No matter how many ways you try to slice it, if someone you treat as an "independent contractor" meets the standards for the definition of an employee, the state will consider them to be an employee! Even a signed agreement may not protect you because an "employee" cannot sign away their rights under the law. A recent article by Ben Mook in the August edition of The Equiery Magazine should serve as notice to every equine business owner regarding the classification of workers. Mook's article outlines a recent court case in which a worker, who had been working under the classification of an independent contractor for 2 years, was injured at her job.
She was denied coverage by the owner for workers compensation because of her classification. She sued the farm claiming that they committed "work place fraud" by treating her as an independent contractor. "Her lawsuit sought $1.7 million on claims that included failing to secure workers' compensation and failing to provide a safe workplace." Even though the farm owner had proof she considered herself an independent contractor with a signed IRS Form W-9 from her, the court still found in her favor. The court awarded her $274,000 in the verdict against the farm. The jury reached this decision in less than three hours.
Of additional concern, is that these penalties do not include the unpaid payroll tax. Should the IRS take notice, the barn operator could owe back payroll taxes and penalties. In 2010 the IRS instituted the Employment Tax National Research Project. This program involved the hiring of an additional 2,000 IRS agents to identify misclassified employees and collect unpaid payroll tax. Unfortunately, the equine industry is ripe for the picking.
We understand the financial challenges of classifying your workers as employees. Last time we checked, Workers Compensation for riding instructors in California was running nearly 20% of gross pay and was closer to 50% for some equine occupations (like racetrack jockeys.) Add to that, the additional payroll expenses and the extra bookkeeping involved and reclassifying your workers may seem to be an extremely daunting undertaking.
One tool we have available for our members is Equestrian Professional's Payroll Calculator. This calculator can help you estimate what it will cost you to hire an employee or reclassify a private contractor. Many of us think only of the hourly pay and forget to calculate in the true expenses of hiring an employee. Equestrian Professional's Payroll Calculator is helpful because it enables you to examine different scenarios of hourly pay rates and hours per week with the cost of payroll added in. This can help you set wages and hours that make the best financial sense for your horse business.
Whatever your situation, this case is a wakeup call to all equine business owners. The courts, as well as the IRS, are cracking down on businesses who are classifying workers as independent contractors. Even if you have documentation to support your designation, if that worker fits within the parameters of the definition of an employee, they are an employee. If you have any doubts, seek legal counsel to keep from having this type of issue in your business.
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