Summer can be a busy time for a lot of business owners. Kids out of school, vacations and traveling can result in additional foot traffic, higher inventory needs, or just an uptick in business overall. With that increased activity, many turn to hiring additional seasonal help to meet their fluctuating needs. How can this factor into employers’ tax responsibilities? Let’s find out.

For most intents and purposes, seasonal workers are treated like regular employees with respect to taxes. This means that an employer must withhold Social Security, Medicare and federal income taxes. Seasonal workers will need to complete the W-4 form for tax withholding. Additional requirements may be decided on a state-level, where you might need to enroll a seasonal worker in temporary disability insurance or complete additional tax withholding forms. Where this subject can get tricky is misclassifying a seasonal worker as an independent contractor.

Having the right classification of your workers is crucial to avoid messy tax mishaps with the IRS. Due to the temporary nature of seasonal work, some employers might think these workers can fall under the independent contractor classification but they usually do not. As a reminder, employees are subject to tax withholding while independent contractors are not. Companies typically have to be responsible for unemployment taxes and worker’s compensation for employees as well.

With these increased labor costs, it makes sense that organizations would lean towards classifying seasonal workers as independent contractors but there are major differences when it comes to these two situations, and the IRS looks closely at them. The IRS will determine the workers’ classification based on criteria like behavioral control, financial control and the general nature of the relationship. If the employer is dictating to a worker how and when the work can be done, through schedules, training or specific methods, that would make them an employee, not an independent contractor. Other criteria considered would be things like whether or not they are using your specific equipment or theirs, and how much of an impact their work is having on your business overall.

Taxes for seasonal employees can be straightforward as long as they are classified correctly and your payroll is running smoothly. Like everything we discuss tax-related, it’s crucial to keep good records in order to avoid being liable for back taxes, penalties and interest related to employee misclassification. Having a good software in place that can allow you to be flexible with integrating seasonal work into your payroll and bookkeeping, as well as engaging in thorough documentation will help you avoid any stress at tax-time. If you have any questions regarding employee classification or taxes for seasonal workers, reach out to one of our team members today!