employee, employer, independent contractor
Campground Workers: Employees or Independent Contractors
Do you pay any of your campground staff as independent contractors? This can quickly become a big problem if the IRS ever takes a look at it.
The problem is that most campground workers do not meet the legal requirements of an independent contractor. Despite this fact, many within the campground industry continue to pay employees as independent contractors which creates a lot of risk and liabilities for their campgrounds. Whether someone is an employee or an independent contractor is determined by Federal law, regardless of how convenient it is for either of you. Likewise, having a worker sign a contract that states they are a contractor, and not an employee, does not make them a contractor.
The distinction of employee or independent contractor has significant implications for both the employer and the employee. Campground owners like to treat workers as independent contractors because they avoid having to match the employees’ payroll tax, pay benefits, pay unemployment insurance, etc. This results in a significant savings for employers and simplifies the process of paying that worker.One of the steps we recommend to campground owners who use independent contractors and who therefore face a heightened risk of a costly IRS payroll tax or benefits audit, is a quick review of some of the key things the IRS tells its agents to look at in determining whether a worker is really an employee.
How do I classify may campground workers as employees or independent contractors?
The primary inquiries fall into three categories.
- Who has financial control of the job?
- Who can exercise behavioral control over how the worker performs the specific task?
- And how do the parties themselves treat the relationship?
When reviewing the checklist, keep in mind that the IRS will make its decision based on the whole picture, not just a single factor.
Workers are more likely to be classified as independent contractors if they:
• Make a significant investment in business property (a home computer is not significant);
• Pay their own business expenses;
• Receive a flat fee that is not based on an hourly or similar rate;
• Are not prohibited from doing work for other companies;
• Can pay subcontractors to get the job done;
• Are not performing services as an integral part of your regular business;
• Have a contract with an enforceable liquidated damages provision;
• Can make a profit;
• Can suffer a loss.
Workers are more likely to be classified as employees if they:
• Are assigned hours to work and must report to the employer’s place of business;
• Are given specific instructions and on-going training on how to get the work done;
• Cannot work for others;
• Have expenses paid by your company;
• Are paid with a salary or hourly wage;
• Do not have a significant investment in their trade or business;
• Are an integral part of your regular business;
• Receive direct reimbursement for all, or almost all, expenses;
Less important factors are:
• Whether or not the work is performed on the business’s premises;
• Whether the worker has flexibility in setting hours;
• Whether the relationship is temporary or short-term;
• Whether the work is full- or part-time;
• Whether the worker performs services for one or more businesses.
Classifying an employee as an independent contractor with no reasonable basis for doing so makes employers liable for employment taxes.
How will they know that I misclassified campground employees as independent contractors?
Think you won’t get caught? The old fashioned ways of getting caught were if an employee filed a report with the Department of Labor, tried to collect unemployment, or was injured and tried to file a worker’s compensation claim. Now, the IRS has made it even easier to catch employers who are misclassifying workers. If you have treated a worker as an independent contractor and the worker feels that they were really an employee (or realizes they don’t have to pay as much in taxes), they can file Form 8919 with their Federal Income Taxes. The big incentive for them is that if the IRS agrees with them, they will only be required to pay their portion of the self-employment tax. That filing will then make life miserable for you – their employer (or as usually the case, former employer.)
What are the consequences for misclassifying campground workers?
The Department of Labor, the IRS and state agencies take this matter very seriously. Campgrounds who misclassify workers can face a long list of both financial and legal consequences. Just a few of them include:
- Requirement to pay the back-taxes and interest in employee’s wages (that should have been withheld)
- FICA taxes that were not withheld originally (along with penalties and interest for remitting them late)
- Reimbursement of wages that the business should have paid the worker (if the correct wage and overtime rules had been applied), and any penalty they incur as a result of failing to follow those laws.
- Payment of penalties and benefits for worker’s compensation insurance
As you can quickly see, the penalties associated with misclassifying workers can add up to more than you paid that worker to begin with. To make matters worse, if you get caught misclassifying one employee, it will likely result in the IRS taking a deeper look at how you are classifying the rest of your workers. Plus, if the IRS believe you misclassified workers intentionally, they can also assess criminal and civil penalties of up to $1,000 per misclassified worker and one year in prison. If you think you are protected by your campground’s LLC or corporation, think again. The person responsible for payroll withholding in your campground could be held personally liable for any uncollected tax.
As with most regulations, the cost of noncompliance is much greater than the additional effort required to do things the right way to begin with. Protect yourself and the investment you have made in your campground by making sure you don’t take on unnecessary risks and liability. Work with a professional who has experience determining the legal requirements of how you should classify your workers.
At Campground Accounting, we specialize in working with Campground and RV Park owners throughout the USA. Our industry knowledge focuses on taking the headaches out of accounting and helping you grow your campground’s value. Don’t you owe it to yourself to see how we can help you? Schedule a complimentary chat with us today
Donna Bordeaux, CPA with Campground Accounting
What happens when you send two CPAs out into the relaxing outdoors to camp? You get CampgroundAccounting.com. Donna and Chad have over 50 years of combined experience as entrepreneurial CPAs. They’ve owned businesses and helped business owners exceed their wildest dreams. They camp and travel across the country every chance they get, so it’s just a natural fit that they focus their CPA skills on helping campground owners throughout the USA grow their businesses and minimize the impact of taxes. They understand the key performance indicators and specialized issues that face RV park owners every day.