Employees Vs. Independent COntractors for Tree Care Companies
Written by Eric Petersen, CIC
Here are some tips to consider when deciding the route that ensures the best tax and liability situation for your tree service.
To begin with, your state may have more stringent requirements on who qualifies as an independent contractor, so the point of this article is to summarize the current federal view of independent contractor status as revised on March 8th, 2021 (Final Rule). Also, it is very important to note at the time of this writing, the Department of Labor (DOL) has proposed a new regulation (Independent Contractor (IC) Proposal) that could supplant the Final Rule. It is likely that the DOL will provide a ruling on the IC Proposal by the end of Quarter 1 in 2023.
The Final Rule (current regulation as of Jan. 3rd, 2023) has an “economic realities” test that looks at five factors. There are two core factors (control and investment) and three additional factors (integration, skill and permanence) that come into play if the first two factors are not succinct.
- Control – The first core factor revolves around the control of the individual. Who is in charge of the individual? When do they show up and when do they leave? Who controls the behaviors of the individual? What contractual controls are in place, insurance requirements, adherence to safety standards, etc.?
- Investment – The second core factor talks about the investments made by the individual worker for the opportunity to have a profit or loss. Who pays for or provides equipment to get the job done? Who requires and/or pays for training/employee development?
- Integration – The first of the three secondary factors is integration. Would the individual’s contribution to the final service/product be considered integral? Would the employer be able to provide the service/product without the independent contractor?
- Skill – Another additional factor is related to the skill of the individual. Does the individual possess a specialized skill that the employer does not have on their current team or have the ability to train their team members for?
- Permanence – This factor focuses on the intended length of the relationship. Will this be a defined time relationship or an indefinite relationship?
If a worker is considered an employee, there are 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 to be in force at the start of the employee’s first work day. 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 absence
- 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.
ArboRisk’s Hiring & Recruiting Thrive Package helps employers establish hiring and recruiting principles within their company so they can hire and attract the best possible team members. Reach out to a member of the ArboRisk team today to learn more.