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Mitigate risks when hiring temporary help

Robert Fears Published on 01 January 2015
Driving tractor

Although forage crop production and harvesting have become highly mechanized, temporary help continues to be needed during labor-intensive seasons.

There is a tendency to hire temporary people with a handshake and pay them in cash after the work is completed without creating any signed documents. Yielding to this tendency creates serious legal and financial risks. To mitigate risks in hiring temporary help, several questions need to be correctly answered.

Contractor or employee?

“The first decision is to decide whether the temporary help will be a contractor (self-employed) or an employee,” Dale Ross, certified public accountant in Georgetown, Texas, says. “It’s all about control. Do you control what the worker does and how they do it and when?

Do you tell them when to start work and when they can stop? If the answer to any of these questions is yes, your worker is an employee, not a private contractor.”

“Another deciding factor is whether the temporary help furnishes equipment or whether they use your equipment,” Kent Schuster, attorney at law in Hearne and Austin, Texas, explains. “If you hire someone to bale your hay with their equipment, they are a contractor. If they use your equipment, they are an employee.

“Many state agencies have made comparisons between contractors and employees,” Schuster continues. “An employee may be required to submit regular oral or written reports about work in progress, whereas a contractor is not usually required to do so.

Employers typically pay employees in regular amounts at stated intervals, such as every week, bi-weekly or monthly. An independent contractor is normally paid by the job.

“Services of an employee must be rendered personally, and they do not hire their own substitutes or delegates to do the work for them,” says Schuster. “A true independent contractor is able to assign another person to complete the job. An employee ordinarily works for one employer at a time and may be prohibited from joining a competitor.

Independent contractors often work for more than one client at the same time. An independent contractor may advertise, carry business cards, hang a sign in front of the business location or hold a separate business license. The employee does not make his or her services available to the public except through the employer’s operation.”

“At the time a self-employed person is hired, it is very important to have them complete an Internal Revenue Service (IRS) Form W-9 before any money is paid,” Ross cautions. “Once you pay the person, it becomes almost impossible to get a completed W-9.

When the contractor earns a total of 600 dollars or more during the year, you are required to file Form 1099-MISC with the IRS and issue a copy to the people who did the work. The employer does not collect or pay any taxes on contractor services. The contractor is responsible for paying all taxes due on his or her income.

“If the person works as an employee, the employer must deduct federal withholding, Social Security and Medicare taxes from each paycheck,” Ross continues. “In addition, the employer is required to pay a portion of the Social Security and Medicare taxes on each employee, which amounts to about 7.65 percent of the wages. An employer is usually required to pay unemployment tax to a state agency.”

It is less costly to hire contractors than employees, but incorrectly classifying temporary help can be very expensive if audited by the IRS. If you classify an employee as an independent contractor and you have no reasonable basis for doing so, you may be required to pay the employee taxes for the entire period the person has worked for you.

How old is the person?

Hazardous occupations for youth under 16

“It is very important to verify the age of young people you hire so that you can comply with the child labor laws,” Mike Holland, attorney at law with Holland and Holland in San Antonio, Texas, says. “Minors under 18 years of age can only work in non-hazardous jobs. (Hazardous jobs, as identified by the Secretary of Labor, are listed in Table 1.)

Minors under the age of 16 have additional restrictions regarding the number of hours they can work. During holidays and school breaks, they may work as many as eight hours per day and 40 hours per week between the hours of 7 a.m. and 7 p.m.

The exception is that they can work until 9 p.m. from June 1 through Labor Day. When school is in session, work time is limited to a maximum of three hours per day and 18 per week.”

Is the person a legal resident?

“If you don’t know the person you are hiring, it is a good idea to complete a Form I-9 with the employee to verify employment eligibility,” Holland says. “The form should be completed for citizens and non-citizens.

Both employees and employers or authorized representatives of the employer must complete the form. An employee must present acceptable documents evidencing identity and employment authorization.

A list of acceptable documents can be found online (US Citizenship and Immigration Services Handbook.pdf ). The employer must examine the presented employment eligibility and identity documents to determine whether the documents reasonably appear to be genuine.”

What are the personal injury liability risks?

“I carry a personal injury liability insurance policy on my ranch in south Texas,” Holland states. “The policy covers employees, contractors, invited guests, uninvited guests and any other people that become injured on the ranch. It is important to cover uninvited guests because thieves, trespassers or curious bystanders can sue if they get hurt on or around your property.”

Releases from liability help manage risk in some cases. For instance, if you hire someone to tend livestock who rides his or her own horse, you might want to ask for a release that absolves the ranch of any liability in the event that the employee is injured due to his or her animal’s behavior.

Is the person who they say they are?

When hiring a person, make sure they are who they say they are. It is not uncommon for an anti-agriculture organization member to seek employment so they can secretly take videos of scenes that imply environmental pollution or destruction of natural resources. You don’t want to see your operation highlighted on televised news in a negative fashion.

Thieves sometimes seek employment so they can inventory valuable tools, equipment and hay; learn the habits of other personnel; and map ingress and egress points. This information makes it easier for them to steal from you.

Try to get references from people you intend to hire and then contact the listed parties to learn if applicants are telling the truth about themselves.

Hiring of temporary help needs to be planned in advance of when labor is needed so there is time to take the necessary steps to mitigate risk.  FG

Robert Fears is a freelance writer from Georgetown, Texas.

Driving tractor in the field. Photo by Cassidy Woolsey.