Many workers you employ in the horse industry are either part-time or seasonal contractors. You move your horses based on the weather, and where they are racing or competing so your workers are constantly changing. From barn maids to hot walkers, each and every person you pay must be classified in one way or another. Be sure that you classify them correctly.
Generally workers can be put into one of the following categories:
- Independent Contractor
- Statutory Employee
- Statutory Non Employee
An independent contractor must meet three tests: who has control or direction of work, is it independent trade or business and is it an outside service. What does that mean for the independent contractor? Each worker needs to have a separate office, business location, their own tools, insurance, and licenses. Normally, the contractors are paid by job not per hour and any work preformed is outside of the employer’s normal place of business. There is also the possibility of making a profit or a loss. The independent contractor must comply with instruction on when and how a particular job is to be performed; he/she could be fired if not obeying specific instructions. There is typically a contract which outlines the work to be performed. At the end of the year the employer will be responsible for issuing 1099s for each employee.
In order to deem someone a W-2 employee there are three different tests and levels of control in each. Test one is behavioral control, which means how the worker is trained to perform the task and if the details of performance are controlled by employer i.e. when, how. The greater the control that is in place, the most likely the worker is an employee. The second test is financial; employees must be guaranteed a salary or hourly wages over a specific period of time. The most common way to pay an employee is on a weekly or biweekly basis. The third test is the type of relationship the employee has with the employer. Some factors that influence this include is the worker guaranteed benefits, i.e. vacation, health insurance etc. and are there any contracts in place.
Statutory Non-Employees are not subject to federal and social security tax withholdings. Usually direct sellers and licensed real estate agents fit this category; their income is reported on form 1099 MISC.
The last category of workers is Statutory Employees. They may be subject to unemployment and social security withholding, but not to federal withholding. However, the employer will still issue a W-2 since the role itself meets behavioral, financial and relationship tests same as with Employees. Drivers, full-time life insurance sales agents selling for one insurance company, employees who work away from home, full time traveling employees which work with orders all fit this category.