How Should You Pay Casual Labor?
Are day laborers considered employees?
Do I need to report payments less then $600? How to make sense of it all?
There has been a long-held belief that if you pay an employee, or contractor less than $600 in a year it could be called “casual labor” or “day labor”, and not report it as wages. While this may have been somewhat true many years ago, today it is in accurate. The first dollar you pay is subject to tax. You can look at this issue on two levels. On the federal level the IRS says that the term casual labor has no real meaning or employment tax significance, so employees are subject to the federal tax withholding rules whether you call them casual, day, seasonal or temporary help. We can look to the IRS website for further clarification.
“Under common-law rules, anyone who performs services for you is your employee if you can control what will be done and how it will be done. This is so even when you give the employee freedom of action. What matters is that you have the right to control the details of how the services are performed” ref 1
What Are Considered Wages?
To know what constitutes wages, again we look to the IRS in publication 15 section 5
“Wages subject to federal employment taxes generally include all pay you give to an employee for services performed. The pay may be in cash or in other forms.” ref 2
If you told them what to do, and how to do it, then paid them to for it they were an employee.
On the state level we see many of the same criteria as at the federal level. Utah unemployment defines wages in R994-208-101and R994-208-102:
Section 35A-4-208 defines “wages”.
- Wages means all payments for employment including the cash value of all payments in any medium other than cash
- Payments for Personal Services.
All payments by the hour, by the job, piece rate, salary, or commission are wages. Ref 3
What Are Independent Contractors?
Now this does not mean that there are not certain individuals that still qualify as independent contractors. Once you have reviewed the 3 most common factors for an independent contractor (behavior, finical, and relationship type) and found that they meet all the requirements to be an independent contractor. For those true IC you do not have to issue a 1099 for amounts less than $600.00
Now that we know who is an employee, and that all wages need to be reported we can dispel the myth of casual labor. Simply paying someone and calling it “casual labor” doesn’t make it so no matter how little they earned. If they work for you for month, a week, or an hour they are still an employee, and you would need to comply with all the correct hiring, and reporting requirements. This is why it is a good practice to make sure that all new hires complete their paperwork before starting on the job. Trying to get all the info you need from someone who has already quit is not easy. Having the right payroll, and HR partner can make all of these issues easier to deal with. Don’t waste your valuable time processing new hires let the experts at Employ/Ease handle all that for you.
Ref 1 https://www.irs.gov/businesses/small-businesses-self-employed/employee-common-law-employee
ref 2 https://www.irs.gov/pub/irs-pdf/p15.pdf
ref 3 https://rules.utah.gov/publicat/code/r994/r994-208.htm