Employee classification is one of those tricky subjects that has huge implications for both employers and employees. If you get it wrong, as an employer you can be subject to fines and tax penalties as well as legal recourse from your employees.
This issue comes up a lot in the agricultural industry, including equestrian businesses, because there is a tradition of a migratory workforce and long hours on the job. There are many examples of misclassification of stable hands and grooms including this example of a teen barn worker that won a sizable lawsuit in Maryland.
How do you determine employment status for your employees? The best advice is to error on the side of caution and assume they are employees unless you can build a solid case showing they should qualify for contractor status.
Always document contractor status in a signed agreement between you and the individual you are hiring.
Let’s define employee and contractor
An employee is someone whom you pay by the hour, with a salary, or with commissions to perform work for you. You pay employment taxes and worker’s comp on their behalf and in return govern their schedule and direct their work responsibilities. The work they perform is essential to your business.
A contractor is an individual who performs work for you for an agreed upon price, which can be hourly or a flat rate. You don’t pay employment taxes or worker’s comp on their behalf. You don’t have control over their work schedule and they have control over their work priorities and how they complete the job.
If you are wondering whether you should classify someone as a contractor or employee, ask yourself these questions:
- Do you control or have the right to control when and how they do their job?
- Do they use your equipment or do they provide their own? Do they pay their own expenses?
- Is the activity performed a key aspect of the business?
- Are you providing benefits like health insurance or paid time off?
The nuance is in the degree in which you control or have a right to control the way they perform their duties. A contractor manages their time and the project and often takes on expenses to complete the project. An employee uses their employers resources to complete a project and looks to the employer for scheduling and direction in their day to day tasks.
Here are some examples to help illustrate the classifications.
Example 1: You are at a horse show and hire a groom to care for the horses during that week. The groom is paid a daily fee for care and grooming of each animal. They agree to be available as needed during the week but they don’t clock in and out. They perform this duty for multiple clients throughout the year.
- This is a contract employee; you are paying the groom by the job and reviewing the finished product rather than directing the actual work. They also have several clients that they work with throughout the year, which further clarifies the issue.
Example 2: You own a boarding stable and hire someone to clean stalls in the morning. This person agrees to clean each stall for $5 a piece. You ask that they get the work done by noon but the individual is free to arrive when they see fit. You don’t supervise their work beyond verifying each day that all of the stalls have been cleaned. They perform no additional tasks beyond the stall cleaning. They perform this service for multiple barns in the area and bring their own equipment.
- This is a contractor; you aren’t directly supervising the job, they don’t perform duties beyond what is specified in the contract, and they have control over their schedule. They also serve multiple clients and bring their own equipment; theses are hallmarks of a business.
Example 1: You run a lesson barn and hire someone to teach lessons. You pay them per lesson but your office handles the scheduling and payment from the students. The teacher uses your horses in the lessons.
- This is a tricky one because the payment arrangement may seem like they are a contract employee BUT because the lesson stable has control over the scheduling, the service performed is a key function of the lesson business, the stable handles payment from the student, and the stable’s horses are used, this individual is considered an employee. Further, this employee may be subject to overtime pay depending on how much they earn each year.
Example 2: You have a stable hand that is responsible for feeding and care of the horses at your boarding stable. They have set hours from 8 to 4 that they are expected to be at work. You give them a list of tasks each day to complete and supervise the work performed. Occasionally they perform duties outside the scope of their daily tasks.
- This is an employee and may be subject to overtime.
Employee 3: You are a trainer and hire an assistant. They receive direction from you but have control over their daily workflow and supervise working students in the barn. You pay them a monthly salary and pay a portion of their insurance premium.
- This is an employee and may be non-exempt depending on whether their salary meets the minimum salary threshold, eliminating your obligation to pay overtime.