This is the season for engaging extra help to handle anticipated holidays sales. Big retailers, such as Walmart and Macy’s, announced their holiday hiring plans — down from 2021 but still significant numbers. Other companies, due to the nature of their business (e.g., ski resorts; amusement parks), may use seasonal workers as their core staffing solution. Whatever reason drives your decision to hire seasonal employees, be sure to understand tax and legal rules for this work arrangement.
Your payroll costs
What will it cost you to hire seasonal employees? Add up the usual payroll costs, which include:
- Wages and overtime for hour employees (seasonal employees usually aren’t employees exempt from the Fair Labor Standards Act minimum wage and overtime rules; these rules apply).
- Employment tax taxes (7.65% of wages for FICA, plus federal and state unemployment taxes)
- Workers’ compensation (see below)
- Perks, which may include employee discounts for goods or services.
Your employee benefit plans
If your business has employee benefit plans, such as group health insurance and a retirement plan, determine what impact seasonal employees have on these plans and their eligibility to participate.
- Health insurance. Seasonal employees are excluded from the formula for determining whether you are an applicable large employer required to provide health coverage to full-time employees or pay a penalty. The IRS says a seasonal worker is generally defined for this purpose as an employee who performs labor or services on a seasonal basis. For example, retail workers employed exclusively during holiday seasons are seasonal workers.
- Retirement plans. Seasonal workers probably don’t have to be included in a company’s retirement plan. Those with less than 1,000 hours of work in the plan year can be excluded. A new rule for part-timers will require coverage for them starting in 2024, but only if they have completed three consecutive 12-month periods with at least 500 hours of service during each period (2021, 2022, and 2023).
- Employee discounts. The goods or services that seasonal workers can buy at a discount may cost you only a modest amount. If you want the discount to be excluded from wages and exempt from payroll taxes, keep them within set limits (20% of the price charged a nonemployee-customer for services and a discount on merchandise no more than your gross profit percentage times the price charged to a nonemployee-customer).
Be sure your workers’ compensation coverage includes your seasonal employees. There is no exclusion from workers’ compensation for seasonal workers hired during the holiday season or any other short-term period.
Seasonal workers may or may not be eligible for unemployment benefits when the season ends; it depends on state law and their work history. The general rule is that they can’t be prevented from claiming unemployment benefits. If they claim benefits, it impacts the cost of your state unemployment tax, which is based on “experience” (i.e., the number of claims against your company). Note: If seasonal workers voluntarily quit, they aren’t eligible for benefits.
Your legal obligations
Seasonal workers are covered by most of the same federal, state, and local law protections as full-time, year-round employees. Which laws apply depend on the size of your staff. For example, the Americans with Disabilities Act applies if your company has 15 or more employees, so if you meet this staffing threshold, you must make reasonable accommodations to a seasonal employee with a disability. However, the Family and Medical Leave Act doesn’t require you to provide this leave to seasonal workers because they don’t qualify as an “eligible employee,” who is someone who worked at least 123 months with at least 1,250 hours during the 12-month period preceding the leave.
If your location has a predictive scheduling law requiring that advance notice of work schedules be given, it applies to seasonal workers to the same extent as other employees. Also comply with final pay requirements with respect to an employee’s final paycheck and whether any vacation time is owed (accrued for the period of time worked). In Florida, for example, the final paycheck is due no later than the next scheduled payday.
While it’s not a legal requirement, it’s highly advisable that you train seasonal workers as you do your regular staff. This means instructing them on how to perform the job for which they’ve been hired, informing them about all your business policies (e.g., how to deal with customers), and providing them with anti-sexual harassment training.
Seasonal workers can be extremely helpful to your business, especially during the holiday rush. But there are costs and obligations associated with hiring seasonal workers. Be sure to understand what’s entailed and, when necessary, check with an employment law attorney.
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