Knowing the rules when hiring summer help can help companies avoid being visited by the Department of Labor (DOL) or audited by the Internal Revenue Service (IRS), according to the American Institute of Professional Bookkeepers (IAPB).
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“Your employees may go on vacation, but the IRS and DOL do not – they are going to fully enforce their rules when you hire your kids, students or other temps,” warns AIPB Co-President, Steve Sahlein. “If you make a mistake – such as failing to withhold the right taxes on a summer replacement because ‘they are just kids’ – you can get hit with 100 percent liability for the employer and employee taxes not withheld, plus interest, plus penalties.”
The DOL’s backpay plus penalties seems almost mild in comparison.
To help employers avoid costly fines and penalties, AIPB has put together a free report, Rules for Hiring and Paying Summer Help, which is available by e-mailing firstname.lastname@example.org.
Sahlein offers the following examples of how tricky the rules can be include:
“If parents are the 100 percent owners of the business, they need not pay immediate family members the minimum wage – but if they regularly hire non-family members, they must pay their children the minimum wage.”
“If you hire your children and own 100 percent of your sole proprietorship or partnership, you don’t have to withhold Social Security taxes from the kids, but you do have to withhold federal income tax and give your kids a W-2.”
The rules aren’t just complicated for family businesses. For example: if you give employees July 4 off as a paid holiday, must it also be a paid holiday for the summer help? What about health insurance, tax-free parking or commutation?
“The answer in each case is no,” Sahlein answers in a prepared statement. “You don’t have to give temporary or part-time summer help paid holidays or other benefits, but this should be stated in a written company policy, and the policy should include a definition of full-time v. part-time v. temporary employee.”
The American Institute of Professional Bookkeepers (AIPB) is the national association and certifying body for bookkeepers, founded in 1987, currently with 30,000 members.