Employee or Independent Contractor

By: Linda Lehman, Senior Assistant Accountant

Are the individuals who work for your business considered Employees or Independent Contractors?  Many agribusinesses have seasonal workers which may fall into either of these categories. There are several important points you need to consider before determining how to classify an individual.

An individual is considered an employee if they meet several of the tests below

Supervisory Control 

  • Your business provides specific instructions as to how, where, and when to do the work.  
  • The individual receives training on how to do the job; and is closely monitored to be sure proper procedures and safety guidelines are followed.
  • You have an evaluation system in order to measure performance; and this individual is included in this system.

Financial Control

  • The business invests in the proper equipment to be used for the assigned task; the individual does not supply their own tools or equipment.
  • The individual does not have an opportunity to make a profit or loss on the work being performed.
  • The individual does not seek similar business opportunities from other businesses.
  • The business typically pays the individual on either a salary or hourly basis and withholds applicable payroll taxes.
  • The individual receives a W2 at the end of the year for use in reporting their income and tax withholdings on their annual tax return.

Type of Relationship

  • The individual is provided benefits normally granted to employees (e.g., paid time off, health insurance, etc.)
  • You anticipate using this individual in the same or similar capacity for an unidentified period of time.
When is an someone considered an independent contractor on a farm

When An Individual Is Considered an Independent Contractor

Conversely, if the opposite of the above applies to the individual (such as they have their own business, works as needed & without specific guidelines) it is likely the individual would be considered an independent contractor.  This individual (or their business if not incorporated) would receive a 1099 at the end of the year.

We Are Here To Help Answer Your Employee Classification Questions

If you have any questions as to how to classify your seasonal or other workers, contact Holbrook & Manter and we can guide you through the decision. It is very important to make this determination at the beginning of the relationship with the individual to be sure they are treated properly for income and tax purposes.

At Holbrook & Manter, agribusiness is one of our specialties. We work with agriculture businesses large & small and can assist you in managing your business.