Instructors...barn employees or independent-pros/cons?
I could use some COTH wisdom. I was just hired to manage a small boarding barn and start a lesson program. My question is, should I become an employee of the farm or work as an independent contractor? In other words, is it better/easier, tax/insurance wise to have clients pay the barn and then invoice the barn for my cut, or to have them pay me and then give the barn their cut?
I know if I do the former, I'll have either a w-2 or a 1099. If I choose the latter, then what? Obviously I'll keep very careful books, but won't be getting tax forms from every kid's parents!
As far as insurance goes, if I'm an employee, barn will name me on their policy-would I also want/need to carry my own? If I work for myself, can I still be named on the farm's policy?
I've worked for several different farms, but was always an employee, never had the option before. I will ask my guy at H&R Block, just wanted some input from other horsey people.
You might not be able to choose. For tax purposes, the IRS has some guidelines that determine whether they consider you an employee or an independent contractor. And while the IRS doesn't control everything, yet, many other entities/companies/governmental agencies look to the IRS guidelines in their own work.
Speaking very generally, an employee is under the control of the employer: shows up when the employer tells her to, performs work under the employer's direction/as employer wishes, uses the employer's tools or equipment. Like the school janitor who fixes the leaky sink in the faculty break room.
An independent contractor sets her own hours, uses her own equipment, performs the job to her own liking. Like a plumber coming to fix your leaky faucet.
I think if you were leasing the facility, and running your own business there, using your own schoolhorses, you'd have a little more of an argument toward being an independent contractor (though I'd also advise you to ask a lawyer who still has their law license whether you should form an LLC to protect your personal assets from liability claims, yes this is in addition to having liability insurance).
You can be an employee or an independent contractor, and either way, be paid by the barn. If you're an employee, they'd withhold your FICA taxes and make their employer's contribution. If you're an independent contractor, they would just pay you the agreed amount, no taxes taken out, and issue you a 1099, which you just send in with your regular tax forms. You'd be responsible for your own FICA taxes and maybe for calculating and sending in quarterly estimated taxes, I believe. Pay attention, because otherwise you might have to pay a whonking tax bill next April.
You would need to keep records of all the income you receive, and of payments you made if you were paid directly and giving a cut on to the barn, and let your tax preparer sort them out accordingly. I would think it would be easier, if the students pay you directly, to have them pay you your fee, and pay the barn owners their fee, and nothing else has to change hands. On the upside, as an independent contractor, you would probably be able to deduct some of your work-related expenses, like if you bought a microphone for teaching lessons.
The farm can ask, but probably not require, their insurance company to list you as a "Named Insured" on their liability policy; if the company balks, you'll have to get your own liability policy, and also a "Care, Custody and Control" policy that will cover you if you ever leave a gate unlatched and a boarder's horse gets out and gets hit by a falling anvil or something.
If they have hired you, for fulltime day to day management, it sounds a little more to me like you would be considered an employee. If that's the case (and you may need to talk to someone more high-powered than COTH, forgive my mentioning the possibility such exists), you will get a W2 and they'll be responsible for withholding your FICA taxes, just like your other employers.
I feel as an instructor, you're a little safer covered under their liability policy, but I would want to see a copy to be sure I was covered! If it's a good policy, you shouldn't need more coverage than that.
I'm a little punchy so this reply is all over the place. I generally feel an instructor is in a safer position working as an employee, but again, check with Tax Guy or Gal as to whether what you'll actually be doing matching up with the IRS's description of one or the other.
Yes, to repeat because it is so important: You don't get to choose your employment status, the IRS does. Martha Drum does a nice job of outlining what makes someone an independent contractor. Note that it's not the default position. The IRS uses a 20-or so item list of job characteristics that makes one an independent contractor. It can feel a little bit like the USEF amateur rule. As with that one, start with your tax guy and then call the IRS, too.
Another reason not to be an independent contractor? No one is paying unemployment insurance for you, so if this job ends and you need a safety net not of your own making to help you get by until the next one, don't be an independent contractor. (Nota Bene: Unemployment compensation rarely helps people do more than get by, especially if they had big bills before they lost the last job.)