Are my temporary vineyard harvest workers W-2 employees or 1099 Contractors?
During the fall, wineries often bring in temporary workers to assist with harvest and crush.
A key question many winery owners face is: how should we pay our temporary workers? Should these seasonal harvest workers be classified as W-2 employees or 1099 contractors? The answer can have significant implications for both labor law compliance and tax purposes. Let's dive into the primary considerations.
W-2 vs 1099 workers: defining the difference
At the heart of the classification debate is the degree of control an employer has over a worker and the nature of their relationship. In general:
W-2 Employees:
Have their work schedules, processes, and methods defined by the employer.
Use equipment and tools provided by the employer.
Are paid on a set schedule, such as hourly or weekly.
Have taxes withheld from their paychecks.
1099 Contractors:
Operate with more independence, deciding how to accomplish the job.
Often use their own tools and equipment.
Are hired for a specific project or task and are often paid upon completion.
Are responsible for handling their own taxes.
It's essential to understand that this is not a black and white issue. The factors listed above are indicative and not exhaustive. The ultimate classification often depends on a combination of factors and the specifics of the working relationship.
Considerations for vineyard harvest workers
Here are some specifics to consider when determining whether to classify your vineyard harvest workers as contractors or employees:
Duration of Employment: While many harvest workers are hired for a specific, short-term period (the harvest season), the duration alone doesn't determine their classification.
Work Control: If the vineyard owner dictates the exact hours to work, provides the tools, and closely supervises the picking process, the workers lean more towards W-2 classification.
Training: Do you provide specific training on how to pick and handle grapes? Training can be an indicator of an employer-employee relationship.
Exclusivity: Are your harvest workers working at multiple vineyards, or just yours? If they're exclusive to your vineyard for the season, they may lean more towards being W-2 employees.
Payment Structure: Are workers paid by the hour or by the amount they harvest? An hourly wage typically suggests a W-2 relationship, whereas a payment-per-task can indicate a contractor.
Why does it matter?
The classification of your harvest workers isn't just an administrative decision; it carries substantial legal and financial ramifications that can impact both your business and the workers involved.
Misclassifying workers can lead to significant penalties, back taxes, and potential legal challenges.
Taxes: Employers are responsible for withholding taxes for W-2 employees and paying employment taxes. With 1099 contractors, the responsibility to pay taxes shifts to the worker.
Benefits: W-2 employees might be eligible for certain benefits, even if temporary. Contractors do not receive benefits.
Labor Laws: W-2 employees are protected under various labor laws, including minimum wage requirements and potential overtime. These don't apply to 1099 contractors.
How to pay harvest workers as 1099 contractors
If you determine you should pay your harvest workers as 1099 contractors, here's what you need to do:
Discuss Payment Terms: Before work begins, clarify the payment rate, schedule, and method of pay. Are they being paid hourly, piece rate, or by some other measure? This should be outlined in your contractual agreement.
Collect a W-9 Form: Before you make any payments, obtain a completed W-9 form from the contractor. This form provides you with their taxpayer identification number, which you will need in order to issue a 1099 form at year end.
Provide Regular Payment: Pay contractors according to the agreed-upon schedule, whether it's upon completion of a task, weekly, monthly, or at specific project milestones. As long as have collected a W-9 form, you do not need to withhold any taxes from the contractors' pay.
File year-end 1099-NEC Forms: At year's end, if you've paid the contractor $600 or more, you must provide them (and the IRS) with Form 1099-NEC, detailing the amount you paid during the year. At Northwest Wine Accounting, we handle filing 1099s for our clients, including review the books for potential 1099 contractors and assisting with collecting W-9s throughout the year. If you are not a Northwest client, check with your accountant and make sure they are on top of this for you!
Record Keeping: Maintain thorough records of all payments made, contracts, and invoices, if any. This not only helps during tax season but can also be vital if any disputes arise.
What if I can't get a W-9 from a worker?
Obtaining a completed Form W-9 from contractors before making any payments is vital. This form provides the contractor's taxpayer identification number and other essential details, ensuring that you are able to issue a 1099 at the end of the year if required.
However, if you encounter difficulties in obtaining a W-9, here's what to consider:
Consider backup withholding: If a contractor fails to provide you with a valid taxpayer identification number (TIN) on Form W-9, you may be required to withhold federal income tax, known as backup withholding, at a rate set by the IRS (as of 2023, this rate is 24%). This is to ensure the IRS still collects taxes on payments made to contractors who don't provide valid identification. If you withhold taxes from a contractor payment, you also need to make sure you remit those funds to the IRS at year-end!
Request the form multiple times: Make several attempts to obtain the W-9 form, keeping a record of your communications. This can prove due diligence if questioned by the IRS.
Can you file a 1099-NEC without a TIN? Yes, but you pay be subject to penalties. Read more from the IRS.
Protect your business: You might consider pausing or withholding payment until the contractor provides a completed W-9. This can be a practical step, ensuring you're not exposed to potential tax penalties.
Remember, while it's the contractor's responsibility to provide a W-9, it is the business's responsibility to request and retain it, ensuring compliance with IRS reporting requirements.
Can I pay 1099 Contractors in Gusto?
Absolutely! Gusto is a comprehensive payroll platform that accommodates not just W-2 employees but also 1099 contractors. Here's how it works:
Easy Setup: Within the Gusto interface, you can add a 1099 contractor just as you would add a traditional employee. You'll need to input their contact details, TIN, and the payment rate or amount, as agreed upon with the contractor.
Payment Options: Gusto offers various payment methods, allowing you to pay your contractors through direct deposit or check. If opting for direct deposit, ensure you've collected and entered the contractor's banking information correctly. If you want to pay by check, you can use Gusto to track the payments so you'll be ready for year end.
Tax Forms: Come tax season, Gusto simplifies the process of generating and sending Form 1099-NEC to your contractors. This automation ensures you're compliant with IRS reporting requirements without the manual hassle.
Record Keeping: One of the significant benefits of using a platform like Gusto is the automatic record-keeping. Every payment made, every tax form generated, and other related data are stored and easily accessible, ensuring transparency and aiding in any potential audits or disputes.
If you're already using Gusto for payroll, expanding its use to manage and pay your 1099 contractors can streamline operations and ensure consistent, compliant financial practices across your business.
If I use Gusto for payroll, do I also need to pay my 1099 contractors through Gusto?
No, you can pay your 1099 contractors by check or with cash, outside of Gusto. Just make sure you are tracking all the payments in your books, that you have the correct names on the payments, and that you have W-9s on file so you will be ready for year-end.
Paying seasonal harvest workers as W-2 employees
If you decide to pay your seasonal harvest workers as W-2 employees, you will need to collect all the information you usually do when you an onboard a new employees. The two essential forms are:
Form W-4 (Employee's Withholding Certificate): This form determines the amount of federal income tax to withhold from the employee's pay. The employee provides their filing status, dependents, and other relevant tax information.
Form I-9 (Employment Eligibility Verification): This form verifies the identity and employment authorization of the individual hired. Both the employee and the employer must complete their respective sections, and the employer must review acceptable identification documents presented by the employee.
If you use a payroll platform like Gusto, having the employee self-onboard can help streamline the onboarding process. However, in a situation where you are hiring temporary workers only, you may find it easier to have the workers fill out paper forms and then you can enter the information into Gusto directly. The worker does not need access to Gusto in order to be included on payroll.
Getting help
Again, classifying vineyard harvest workers isn't always black and white. Many factors play into the decision, and the relationship's nature is more crucial than any single factor. Winery owners should consult with tax professionals or legal counsel when making the determination on how to classify their workers.
If you'd like assistance with your winery or vineyard payroll or accounting, please reach out and we'd be happy to talk.
