We have someone living onsite already that I want to approach with the idea of managing the park.
Doesn’t such an agreement mean that it’s NOT casual work (ie like the lawn guy), but rather an actual “Employee” that now we have to pay Insurance, workman’s comp, Social security etc etc.
Is there any work around to any of that mess?
-John
The IRS/US Treasury Regs list a number of criteria to determine whether someone is an employee versus a contractor. Since you are directing the activities of the park manager, the park manager is considered an employee. See the following:
Employee vs. Independent Contractor – Seven Tips for Business Owners
IRS Summertime Tax Tip 2010-20
As a small business owner you may hire people as independent contractors or as employees. There are rules that will help you determine how to classify the people you hire. This will affect how much you pay in taxes, whether you need to withhold from your workers paychecks and what tax documents you need to file.
Here are seven things every business owner should know about hiring people as independent contractors versus hiring them as employees.
The IRS uses three characteristics to determine the relationship between businesses and workers:
Behavioral Control covers facts that show whether the business has a right to direct or control how the work is done through instructions, training or other means.
Financial Control covers facts that show whether the business has a right to direct or control the financial and business aspects of the worker’s job.
Type of Relationship factor relates to how the workers and the business owner perceive their relationship.
If you have the right to control or direct not only what is to be done, but also how it is to be done, then your workers are most likely employees.
If you can direct or control only the result of the work done – and not the means and methods of accomplishing the result – then your workers are probably independent contractors.
Employers who misclassify workers as independent contractors can end up with substantial tax bills. Additionally, they can face penalties for failing to pay employment taxes and for failing to file required tax forms.
Workers can avoid higher tax bills and lost benefits if they know their proper status.
Both employers and workers can ask the IRS to make a determination on whether a specific individual is an independent contractor or an employee by filing a Form SS-8, Determination of Worker Status for Purposes of Federal Employment Taxes and Income Tax Withholding, with the IRS.
You can learn more about the critical determination of a worker’s status as an Independent Contractor or Employee at IRS.gov by selecting the Small Business link. Additional resources include IRS Publication 15-A, Employer’s Supplemental Tax Guide, Publication 1779, Independent Contractor or Employee, and Publication 1976, Do You Qualify for Relief under Section 530? These publications and Form SS-8 are available on the IRS website or by calling the IRS at 800-829-3676 (800-TAX-FORM).
Links:
Publication 15-A, Employer’s Supplemental Tax Guide ( PDF )
Publication 1779, Independent Contractor or Employee ( PDF )
Publication 1976, Do You Qualify for Relief under Section 530? ( PDF )
Unless you are hiring someone that lives offsite- and maybe manages other properties as well- so someone who has a clear vocation in managing rental properties, in my opinion you have an employee. Our managers that are not full time, and have outside work might qualify as a contractor for rehab work. We put our rehab work up for outside bids, and if they happen to have the skills to do the work, we might from time to time hire them both as a contractor and employee. Remember- contractors are not covered the same way by your workers comp- and this alone should encourage you…
In this day and age of the IRS really cracking down on 1099 contractors, I would land on the side of paying your manager as an employee.
Side note- we REQUIRE all contractors to fill out a W-9 and I will send a 1099 to every person that works on our property’s. If we are writing checks to a company, I do not bother sending a 1099. Anyone that calls themselves 'XYZ handyman’or something business like, and wants a check made out to them gets a 1099. If as a payer you do not correctly report- you can be held liable for the taxes. Also- your insurance company might/will require a list of all outside contractors and copies of their corkers comp policy’s. They can audit you, so be careful. If the contractors do not have workers comp, they will tack them on as your employees, and give you a big policy bump. You do NOT want to pay roofers workers comp- so make darn sure you have all of the paperwork filled out so your not burned.
If your looking for insurance advise- contact Kurt Kelley. Mobile Insurance- located in Texas. His web site also provides forms and advise on keeping yourself out of hot water. If you know me- you know I am no Homer and a straight shooter- I recommend Kurt because we use him, it has nothing to do with him being on this site.
For your managers who you treat as employees, what payroll service are you using for payroll related activities?
I have been using ADP- but that in part is because I am in several states, and not all payroll companies support every tax in every state. For instance, quickbooks payroll did not fully support every state I was in. That said, I might make a shift at the end of this year. I am starting to shop a bit. This is just me, but I will only change payroll providers at the end of the fiscal year to keep things simple. If your just doing one state, switching is probably ok anytime as long as you stay on top of things…
I use ADP as well. I hate paying for something I can do myself, but my / our time is better served finding another deal or filling a lot or finding a home to buy.
There is no way around the employee classification for an onsite manager. There just isn’t. As owners, either we pay the taxman or we roll the dice.
How much does ADP cost? And is it pretty user friendly?
I will only have one employee and the park is not that big (25 lots). Really just going to offer free lot rent and share in late fees. Perhaps some infrequent ad-hoc work.