Do you withhold payroll taxes from your farm help’s wages? A recent tax case illustrates the bad things than can happen when a horse business incorrectly calls its farm workers “independent contractors”, and fails to withhold payroll taxes from their wages.

Are your farm workers really independent contractors?

Case Background:

Twin Rivers Farm, Inc., a Tennessee S Corporation, was engaged in the business of raising, training, and showing horses for anticipated sale or lease.

Twin Rivers hired Adam Lopez Morales and Nallhelyo Ruiz (workers) to work on the property where it ran its horse business. Morales and Ruiz lived in a trailer on the property and did not pay rent during the three years at issue in the case.

Morales and Ruiz’s primary job duties included: cleaning stalls, the barn area, the barn offices, the restroom, and the tack room; grooming horses; watering the horses; and moving the horses between pastures. The workers also occasionally fixed fence and mowed.  The equipment Morales and Ruiz used to perform their job duties was owned by Twin Rivers.

Twin Rivers paid both workers by check, with Morales receiving $300 per week, and Ruiz receiving $150 per week. With respect to the years at issue, Twin Rivers did not make deposits of employment tax, nor did it file Forms 1099 with respect to the workers.

Holding:

Over farm owner Diana Militana’s objections, the court found that Morales and Ruiz were employees of the farm and not independent contractors. As a result of the farm’s misclassification of the employees, the court found Militana liable for approximately $30,000 in unpaid employment taxes and penalties for a three year period.

Case Info

Twin Rivers Farm, Inc. v. Commissioner; T.C. Memo 2012-184; Docket No. 14074-10 (July 2, 2012)

Related Posts:

Employee v. Independent Contractor: Pitfalls of Misclassification (Part 1)

Employee v. Independent Contractor: Pitfalls of Misclassification (Part 2)

Hello all!  I’m back stateside after a brief business trip to Germany.  Unfortunately, the Equine Law Blog went "postless" last week due to a bad internet connection in the Hotel Dorint in Ausgburg, Germany.  Hotel management reported to me that the bad connection was unavoidable and due to the fact that the walls of the hotel are about 2 feet thick and made of concrete!!

In any event, I am happy to see that I seem to have brought some cooler temeratures back with me from Germany!

Last week I was at the Americana Horse Show in Augsburg, Europe’s biggest Western horse show.  Below is a photo I took of my friend Uwe Roeschmann, a German cutting horse trainer whose training facility is located in Gainesville, Texas.  The photo shows Uwe entering the arena on September 1, 2011 and preparing to work cattle in the European Cutting Championship Open Finals.  As you can see, he was showing in front of a packed house!

I hope you find the following guest post material helpful.  It is Part II of a series on employer vs. independent contractor status by  employment law specialist Russell Cawyer, publisher of Texas Employment Law Update.  Enjoy! 

In Texas, the test for determining independent contractor status is a multifactor analysis that centers on the economic realty of the relationship.  The focus is on whether the worker is, as a matter of economic reality, dependent on the alleged employer or in business for himself.   This inquiry includes whether the employer has the right to control the progress, details, and methods of operations of the work.  A nonexclusive list of factors that are usually considered in this analysis include: 

  • the degree of control exercised by the alleged employer;
  • the extent of the relative investments of the work and the alleged employer;
  • the degree to which the worker’s opportunity for profit or loss is determined by the alleged employer;
  • the skill and initiative required in performing the job;
  • the permanency of the relationship.

No one factor is determinative. If a court or taxing authority determines that the independent contractor was misclassified, the employer may be responsible for failing to provide the benefits the employee would have otherwise enjoyed had he been properly classified as an employee (e.g., participation in certain employee benefit plans and unpaid overtime).  Depending on the size of the workforce and the work it engages in, these sums can be significant.  Consequently, operations making extensive use of independent contractors should review these relationships carefully to ensure that the workers are properly classified and incorporate changes in the relationships that enhance the ability to defend that classification."

Follow Russell Cawyer on Twitter @RussellCawyer

Follow Alison Rowe on Twitter @alisonmrowe