This article was updated on Sept. 12, 2018.
For small businesses, the holidays are often more stressful than relaxing. Depending on your industry, you may experience a sudden consumer uptick during the summer months, post-Thanksgiving or near Christmas, all with the same result: You need help. While the handful of full-time employees you've carefully selected and vetted can handle the day-to-day operations of your business, they may struggle to cope with holiday-related surges while ensuring that everything runs smoothly.
As a result, many small businesses turn to seasonal employment as a way to fill the gap. Seasonal workers often bring enthusiasm, a willingness to learn and the potential boon of long-term talent. The problem? Many small business owners aren't sure which forms they need to hire seasonal workers, which labor laws apply to temporary staff and what the IRS expects in terms of documentation. Here's an overview of the basics of holiday hiring.
1. Most Laws Still Apply
Most labor laws apply to seasonal workers. For example, seasonal employees are covered by all applicable state, federal and local rules governing workplace health and safety, discrimination and harassment. In addition, the Fair Labor Standards Act (FLSA) also covers temporary employees, which means that you're still required to pay minimum wage and provide overtime when necessary, and keep a record of all payroll records and other employment records required under state and federal recordkeeping requirements. You're also obligated to follow IRS tax withholding rules that apply to employees, which means you have to withhold part of Social Security and Medicare taxes from employee wages and pay part of them yourself. In addition, in most instances, you must cover seasonal staff with at least basic workers' compensation.
There are some potential exemptions, however. Be sure to check with the Department of Labor in your state about unemployment benefits. While you're likely obligated to provide some coverage, there may be exceptions based on factors such as the duration of employment or reason for separation. Your workplace policies, as well as applicable laws such as the Affordable Care Act, may dictate whether you are required to include seasonal employees in health plans. It's also possible to avoid paying benefits or withholding tax altogether by hiring independent contractors. Note that this means you are hiring them as opposed to employing them, which means they must meet various tests established by state and federal agencies, including the Department of Labor's Economic Realities or the IRS Common Law tests. Most workers are presumed to be "employees" and very few relationships qualify for independent contractor status.
2. Find the Right Forms
To help ensure that you're meeting all the labor standards, have your seasonal employment staff fill out the right paperwork. According to The Balance, this includes a job application form as well as any applicable background check disclosure and authorization forms. Certain recordkeeping rules require employers to maintain employee applications for a specified period of time.
You also need to have your seasonal employees fill out a W-4 form for federal tax withholding. Employees need to fill out this form before you send out their first paychecks as it covers marital status, number of dependents and options for additional tax withholding. You will also need to provide a state tax withholding form, which you can typically obtain from your state's Department of Revenue.
Finally, you must make sure you've got a fully completed I-9 for each seasonal employee. This Employment Eligibility Verification form requires new hires to produce proof of eligibility to work, such as a social security card or driver's license. While you don't need to file this form with a federal agency, you need it on hand in case there are ever questions about the viability of an employee's work status. You will also need to provide a notice of coverage to new employees.
As noted by the IRS, you're also required to complete a Form 941. If you employ workers year-round, you will need to file this form regularly every quarter. If you are a seasonal employer, you don't have to file this form in quarters when you have no seasonal employees and have paid no wages, but you do need to indicate on each 941 you file if there are any quarters during the year when you will not be filing the form.
Last but not least, you should give seasonal employees a copy of your employee handbook, and then have them read it and sign attesting to that fact. These handbooks can establish the basic standards of conduct required for all employees and can help you respond to complaints if seasonal workers claim they were unaware of specific policies or guidelines.
The holidays can be a stressful time for any small business. As long as you understand labor law expectations and proactively complete the necessary paperwork, seasonal employment can help you boost sales and keep customers satisfied.