Yes, you are at risk.Yes, she is at risk.The chances of getting audited are much better, now that youu2019ve posted this question to a public forum.The cost of full legal compliance in California for home care workers for the elderly, when they are paid from certain accounted funds, requires that you pay them as employees, rather than as contractors.For most people, this means outsourcing the compliance to a third party, with a monthly bill for their services.I have a friend who is struggling with this, since compliance approximately triples the costs of employing one person for this purpose, compared to a contractor (a family dispute requires her to document full compliance).Most people not dealing with certain accounted funds treat the relationship as a contractor relationship.As long as you issue a 1099-Misc, and file the correct paperwork with the IRS, rather than paying completely under the table, this should be sufficient.She will then be on the hook for paying the taxes, on an estimated quarterly basis, which is what independent contractors have to do.This cost-shifts the burden onto her, so it would be unfair if she did not also get a raise to cover her taxes, and the accounting.Again, in California, you would likely have to nearly double what you pay her. So, for example, if you were paying her $20/hour under the table, you would need to bump it up to about $30.80/hour so that when she pays ~35% state and federal taxes, she still makes that $20/hour after taxes. Call it $33/hour so she can hire an accountant for the taxes.If you go through a service and make her an employee, expect it to be closer to $60 (management fees, workmanu2019s comp insurance, legal insurance, employer contribution to taxes, etc.).Either wayu2023 adding 65% for a contractor or 200% for an externally managed employee, is better than federal prison or a huge fine which would wipe out everything youu2019ve saved by paying her under the table, and then a lot more.