As you look to grow your tree service, you will soon need to begin to add workers to your team. There are a couple ways you are able to go about that; you can hire employees or you can hire independent contractors. Here are some tips from ArboRisk Insurance, the experts in tree service insurance, to decide the route that ensures the best tax and liability situation for your tree service:
Every state will have different qualification or requirement to define who is an independent contractor and who is an employee. For the purpose of this, we will only discuss the IRS guidelines. The IRS uses 2 main guidelines to determine if someone is viewed as an independent contractor or it they are viewed as an employee.
These 2 guidelines are: Control & Relationship
The control aspect consists of two parts:
- Behavioral Control- Who is in charge of the individual? When do they show up and when do they leave? Who controls the behaviors of the individual?
- Financial Control- How is the individual being paid? Do they work on a separate individual contract? Are they going to be available to make a profit or a loss? What is the financial situation of the arrangement?
Relationship: How is it viewed between the two parties involved? Is there a contract in place? Is vacation time offered or are benefits given? For business expenses, are they reimbursed or not?
Although it may differ between states, the IRS will look at those two aspects to determine if the individual is an employee or an independent contractor.
If a worker is considered an employee, there a few things a business must do. Such as, paying for social security and payroll taxes at the state and federal level. Also, unemployment insurance and workers compensation insurance are required up front. At the end of the year, a W-2 must be created for the employee summarizing payroll taxes.
For an independent contractor, a business does not have to do any of the things that are required for an employee. All that has to be done is at the end of the year a 1099 must be created if the independent contractor was paid more than $600 for their work.
Pros to hiring an employee for your tree service:
- You will have them as your work force and they are there when you need them
- You can assign permanent tasks and delegate work
- An employee will be there in your abscence
- You have control over how things get done and what gets done
- An employee will help to promote your brand and show loyalty to your company
Cons to hiring an employee for your tree service:
- You may have to provide benefits such as health insurance and disability
- You will have to pay an employee on a regular basis and keep it consistent
- You will have to pay payroll taxes and workers compensation coverage
- You will also have to invest time and money into an employees training and provide them equipment
Pros to hiring an independent contractor for your tree service:
- You will pay a higher hourly wage, but it will be less expensive in the long run
- You do not have to pay for training or equipment
- You do not have to pay for workers compensation coverage or payroll taxes
- You will have lower liability exposure, whatever the independent contractor does is on them
Cons to hiring an independent contractor for your tree service:
- You will lose control on how the job is done
- An independent contractor’s availability will differ and they work on a first come, first served basis
- An independent contractor is generally not available in an emergency situation
- Laws can be confusing and just because you feel that they qualify as an independent contractor, they may not
- You may still be subject to a workers compensation claim or an injury lawsuit
- You could be sued for their actions from a liability standpoint if they do not meet all the requirements for independent contract status
As a tree service owner, you must carefully plan how you add workers to your team. If you choose to hire employees or independent contractors, take these tips into consideration to ensure you are doing what works best for your tree service. Would you like to speak to a labor law attorney during a FREE half hour consultation? Contact ArboRisk Insurance today to find out how!