May 22, 2018
A free replay of the May 15, 2018 webinar for campground and RV park owners discussing the risks and benefits associated with employing work campers at your campground. The webinar is hosted by Donna Bordeaux, CPA and Chad Bordeaux, CPA, OHM. Among the topics discussed were be independent contractor vs. employee issues, workers’ compensation insurance issues, issues related to excluding the value of the employee’s campsite from earnings, and issues related to the Department of Labor’s On Duty Employment rules. To find out about future webinars for campground owners, visit our events page.
So work campers. Why all the drama? We have a lot of drama when we’re talking about work campers, what’s the right way, what’s the wrong way to handle this.
So let’s talk the specifics of what the problem areas are that you can watch for.
Employee versus 1099 independent contractors, is the big issue in the industry and actually a factor in all industries we find right now.
States are really diving deeply into this because they lose revenue with independent contractors. They don’t get unemployment funds. The state of California has gone so far as to say pretty much everybody is an employee, there are no independent contractors. So this is an ongoing issue that we hear all the time and can cause a lot of big problems with the IRS.
We’ll return to that one in a moment. Let’s talk workers’ comp. Workers’ comp has an issue that because typically many people are not paying their work campers in traditional methods through their payroll. They’re paying them by giving them the value of fringe benefits like a site and electricity and things like that in their campground. So let’s talk about that a little further.
Two issues are also very large ones with the IRS that has a rule about lodging for the employer’s convenience.
And lastly, what is on duty employment? How do you determine when an employee or your work camper is on duty? So we’ll delve deeper into each of those topics for you. But those are some primary issues that come up.
So let’s talk about 1099 or independent contractor. What this means, whether you have an employee or a 1099 independent contractor.
Many would like to think it’s whatever that person wants to be. That’s not how the IRS does it. The IRS looks at 13-factor criteria. I don’t have those with me today, but I have a link to those on our website. I’d be happy to send out to you after we’re done today, but you can group those into three primary factors.
Behavioral control, financial control, and the relationship. So behavioral control would be things like what will a person to do how you dictate. If we look at an employee working for McDonald’s you’re going to show them how to flip the burger, when to flip the burger, what time to be there, what uniform to wear. You pretty much dictate all of their behaviors that you require of that employee.
You hire someone to create an advertising campaign for you. You’re not sure if they sit at their desk or if they are sitting on the beach or if they use a Mac computer or a Windows computer. You don’t care what time of day they work on it. You’re paying them for a project, for a piece of finished work. So your criteria to look at the difference between an employee and a 1099 independent contractor.
Now two cases with work campers, as you can tell, there’s a lot of blurry lines. So you have to look at each of those factors and know that you are able to substantiate yourself if you’re required to with the IRS.
There’s a large difference dealing with an independent contractor and an employee based on the payroll taxes that the company must pay versus an independent contractor paying their own taxes.
So moving on. Here are all the areas. First, looking at your independent contractor that they should go apply for unemployment benefits when they’re not working for you any longer. Whether through their choice or your choice.
If the employment office in your area, employment security as it’s called in some states, they’ll be able to fill out a series of pieces of paper and the unemployment folks are going to ask them, “Oh, when did you last get paid? When was your last pay stub? What date were you terminated?” They’re down the path that they were an employee and to assume that all the way through the process to defend that, you’re going to have to be able to prove that you are guilty until you can prove yourself innocent. You’re going to have to be able to prove with certainty that that person was an independent contractor and not an employee and that’s a very difficult thing especially when we look at those 13 factors it’s unlikely that anybody is really clear-cut on all ends to be an independent contractor.
So if they apply for unemployment and they’re given unemployment benefits, guess what? Now the employment security folks are going to want to go back and re-characterize everybody who was working for them and collect payroll taxes on them. And turn that information over to the IRS. They communicate. Other states as well as the IRS so that everybody is getting their fair share of dollars into the tax covers through the road of having a lot of issues.
A second way that this could all go wrong is if one of your work campers was not happy about taxes because an independent contractor must pay 15.3% self- employment tax as well as their income tax.
So if they owe a lot of taxes with their tax return they can file Form SS-5. And that Form SS-5 says, “Hey, I should have been treated as an employee and those meant that my employer would have given the payroll taxes their share and shouldn’t have to.” They don’t have to pay a portion of the taxes along with their tax return.
They don’t want to send in that money that they have if they were an independent contractor. And who will come knocking next? The IRS will investigate further to determine if they should have been an employee. That leads you down the path of more trouble and nothing ever fun that comes with dealing with the IRS.
So another way that things could go wrong is a workers’ comp claim. With a workers comp claim, let’s say that one of your work campers gets injured, gets hurt, falls down, isn’t able to work. Maybe they have a bad back. It doesn’t matter that they had a bad back when they got there. If they applied for workers comp, and you’ve all seen this, if you go to the doctor, go to the emergency room for any reason the first thing they will ask you is, “Was this related to an injury at your job?” And yes, and the ball starts rolling.
So now you’ve got workers’ comp issues. Your workers’ comp company may look and say, “well you never listed this person as an employee or an independent contractor on your policy. What’s up with that?” And that could lead to bigger issues as you can imagine. So those are things that you want to watch for that could go wrong.
So let’s take a look at a little bit more about some other issues besides the employee and independent contractor area.
The lodging requirements: The IRS says that you can utilize this benefit as a tax-free benefit if it’s for the employer’s convenience. It has never been tested in tax law yet. So who is this really for? It probably could be argued pretty easily that it is an employee convenience instead of an employer convenience.
So let’s delve deeper into what the IRS requires here. I’m going to let Chad on for a moment and he’ll walk you through these steps.
Per the IRS rules, the lodging has to meet three tests.
1. The lodging has to be on the employer’s business premises
2. The employer must provide the lodging for the employer’s convenience rather than for the employee’s convenience, and
3. The employer must require that the employee accept the lodging as a condition of employment.
If you look at the first item, the lodging, there’s some question if that qualifies for this test because you’re providing a campsite, basically, a space to provide, for them to park their camper. Is that considered lodging? There is no definition related to this code of what lodging is; however, there is another case with foreign camping, where it does require that there be shelter provided.
So that’s never been tested in court to determine if it would qualify since they actually provide the shelter themselves.
So what is considered the employer’s convenience versus employee’s convenience? Say you have a landscaper. Would that same landscaper be hired if he lived a mile down the road and was willing to work for the same pay as the work camper? If you would say yeah, they wouldn’t have to live there, then you really have a big question as to whether or not it’s the employer’s convenience.
A lot of the reasons people tell me that it’s convenient for them to have the people there raises a whole host of other problems with the Department of Labor, which we’ll get to in a moment.
An employer must require the employee to accept the lodging as a condition of employment. Most parks that have work campers do have agreements where they tell the employees to indicate that they have to do it as a condition of employment but then that goes back to what we talked about before in that it’s not actually for the employer’s convenience if you would hire somebody that was not required to be there, to do the same job.
So there are some conditions that must be met for the lodging requirement. Now Chad had discussed this before but there are issues that this leads us down the path to is requiring on-duty employment.
So when is an employee on duty? So when we’re on duty, what hours do we have to pay an employee to be there. One thing that we didn’t touch on yet, that I’ll mention, even if you’re just providing the site, you still have minimum wage requirements.
Wages must be required for these employees for all hours worked. And if they go into overtime, that’s time and a half. Your state dictates your minimum wage. Our federal minimum wage is currently $7.25 but many states have higher wages limits.
So let’s talk about on-call time a little bit. It’s going to be a crucial thing as well.
The rule is if you’ve got employees and they are at your campground and at any given time they may be called to do a job. Are they on call? Or how much control do they have over what they do on their own time when they’re not on the clock?
I would ask that you always have a time sheet or something where they clock in and out, you know exactly when they worked when they didn’t work and had them sign off on that because you could get yourself in a lot of trouble.
There was a case on a campground where the work camper sued. They said they felt like they had to be there all the time, 24 hours a day because at any given time they might be needed and they didn’t feel like they could leave.
The judge ruled that the campground owed them pay for 24 hours a day for the entire time they were there including overtime, which added up pretty quickly when they get over 40 hours for the week when they were getting paid for 24 hours a day.
So what we need to look at the rule about when an employee is on call when he is not on call. It’s a lot of control over what he does during that time that he is not working. You can get yourself in trouble.
I would advise if he’s not on duty, he should be able to go with his family, have drinks, do what he wants to do, and not have to worry about working until his next scheduled work time.
What about the case where you have an employee who’s there to check in a guest, whenever a guest arrives, even if that’s later.
Can the employee have alcohol when they’re not on duty? Not when somebody’s going to show up. The answer is that you are controlling that employee so much that they cannot drink alcohol, are they on the clock? So that is part of the big question when it comes to on-call time and how much control you exert over that work camper.
So we have complexities here.
One question we often hear is, “Well, the work camper model that we have has been modeled in the same way as a federal or state park that might be down the street from you.” What are the issues of doing this?
Well, apples and oranges there. Lots of state parks are government entities. The government operates under a whole different set of rules than a for-profit entity like most of your campgrounds are going to be.
So, it’s not “can I do it because they do?” You have a whole different rule book to follow. So just because a federal or state park can do it, doesn’t mean that you have the same flexibility.
It might be an unfair advantage to them, but in general, you are in a sense competing with federal and state parks but most campgrounds are operating under a different set of guidelines and a different situation. You are offering amenities and things that the federal or state parks do not have.
So even if you’re exactly the same, the same rules do not apply. So you can’t base your judgment on that. That won’t stand up in the court of law.
Best Practices: So a little bit about what best practices we see that you can use and put in place for your campground to ensure that you are minimizing the impact of any of the risks we’ve talked about today.
First, treat all your work campers as true employees. Have a time sheet each and every week or pay period and clock in and clock out. Mark what times they worked. That way you can document the time. Give an hourly pay rate and pay them just like you would somebody who didn’t live in your campground. Treat them the same way.
You can come up with specific rules or requirements. I know I’ve heard many campgrounds express concern about married couples, whether both spouses will work, who works, who are the hours going to be from, is it one or the other? Document things like that. And at the end of the year, just like any other employee and process them on your regular payroll and provide them with a W2.
A site fee at a discounted rate: Specifically ask that you discount that rather than do it for free. Free is not really trackable and that is considered a fringe benefit. Consider a standard policy where all employees, whether a camper or not, will be offered a discounted rate.
So if you worked at a theme park, you might get a discounted ticket price, just like any other employee there.
You can do the same thing. Offer all employee the discounted rate to your park if you’d like.
Have a camper pay their site fee outside of payroll. So they get on the same payroll as everybody else, and they stay there so they pay their fee. It’s the first of the month or whatever time frame you have in their agreement. They will pay for their site.
Remember that to deduct anything from an employee’s paycheck, you much have the employee’s signature authorizing the deduction. It can’t be a generic thing. So for example, if you wanted the work camper to pay for their campsite and deduct it out of their payroll, have a signed statement that this fee is authorized to be deducted from their paycheck.
I don’t recommend that but if you do you must have the employee sign off that you are legally allowed to deduct that from their paycheck.
If you do that, even if they owe it to you, they can call the Employment Security Commission and they’ll be all over you and the Department of Labor. There’s only one organization worse than the IRS to have on your back and that’s the Department of Labor. The Department of Labor will have you writing that check as quickly as you can write a check because they’re going to tell you that it’s not legal.
And watch, fringe benefits are taxable, just like wages and they can be included in wages. So for example, if you gave an employee the company truck and told them they drive that home and drive it back and if they’re out on personal business they could drive it. That should be included in their wages as a fringe.
Just like the work camper site, even if you didn’t have them pay for it, which again we don’t recommend as a best practice, but the fringe benefit that should be taxed to them.