Page Reviewed / Updated – September 27, 2020


The process of managing payroll, withholdings and making tax payments for privately hired caregivers can be frustratingly complex and time-consuming. However, if you hire an independent caregiver to care for your aging loved one, you are a “household employer” and as a household employer you are legally required to undertake these tasks. Full details of independent caregiver employer’s obligations are available here.

Private employment agencies (less formally called nanny or caregiver payroll services) have emerged that greatly facilitate this process for families caring for elderly or those suffering from Alzheimer’s / dementia. For a minimal monthly fee, they can save families much time and frustration, keep all the affairs in legal order and importantly, facilitate the Medicaid application process should the need arise for care beyond which the family can afford. 

What Does a Payroll Service Company Do?

  • Household Employer Startup Logistics – Employing an independent caregiver makes one a “household employer” and as such one must register with various state and federal agencies to establish tax identification numbers. Payroll services undertake these and other startup logistics on a family’s behalf such as performing background checks, creating employee contracts and obtaining a workers’ compensation insurance policy.
  • Payroll Processing – Payroll processing is much more than simply writing a check each pay period. It involves knowing what state and federal agencies to contact, what taxes to withhold, and calculating and withholding the appropriate amounts. Payroll Services will figure tax withholdings, process the payroll, establish employee direct deposit (if desired) and keep records of all payroll documentation and make it available online. These last points are critical when it comes to annual tax filings.
  • Tax Filing – Tax filing involves preparing and filing, pay period and year-end tax documents such as W2s for your employee / caregiver and Schedule H for your federal return. The service will contact the appropriate state and federal agencies and keep records of everything available online.
  • Ongoing Support and Guidance – Inevitably, families employing independent caregivers will have many questions about their responsibilities as employers. A good payroll service will offer unlimited calls and email support to answer questions regarding local, state, and federal household employer requirements. Additionally, their knowledge of tax laws surrounding being a household employer of a caregiver for the elderly can help families achieve their own maximum tax benefits each year.

Costs and Cost Savings

Considering the amount of time that one saves, as well as the headaches that will be avoided, the cost of hiring a payroll service / private employment agency is very affordable. One should expect to pay approximately $200 / quarter. Perhaps, a more interesting calculation of the cost savings is when the cost of hiring an independent caregiver and a payroll service is compared to hiring a home care agency.


Home care agencies charge approximately 30% more than independent caregivers. In this example, a homecare agency charges $19 / hour for a senior caregiver, while if one privately employs a senior caregiver, they’ll pay $14 / hour. Let’s say the caregiver works 15 hours per week.

Cost of Independent Caregivers & Payroll Services vs. Homecare Agencies
Homecare Agency Independent Caregiver
Hourly Rate $19 $14
Annual Cost at 15 hrs / week for 52 weeks $14,820 $10,920
Payroll Service Cost (estimated) n/a $800 per year
Total Annual Cost $14,820 $11,720
Cost Savings None $3,100 per year

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