Seasonal Employment or 1099 Contractors?

This article was updated on 1/12/2024 to reflect the U.S. Department of Labor's (DOL) final rule, effective March 11, 2024, revising the agency’s guidance on how to analyze who is an employee or independent contractor under the Fair Labor Standards Act (FLSA). This final rule rescinds the current independent contractor rule that was published on Jan. 7, 2021, and mirrors the DOL’s proposed rule.

Many outfitters rely on seasonal workers to supplement their business during peak times, such as the upcoming winter holiday season, when there’s an influx of activity and eager adventurers. While this additional help is certainly a benefit to your business and bottom line, there are important differences between seasonal employees and 1099 contractors. Due to these differences, deciding which to hire can cause major headaches for small business owners.

Keep reading to find out what type of worker is best suited for your outfitter this winter season.

What is Seasonal Employment?

Seasonal employment is temporary employment that occurs during a specific time of the year. Employers often hire seasonal workers when they need extra help. This need may be based on industry demands, financial reasons or increased consumer traffic, such as during the summer or winter. Seasonal employment is very common in the adventure sports industry.

This time of year, outfitters hire seasonal workers for skiing, snowmobiling tours, snowshoeing and other cold-weather activities. Hires are also often made for operational jobs, such as scheduling guest excursions and working in the retail store.

The Difference Between Seasonal Workers and 1099 Independent Contractors

It's important to know the difference between an  independent contractor  and an employee. Unfortunately, it’s not as simple as assuming that seasonal workers are independent contractors just because they work for a short time. Don't worry — there's a way to determine if a worker is an employee or an independent contractor using the economic realities test or by submitting a  Form SS-8  to the IRS for clarification. And, if you're still unsure, you can always go off the  common law rules:

• Behavioral Control: Who has control over what? For example, if workers set their own schedules and handle their own training, they’re considered contractors. However, if the business owner provides schedules, hours and training, those workers are employees.
   
• Financial Control: Are these workers bringing their own gear and tools or paying for gas? If so, they’d likely be considered a contractor. If the business is providing all necessary equipment, repairs or even gas for snowmobiles, they’re considered employees.
   
• Relationship: Is there a contract present? Can the worker accept or decline work? If so, they’re a contractor. Sometimes this can be difficult to determine as these workers may split their workload or schedule, depending on the season. For example, someone who may groom the trails in the fall or summer before peak season starts.

Misclassifying someone as a 1099 contractor instead of putting them on your payroll as a seasonal employee (and vice versa) can result in major penalties. So, no matter the method, be sure you have the appropriate classification for your seasonal employment.

2024 Final Rule

The DOL published the 2021 Independent Contractor Rule on Jan. 7, 2021. The 2021 rule reasserted the economic realities test (ERT) as the DOL’s preferred method to determine whether a worker should be classified as an employee or independent contractor under the FLSA. In doing so, the 2021 rule focused on two core factors: the nature and degree of the worker’s control over the work and the worker’s opportunity for profit and loss based on initiative and/or investment. These factors carried more weight in determining the status of independent contractors.

The final rule in 2024 rescinds the 2021 Independent Contractor Rule and returns to the pre-2021 rule precedent. In doing so, the final rule restores the multifactor, totality-of-the-circumstances analysis to assess whether a worker is an employee or an independent contractor under the FLSA. The final rule ensures that all ERT factors are analyzed equally without assigning a predetermined weight to a particular factor or set of factors. These six factors include the opportunity for profit or loss depending on managerial skill, investments by the worker and the potential employer, the degree of permanence of the work relationship, the nature and degree of control, the extent to which the work performed is an integral part of the potential employer’s business, and the worker’s skill and initiative.

Arguably, the final rule may result in classifying a greater number of workers as employees, not independent contractors. This classification would be significant, particularly in the gig economy, as it would afford more individuals FLSA rights and protections. The DOL has released guidance to help employers comply with the final rule.

Who Does Workers’ Compensation Cover?

Traditionally, workers who receive a W-2 tax form are considered employees and thus entitled to workers’ compensation in most states while those who receive a 1099 are contractors. However, you might be required to provide workers’ compensation for 1099 contractors, depending on the laws in your state.

If you’re operating in a monopolistic state, such as North Dakota, Ohio, Washington or Wyoming, employers’ liability is not provided. These states receive workers’ compensation from a state fund. Monopolistic state business owners should consider adding stop gap coverage to their general liability policy to protect themselves from work-related injury lawsuits and claims. 

A  workers’ compensation policy  provides coverage for an employee if they’re injured on the job like breaking a bone on a backcountry skiing tour. However, in many states, an employer must have a certain number of employees before the workers’ compensation law applies. Regardless of your state requirements, if an employee or contractor is injured, you may be held responsible for an on-the-job injury. Without a workers’ compensation policy, the injured worker is allowed to sue you for damages.

An employee could be:

• Someone on your payroll
• Someone you hire to do a job at your business, for example, a non-self-insured contractor
• A high schooler who tunes ski gear or does odd jobs around the property

A workers’ compensation policy provides medical expense coverage, rehabilitation expense coverage, lost wages, compensatory coverage and life insurance. In addition, the policy provides employer’s liability insurance. It’s important to note that an injury to an employee is specifically excluded in the general liability portion of your policy.

What to Know Before Hiring Seasonal Employees

Even if an employee is temporary or employed only for a short period, most federal employment laws still apply to employment relationships. For example, covered employers must comply with federal anti-discrimination statutes and wage and hour laws, including minimum wage, overtime, recordkeeping and youth wage program requirements, for their seasonal workers. In addition, employers may need to review state laws or local requirements that apply to seasonal employees, such as unemployment insurance, severance pay, sick or other leave, personnel records, mandatory training and predictive scheduling.

No Need to Walk on Thin Ice

Although most seasonal employment is temporary, it’s in your business’s best interest to ensure that hiring seasonal workers is compliant and done efficiently. By understanding the differences between seasonal employees and contractors and establishing hiring best practices, your company will be set up for success with your winter workforce.

For additional safety guidance and workers’ compensation insurance solutions for your outfitter business,  request a free CBIZ Adventure Sports Insurance quote  today.

This blog may contain scenarios that are provided as examples only. Coverage is subject to the terms, conditions and exclusions of the policy issued. The information provided is general in nature and may be affected by changes in law or the interpretation of such laws. The reader is advised to contact a professional prior to taking any action based upon this information.

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