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Summertime -- the living is easy and many companies need temporary workers for vacation coverage, special projects, or seasonal work. Before you take anyone on for the summer, be sure to learn about your legal and tax exposure for a temporary worker.
1. A worker under your control is an employee, even if temporary.
No matter how long you need a worker, the law looks at the person as your employee if you have the right to control when, where, and how the works gets done. The fact that the worker is temporary does not change the results. For example, it is readily accepted that campaign workers on the payroll are employees even though their work ends at election time.
You can learn more about the factors used in determining control by viewing an IRS video
2. A temporary worker engaged through a temp agency is the agency's employee.
If you take on a worker through a temporary agency, the worker is not your employee. This is so even though you have the right to terminate the work because you don't like the way in which the worker is performing it or because you no longer have a need for the worker.
Your obligation is merely to pay the agency, which is usually a fixed hourly rate. You can fully deduct this cost; you have no responsibility for any employment taxes (the agency does).
3. A summer intern may not be free labor.
Under the federal Fair Labor Standards Act, a summer intern is treated as your employee and must be paid for work at no less than the applicable minimum wage. An intern can be unpaid only if all of the following six factors (taken from a DOL Factsheet
) apply to your situation:
- The internship, even though it includes actual operation of the facilities of the employer, is similar to training which would be given in an educational environment;
- The internship experience is for the benefit of the intern;
- The intern does not displace regular employees, but works under close supervision of existing staff;
- The employer that provides the training derives no immediate advantage from the activities of the intern; and on occasion its operations may actually be impeded;
- The intern is not necessarily entitled to a job at the conclusion of the internship; and
- The employer and the intern understand that the intern is not entitled to wages for the time spent in the internship.
4. Check workers' compensation coverage.
Whether you have paid, unpaid, or temporary workers, make sure your workers' compensation policy provides sufficient coverage. Talk with your insurance agent or state fund for more information.
5. Check employee manuals.
Make sure your employee manuals provide guidance for temporary workers. For example, if you take on an employee for four months and will not provide health coverage, make sure that your manual specifies that no employees can obtain health coverage before completing four months of work. If you fail to apply your benefits rules equitably, you run the risk that they are viewed as discriminatory. This can lead to adverse tax consequences to existing employees as well as lawsuits by temporary workers who think they have been denied benefits.
When in doubt, discuss your concerns with an employment law attorney.