Among the many duties of a Family Office is the oversight of household help for the families served. In general, there are three common risk management issues faced. These can be summarized as follows:
- Compliance
- Liability
- Security
Compliance refers to the process of ensuring that all workers are classified and reported correctly.
Care must be taken to ensure that all service providers are legally entitled to work in the United States. Obtaining documentation early in the interview process is crucial.
The next consideration is whether the person will be classified as an employee or independent contractor. The IRS has strict guidelines that must be followed in this area. Failure to correctly classify a service provider can subject the family to tax penalties.
The Fair Labor Standards Act requires employees receive one and one-half times the regular hourly rate for all hours over 40 worked in any one week.
If the workers are employees, accurate and timely tax withholding and reporting is required.
Liability refers to the management of risks associated with having employees perform duties in the residence or on family properties.
Effective hiring practices are the best way to ensure liability is mitigated. Best practices include not only checking references and performing criminal background checks, but a credit check as well. These should be updated on a periodic basis.
As a part of hiring any individual to work in the home, consider having new hires sign a confidentiality and nondisclosure agreement.
Be certain to maintain employment files, as in any other business. Emergency contact information should be recorded and updated, as needed, for all household service providers.
Adequate workers’ compensation insurance must be obtained to reduce the risk of work related claims. If workers provide services in multiple locations, ensure the insurance policy covers all locations. If residences are in multiple states, bundling a policy may be cost effective.
In addition, Family Offices should consider having employment practices liability insurance, EPLI. This covers the family against claims by workers that their legal rights as employees have been violated.
Automobile insurance should also be reviewed if workers have access to vehicles owned by the family. A valid driver’s license and proof of personal insurance should be obtained by the Family Office.
Security refers to personal and financial security.
Camera use is recommended to deter theft and monitor the interactions between workers and vulnerable household members such as children and the elderly.
An inventory of personal property, including photographs, should be taken and updated annually. This inventory should include all valuables, including art, jewelry, and other collectibles.
Blank checkbooks, credit cards, and cash should be monitored and stored in a home safe if possible. Credit card usage should be monitored closely. If workers must use the family credit card, obtain a card with a low maximum balance and let the workers know that the card activity will be monitored by the Family Office. Ensure all workers know the card is not for personal use.
The nanny is one of the most critical jobs in the household. Nannies should always be trained in CPR and first aid. Be sure to train them on preferred doctors, hospitals, and contact information in the event of an emergency.
The Family Office should use professional security advisors to assess current security measures. These may include, but are not limited to, monitored home security systems and GPS tracking via phone or other devices.
Cyber security is a hot topic in the industry. Care must be exercised to ensure that passwords to bank accounts and other investment accounts are sufficiently complex and not revealed or kept in view. Monitoring individual credit scores of the family can also be a security measure. There are many companies that now provide these services.
Many household workers stay with the family for a long time. The Family Office plays a vital role in ensuring that best practices are in place to support both the work and family.