax advice. If you have a question call (831) 646-5262 or email liza@montereytrust.com