EcommerceBytes-Update, Number 369 - October 19, 2014 - ISSN 1528-6703     2 of 5

Help for the Holiday Season: Getting the Workers You Need

By Barbara Weltman

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Many merchants need added help to best service their customers during this busy holiday season. Should seasonal workers be put on the payroll or treated as independent contractors? Here are some issues to consider and what's at stake.

Worker Classification
A challenge for merchants taking on added help is deciding whether their new, seasonal workers are employees or independent contractors. What's at stake?

1) It's more expensive to put workers on the payroll, because employers have to pay employment taxes, workers' compensation insurance, and other costs; independent contractors are responsible for their own taxes, insurance, and benefits.

2) The federal government (including the IRS and the Department of Labor) as well as states are on hyperalert on the question of worker classification (see more details below). From the government's perspective, classification as employees ensures that payroll taxes are paid and that employees are guaranteed minimum wage and overtime pay. Classifying your workers as independent contractors may invite government scrutiny of your business practices.

Factors to Consider
The labels you use for workers don't determine their proper classification. Under the law, if you have the right to control when, where, and how the work gets done, likely workers are employees. The short duration of the engagement doesn't change this result (department stores and other retailers put short-term workers on their payrolls for the holiday season in which they work).

According to the IRS, control is based on 20 factors that fall within three categories:

Behavior. The greater the degree of control that a company exercises over workers, the higher the likelihood that they are employees.

Finances. The more tools of the job provided by a company and expenses reimbursed by a company that workers need for their work, the higher the likelihood that they are employees.

Relationship of the parties. The way in which the company and workers view their relationship is part of worker classification. Having an agreement stating that workers are independent contractors is helpful but isn't determinative (remember that the IRS isn't a party to the government and isn't bound by it).

A recent Kansas court decision that decided FedEx Ground drivers that the company contracted with as independent contractors were really employees said: "if a worker is hired like an employee, dressed like an employee, supervised like an employee, compensated like an employee, and terminated like an employee, words in an operating agreement cannot transform that worker's status into that of an independent contractor."

Merchants Beware
If you believe you have a basis for treating workers as independent contractors, just be aware that both the federal government and states are going to be watching:

  • The federal government has given $10.2 million to 19 state unemployment programs to help these states with their detection and enforcement activities regarding worker misclassification (i.e., treating workers as independent contractors who should really be classified as employees). Four of these states (Maryland, New Jersey, Texas, and Utah) received the lion's share of the grant because of a "high performance bonus."

  • Sixteen state agencies (Alabama, California, Colorado, Connecticut, Hawaii, Illinois, Iowa, Louisiana, Maryland, Massachusetts, Minnesota, Missouri, Montana, New York, Utah and Washington) have a memoranda of understanding with the U.S. Department of Labor as part of the federal government's Misclassification Initiative.

Temporary Worker Alternative
Instead of hiring an employee or using an independent contractor, merchants can engage temporary workers through an agency specializing in this type of workforce. The temp workers are employees of the agency; the merchant pays the agency a flat hourly fee. Check national agencies such as Manpower and Kelly Services as well as local temporary employment agencies.

Each business's situation is different, and decisions on how to run a company largely are up to the owner. However, when in doubt when it comes to worker classification, it's wise to talk with an employment law attorney to ensure that things get done right.

About the author:

Barbara Weltman is an attorney, prolific author with such titles as "J.K. Lasser's Small Business Taxes and The Complete Idiot's Guide to Starting a Home-Based Business," and trusted professional advocate for small businesses and entrepreneurs. She is also the publisher of "Idea of the Day(R)" and monthly e-newsletter "Big Ideas for Small Business(R)" at and host of "Build Your Business" radio. Follow her on Twitter: @BarbaraWeltman.

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