To pay her kids to do chores around the house don't make them household employee and is not considered as earned income. When you hire a household employee to work for you on a regular basis, you and the employee must complete the Form I-9, Employment Eligibility Verification, pay employment taxes and file form W-2 and W-3 for your employee.
You can learn more about that here:
Household Employer's Tax Guide
Household Employment Taxes
