As the harvest season nears and many of our agricultural clients are utilizing temporary laborers for the season, Contryman Associates would like to stress to ALL business owners the importance of determining whether individuals providing services are employees or independent contractors. Treating a laborer incorrectly can result in the employer being subjected to back taxes, as well as penalties and interest.
With the increase of state unemployment tax audits our firm is seeing, it’s our opinion the State and Federal systems are beginning to diligently enforce the laws that are already in place. Increased enforcement of these laws increases overall compliance with existing laws, but also provides the State and Federal governing bodies with additional revenue at a time when many governing bodies are struggling.
While there is no quick and easy way to determine a laborer’s status, much of the distinction is placed on how much control and independence exists. There are three common law rules to follow when determining the degree of control and independence:
Behavioral: Does the business control or have the right to control what the laborer does and how the laborer does his/her job? For example, if a farmer is giving instruction to the laborer, the laborer is an employee and subject to employment taxes and needs a W-2, not a 1099.
Financial: Are the business aspects of the laborer’s job controlled by the business, including how the laborer is paid, whether expenses are reimbursed, who provides tools/supplies, etc? For example, if a farmer supplies the tools and instructs the laborer what time to arrive, the laborer would be deemed an employee, not a contract laborer. In such cases, social security and medicare taxes would be withheld and a W-2 would be issued, instead of a 1099.
Type of Relationship: Are there written contracts or employee type benefits (i.e. pension plan, insurance, vacation pay, etc.)? Will the relationship continue and is the work performed a key aspect of the business? Does the laborer give you a bill–does he/she have an established business?
When meeting with your Contryman professional for year-end planning, we recommend discussing any laborers utilized. Often times all facts and circumstances must be reviewed to determine proper classification.
If Contryman assist you with the preparation of your W-2’s and 1099’s at year-end, our professionals will be following the guidelines provided for classification.
For additional information on determining whether individuals providing services are employees or independent contractors, click here.