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October 2018

Auditors Targeting Contract Employee Agreements

By Ronnie Miles, Directory of Advocacy, NGCOA 

The golf industry has long relied on using contract employees to deliver unique and special services offered to our customers. The scope of these services vary widely from one golf course to another, so standardized agreements are difficult to create. This has left the golf industry vulnerable to labor and tax audits.

Recently, a golf course in Michigan underwent an audit from the Department of Treasury, which found the course to be in violation of the Fair Labor Standards Act (FLSA) governing employer-employee relationship. They found the contract agreement with the teaching golf professionals did not meet the test for determining whether an individual was an independent contractor or an employee. Because this test has been determined to be subjective, the golf course owner has challenged this finding and feels confident the finding will be overturned.

Golf course owners and operators should take this as a warning and review all your existing service arrangements with contract employees.

The most important question an owner or operator must ask when considering this options is, “Will this person work for my business or simply provide a service?” This sounds like an easy question to answer, but the Department of Labor and Internal Revenue Service have added a new litmus test for these positions. It’s called the “economic realities test.”

Auditors are finding it immaterial where the work is performed, absence of a formal agreement, or whether an alleged independent contractor is licensed by the state or local government, when determining if there is an employment relationship. Owners and operators that choose to hire contractors to perform specialty services need to closely review this guidance. Also, review your state labor laws to make sure you are not found to have violated the FLSA, which will result in fines and payments to recover unpaid payroll taxes and social security payments. These fines can go as far back as the date when the initial agreement with the independent contractor began.

NGCOA addressed this critical issue in a paper released earlier this year, which can be reviewed on the website, ngcoa.org. It also encourages its members to review all existing independent contracts in place, perform your own analysis and take appropriate steps to ensure full compliance. Members may contact Ronnie Miles, rmiles@ngcoa.org for additional information or assistance with any compliance questions. The PGA Employment Services department also published guidance to their members addressing this important labor issue, which can be read at pga.org.

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