So you think you found the perfect “Working Student” position! Or perhaps it's an "internship", "apprenticeship", "assistant in training". This position is with your favorite trainer EVER, and in exchange for all of your hard work, you get a stall for your horse and lessons every other day. Or, you may receive a small apartment on the property, and even sometimes you get a stipend or pocket money. It’s all part of "paying your dues", working your way up the ladder, and “everyone in the horse industry does it.”
All of those things may be TRUE - but it’s certainly not the whole picture in some cases, and it often is done to try and dance around some very serious employment issues. Your employer and you have some legal stuff to contend with. Just because you are working in exchange for something, like lessons or a stall, instead of a paycheck, does not mean you are not an employee…
I posed this prickly question to Jenn McCabe, an equine lawyer and horsewoman, not to mention former Pony Clubber and event rider! And this is how it could play out……
Ah, the confusion of who should be categorized as an employee, and who should be categorized as an independent contractor… we meet this issue again, but in a different light! This confusion is an unfortunate reality of the horse industry, where employees are very often wrongly categorized as independent contractors.
An employee is a worker that reports to someone above him, is directed by someone else, and works for that someone on a consistent schedule (i.e. Tuesday-Saturday). Sounds like the life of a working student, doesn’t it? In contrast, an independent contractor truly works for himself, running his own business and working for several different clients. For instance, the farrier that comes out to your farm every few weeks is an example of a typical independent contractor in the industry – but not the working student, who is working under his mentor’s direction.
The critical factor in determining employment status is whether the employer had the right to control the manner and means of the work being performed (It does not matter if the worker is merely working for a trade of services). If so, courts (and the IRS…) have consistently held that the so-called “independent contractor” is actually an employee.
Being a working student really is a great way to immerse yourself in the industry, but you’ve got to protect yourself legally along the way. The trouble with being miscategorized as an independent contractor when you are actually an employee boils down to a few major issues you may encounter:
- You won’t be covered by your employer’s workers’ compensation insurance policy (if they have one). Nope! Independent contractors are not covered by these policies, so if you are injured on the job, you’ll have to jump through many hoops to convince the insurance company that you’ve been miscategorized, so that they’ll pay your medical bills. Even worse, your employer may not have workers’ compensation coverage at all, so you’ll be on your own to pay those thousands of dollars of medical bills…
- You won’t be covered by your employer’s liability insurance in the event that you are liable for injury or property damage. Independent contractors generally aren’t covered by their clients’ liability policies, but are expected to have their own insurance coverage. If your employer has miscategorized you as an independent contractor, and you are not appropriately insured, you may find yourself fighting a legal battle without insurance coverage to finance the battle (or be stuck paying for someone’s financial damages out of pocket!). Will that stipend you’ll be getting cover that?
- Your employer won’t deduct income tax from your paychecks. If you’re categorized as an independent contractor, you’ll be expected to report your income to the IRS as self-employment income. If you barter with your employer (which is totally acceptable!), you must report in your tax return the fair market value of the products or services you received in lieu of money (i.e. board and training).
Both the employer and the worker should keep track of the hours worked and the market value of what is traded. From there, the employer should give you a W-2 reflecting the payment, and you should claim the income in your tax return. If you fail to report income, you risk audits and hefty fines for failure to report it.
You can read more about the IRS's Barter Exchange guidelines here on the IRS website. There is also a great explanation here on another page of the IRS website detailing the Forms needed. The IRS is very clear - barter exchanges are taxable income.
Please feel free to comment here, or if you prefer to remain anonymous you can send you comments to me directly, firstname.lastname@example.org and Jenn and I will respond!
Here's more about Jenn: Jenn McCabe is an equine law attorney whose office provides business consulting and litigation services for the horse industry throughout California. Her office also provides consulting services to out-of-state equine attorneys and other California law firms. Please visit her website at www.CaliforniaHorseLawyer.com for more information.
You can also find Jenn on Facebook here, and if you like to tweet, Jenn is on Twitter here!