Is your business hiring seasonal employees to keep up with the holiday demand? If that's the case, you may have already encountered the challenge of finding workers who meet your business's unique requirements. However, hiring is only the first step in the process.

Although hiring seasonal employees can benefit your business, it also raises some specific payroll requirements that should be carefully considered. From tracking hours worked to proper tax withholding, various factors must be considered to maintain compliance and avoid penalties. To ensure everything goes smoothly, we've compiled some key aspects you should keep in mind when hiring seasonal employees.

Determine Appropriate Employee Classification

One of the first things to consider is classifying seasonal workers, which determines how to handle payroll taxes and benefits. If seasonal workers are hired as employees, income taxes, Social Security and Medicare taxes must be withheld, and the business must pay unemployment tax on their wages. On the other hand, if these workers are classified as independent contractors, they are responsible for paying their own income tax and self-employment tax. However, be careful with this distinction. The IRS is strict about the difference between an employee and an independent contractor, and misclassification can lead to hefty fines and penalties.

Address Minimum Wage and Overtime Pay Rates

Employers must establish each employee's pay rate. Depending on state laws, companies may have to pay a minimum wage higher than the federal minimum. Minimum wage can also vary based on a seasonal employee's work. For example, some states have different minimum wages for agricultural or seasonal work. Review minimum wage requirements based on the location of the business and adjust pay rates accordingly. Additionally, determine the overtime pay rate for any hours worked beyond 40 hours a week. Typically, this is one and a half times the employee's regular rate, but some states may have more stringent rules for calculating overtime pay.

Ensure Accurate Time-Tracking for Seasonal Workers

Accurate tracking of hours worked is fundamental for payroll management, especially for seasonal workers. This includes their active working hours and any breaks they are entitled to. Federal law does not require breaks or meal periods to be provided to workers. However, there are strict rules around paid and unpaid time. For instance, short breaks of less than 20 minutes must be compensated while bona fide meal periods that are typically 30 minutes or more do not need to be paid, provided the employee is free to do as they wish during this time. Keeping up with time worked and paid breaks can be a complex task, particularly with seasonal workers. Leveraging reliable time-tracking software can simplify this process, ensuring that seasonal workers are accurately paid for their work while avoiding potential labor law violations.

Choose the Right Pay Frequency

It might seem minor, but selecting a suitable pay frequency for your seasonal workers can significantly affect the payroll process. Different pay frequencies can have varying administrative requirements and costs. There are four main pay frequencies: weekly, bi-weekly, semi-monthly and monthly. Weekly or bi-weekly pay periods are often preferred for seasonal workers, providing more immediate income, which can be particularly beneficial during holiday seasons. However, these can increase the administrative burden for the payroll team due to the higher frequency of payroll runs. 

Semi-monthly or monthly pay periods are easier on the administrative side. Some businesses have started providing a new perk to their employees that allows them to access their earned wages in between paychecks. This is an excellent incentive for retaining temporary workers and can be incredibly motivating during busy times like the holiday season.

Pay Attention to Tax Withholding Details

Withholding state and federal income tax is nothing new, but when it comes to seasonal workers, be sure to properly review their Form W-4 and consider their unique tax situation. On the form, the employee can claim an exemption from withholding if they meet certain criteria. If the employee does not claim an exemption, the information on the form can be used to calculate the correct amount to withhold from each paycheck. 

Remember that the amount of federal income tax withheld will vary based on factors such as the employee's income, the number of withholding allowances they claim and their marital status. It's important to note that if seasonal employees also work for other employers, their total income can impact their income tax withholding.

Hiring seasonal employees can bring many benefits to your business as long as proper compliance procedures are followed. By understanding and addressing payroll requirements, employers can ensure that their seasonal workers are fairly compensated and that your business complies with all applicable laws and regulations. With clear procedures, seasonal workers can seamlessly integrate into a company's workforce, helping meet demand during peak seasons without causing payroll headaches.

Connect with CBIZ to learn how we can help you keep track of your employee time, simplify tax withholding and much more!