Monday, February 06, 2012

The Employee/Employer Relationship

I've been thinking a lot about this issue lately, for a number of reasons.

I'll start off with a story about a friend of mine who I'll call Karen. She has someone who comes in and cleans her apartment every week. Let's call the cleaning lady Tracy. Karen first hired Tracy about 15 years ago. At the time, she only had Tracy come every other week. As is typical for this kind of situation in New York, Karen paid Tracy in cash. Over the years, Karen raised Tracy's pay a few times, and when Tracy lost some of her other clients, Karen started having her come in every week so she'd have more work. Tracy has rarely missed a week due to being sick, but when she has, Karen pays her anyway. Karen also gives her a Christmas bonus every year. Tracy takes a couple of weeks off every year, which Karen doesn't pay her for, but if Karen is going to be away and doesn't need Tracy to come, she still pays her for the weeks she's canceled.

So is this a mutually beneficial, fair relationship? Tracy offered to do the work on her own terms, and I don't think anyone would describe Karen's treatment of her as in any way exploitative or mean. Of course there's a tax evasion issue-- as you might be assuming, Tracy wanted to be paid cash because she wasn't a citizen-- at first. But now she is a US citizen and could presumably get another job where she and her employer would have to pay taxes. She's already past the age when most people want to retire, and Karen is wondering what to do about it if Tracy does want to stop working-- she's never paid any Social Security taxes for Tracy, so it's unclear what, if anything, Tracy would be able to collect. Tracy's children might or might not be able to help look after her. Karen is thinking about whether she should give Tracy some sort of pension, out of a sense of what's right and also just because she and Tracy have an affectionate relationship and she genuinely cares about what happens to her. That's more than can be said for a lot of people you read about who feel they have to economize by cutting the hours for the hired help just because their mutual funds are down.

Do you think most people feel this sense of responsibility towards those whom they employ? Is this kind of arrangement between two individuals a fair way to decide terms of employment, or should the government always be involved in setting the rules and collecting taxes and providing benefits? Should there always be an obligation to take care of an long-serving employee after the employment has ended?

The other thing that's had me pondering these issues is the TV series Downton Abbey, which everyone seems to be talking about lately. Thanks to streaming Season 1 from Netflix, I can count myself among the fans! It's set at a point when the sun is starting to set on the British empire and the old ways of life for the aristocracy are starting to change. But amongst the servants on this big estate, you have a variety of attitudes towards their situation and the people who employ them. There's a rigid class system, but there's also a sense that master and servant consider each other family, at least in some ways. Of course, sometimes this turns into the masters telling the servants what's best for them, which usually involves their continuing to be servants-- it's a paternalistic relationship where the servants have no real dignity or autonomy or choice.

And then there's what's going on in the US in current times. Some politicians are trying to make laws against collective bargaining, more and more people have to work as "independent contractors" rather than as actual employees of corporations, pensions are underfunded, and some benefit packages have been so aggressively negotiated as to be unsustainable. People are yelling "get a job!" at Occupy Wall Street protesters one minute, and saying Obama doesn't deserve re-election because of astronomical unemployment numbers the next.

If there's anything I take away from all this, it's that ideally, we'd all work for ourselves... but that just isn't possible. How can we best maintain our dignity as equals when some of us have to work for the rest of us? How can people without much power be protected from those who do have power? Would most employers actually treat people fairly if they weren't forced to? What are the best ways for government to be involved? We live in a complicated world, and wishful thinking won't make it any simpler.

And to come back to Karen and Tracy, what would you do? Would you refuse to pay someone cash under the table, employ only legal workers and pay all the taxes so they could collect Social Security? Or would you pay someone cash and just figure they knew benefits were never going to be part of the deal? Or would you feel obligated to help take care of someone who'd worked for you after they'd retired?


Anonymous said...

When I pay a contractor, whether in cash or by check, it is not my responsibility to make sure they report it on their taxes. Tracy had the option to begin paying income taxes, including Social Security, when she became a citizen.

If I had a housekeeper or maid or butler, I would feel an obligation to provide some sort of retirement assistance.

Does Karen have a few hundred thousand to give to Tracy when she retires? Is she concerned about the gift tax consequences? I would never have enough money to help someone else out in retirement, even though I save a substantial portion of my income (25%), I'm going to need every penny unless I die a year or two after I retire.

What about the woman that's been cutting my hair for 15 years? For many years she's been working out of her basement, should I ask her if she pays taxes on all her income? Do I owe her a retirement? Health insurance?

What about the kid that occasionally mows my lawn? I get a pass on that since he's a teenager and likely not to make a career out of it?

I think having someone clean your house weekly or every other week does not mean you have to take care of them financially. Was Karen Tracy's only client? I think it would be different if you employed someone for 30 or more hours a week.

Perhaps I'll stick with companies, like Merry Maids, and a landscaping firm for any household assistance in the future.

psychsarah said...

I think it's very generous and decent of your friend to consider her housekeeper's needs, but something just doesn't sit right with me. If I took home my whole paycheque (without the numerous deductions I pay, such as taxes, employment insurance etc.) I would be a whole lot richer, and could afford to put away more for retirement. However, I am subject to all of those deductions, so I expect the meagre government pension I'll receive (hopefully, if the government doesn't screw it up before I retire) in exchange for those deductions. (I should mention I live in Canada for context. I also put in lots for my own retirement, as I could not survive on the government plan). If you never pay in, how can you expect to get something out? So, if Tracey hasn't contributed to a pension, why should she receive one? Just playing devil's advocate here. If Karen has the money and wants to share it, that's her prerogtive, but I don't know if I'd have the same feeling of obligation.

T'Pol said...

I agree with both commenters. I am in the same situation myself. I do just like Karen does about holidays and off days in fact. My Tracy dropped all her clients due to old age and due to not needing the money so much anymore. She has a retired husband who gets a government pension and health benefits that cover her as well. She still keeps me as a client because we genuinely like each other. A friend of mine, an old client of hers had begged my Tracy to get on the Soical Security System many years ago and she was going to help her out with that but our Tracy did not want to get cuts from her earnings at the time since she was raising three kids. Although, I like her very much, I do not feel myself obligated to pay her any sort of pension. Besides, I really cannot afford it on my retirement income anyway. If I was rich I might have given her a large bonus as a parting gift when she stopped working altogether.

Madame X said...

Psychsarah-- it used to be much more common for companies to give employees pensions that did not require employee contributions. The longer you stayed, the more of a monthly payment the company would give you after retirement. It was just considered a standard benefit in exchange for long-term loyalty to a company.

Nowadays those have been replaced by 401k-type plans where the employee contributes and employers match it up to a point. Some argue that it's better for employees to have more "skin in the game." But it also means the employee has to choose to save money and how to invest it, and we know not everyone chooses wisely.

In some ways it would be better to just have a stream of income after retirement from a pension-- but that means the company has to manage its pension fund appropriately so it will be fully funded to cover its obligations to retirees, and some companies have failed to do that.

And if Karen did give Tracy any sort of retirement benefit, it certainly wouldn't be huge-- I think she's just thinking of some small ongoing payment, or maybe a small lump sum, I'm not really sure, but certainly not hundreds of thousands of dollars!

Laura said...

I'm with those who think Karen does not owe Tracy anything. Tracy was the one who wanted to be paid in cash, and it was up to her to change that arrangement if she was concerned about her future. I think Karen is being taken advantage of if she gives Tracy any kind of retirement benefit, even if they are friends. If one of your friends (with whom you had no professional relationship) didn't have money to retire, would you feel obligated to provide for them? If the answer is no, then that should stand here.

Re: "It also means the employee has to choose to save money and how to invest it, and we know not everyone chooses wisely." If someone doesn't choose wisely, that is ON THEM. I don't think everyone should be held responsible for one person's unwise decision. I fully support educating people to make good decisions, but after that it is up to them.

Anonymous said...

Your friend's an amazingly generous employer. But why does it have to be a choice between employer provided pension or the government stepping in? Part time cleaning jobs don't normally pay pensions, so the cleaning lady must have taken that into account and made her own saving arrangements for retirement.

It's true that not everyone will make proper retirement planning. But that's true whether or not there are private or government pensions - generally they will not be enough to completely live off without other savings, eg. paid off house.

At the end of the day, there has to be a balance between safety nets and individual responsibility and freedom.

Cindy Brick said...

Thank you, by the way, for posting again -- I miss your not doing it more often on your blog!
Tracy's an independent contractor, just like many of us out there. She should have been paying taxes, including Social Security taxes, all along. That's her responsibility -- just like everyone else. Tracy's actions, in asking for cash, say she understood all along that she had a responsibility to report her income -- but decided not to do it.
If your friend decides to give Tracy a substantial parting gift, that's fine. But if she offers a pension, she'll be obligated to continue it. What if she loses her source of income, or has her funds decimated by medical costs? She'll be in big trouble. I'd stick with the lovely parting gift.

Anonymous said...

Let's see....that person could get cash (save 20% from taxes not owed) or pay taxes and get less than 10% back.....if the person can't save they are screwed.

Anonymous said...

Tracy is a big girl. She sought out cash employment knowing of the benefits/lack thereof.

wills mama said...

Here's a solution - Karen could do her own cleaning. She'd probably have to live with more dust, etc., but would be free from her financial dilemma.