My first “real” job was a summer job. Sure, I had years of experience babysitting and mowing grass under my over-sized faux leather chunky belt, but I wanted to be a bona fide working girl. Fortunately for me, our local Mini-Storage/Chamber of Commerce/Fax, Print and Copy Shop/Mail and Ship Store/Newspaper and Phone Directory was looking for someone who could type and answer the phone, sometimes at the same time. I was thrilled to be hired on the spot and said yes without asking any of the big questions. I knew all I needed to know: I got to work with a cute boy, and I would be paid three times per hour what I could make as a babysitter.
Money and cute boys aside, summer is a great time to gain real-world work experience for first timers, college students, and those looking for a more permanent gig. And while you may not always believe that you’re in the best spot for a negotiation, that doesn’t need that you have to say “yes” to everything. Make sure you understand how you’re going to be compensated ahead of time. Before you take that summer job – or almost any job, really – here are 10 things you need to know:
1. In most cases, you don’t get to choose whether you are an employee or independent contractor. Your classification as an employee or an independent contractor isn’t something you decide on your own: it’s all about your job description. Employees can be full time or part time, seasonal or year-round, temporary or permanent. How often – or what time of year – you work doesn’t determine your classification. What matters most is control: according to the Internal Revenue Service (IRS), the general rule is that you are an independent contractor if the person paying you has the right to control or direct only the result of the work and not what will be done and how it will be done. In other words, if you’re only tasked with getting the job done – no matter how you do it – you’re likely an independent contractor. If, however, the person paying you tells you things like when, where and how to do the work, you’re likely an employee. But it comes down to the job description: not whether you’re seasonal or paid hourly. For more on classification, check out this prior post.
2. “Under the table” and independent contractor are not the same thing. The terms are often used interchangeably but to quote The Princess Bride‘s Inigo Montoya, “You keep using that word. I do not think it means what you think it means.” Independent contractors are those workers who are documented and paid a legitimate wage but do not have payroll taxes withheld. Independent contractors are not considered employees for purposes of benefits and other perks but are still on the books of the company. In contrast, workers who are paid “under the table” are generally not on the books of the company: this means that when you are hired, there is no record of your existence for tax or employment purposes. This is not legal and typically happens when the worker does not have the authority to work in this country or when the employer is hoping to avoid being subject to certain kinds of reporting and tax requirements. Being treated as an independent contractor is totally legitimate and can sometimes be desirable – but you don’t ever want to be paid under the table. If you do, you may lose certain legal protections, and you may be setting yourself up for a tax audit down the road.
3. You may not need to pay federal income taxes or file a federal income tax return. Sometimes, folks are scared to take a job over the summer because of the extra burden of filing and paying taxes for what is a short-term gig. Don’t let that stand in your way: just because you earn some money over the summer doesn’t mean you’ll owe taxes come April or even need to file a federal income tax return. There are a number of factors that affect whether you have to file including how much you earned – and the source of that income – as well as your filing status and your age. In most cases, if your gross income is above the threshold for your age and filing status, you should file a federal income tax return. For most taxpayers, the quick “cheat sheet” formula is to add your standard deduction to your personal exemption amount. The numbers look like this:
If you can be claimed as a dependent on someone else’s return, the rules are a little bit different. For single dependents who are under the age of 65 and not blind, you generally must file a federal income tax return if your unearned income (such as from dividends or interest) is more than $1,050 or if your earned income (such as from wages or salary) is more than $6,300. For married dependents when either of you are under the age of 65 and not blind, you generally must file if your unearned income is more than $1,050; if your earned income is over $6,300; or if your gross income is at least $5 and your spouse files a separate return and itemizes deductions. If you are over 65, you do not fall into one of these categories or think you need to file for other reasons, check with your tax professional.
Even if you don’t need to file a federal income tax return this year, you may still want to take advantage of tax breaks and credits which might be available: popular credits include the additional child credit and the American Opportunity credit. You might also be entitled to a refund for excess withholdings or a refundable credit such as the earned income tax credit (EITC).
4. You have to fill out tax forms, and that includes handing over your Social Security Number. I’m often asked whether you have to give out your Social Security Number when you start a new job or a gig even if you don’t expect to owe taxes. The short answer is yes. The longer answer is still yes – with an explanation. To start, your employer doesn’t (and shouldn’t) know your financial situation outside of the workplace. Even if you meet the exemptions for income taxes, your employer is still subject to certain reporting and tax requirements. When you accept a job as an employee or as an independent contractor, you’re required to fill out some paperwork to assist your employer with those requirements. That typically includes a form W-4 (as an employee) or a form W-9 (as an independent contractor). You must provide your tax ID number (for most taxpayers, that’s your Social Security Number) and indicate whether you are subject to backup withholding on the form. If you provide false information to avoid backup withholding or fail to provide your tax ID, you may be subject to a penalty. Since an employer may also be subject to a penalty for not providing the number, if you make it difficult for them, they may decide you’re not worth the trouble – and let you go.
5. If you already pay income taxes, you may need to adjust your form W-4 temporarily. You typically fill out a form W-4 when you start a new job. You may also, on your own, want to fill out a new form W-4 when your financial situation changes – that includes picking up a second job over the summer. Remember that you don’t file the form W-4 with the IRS, you file with your employer. That means that your withholding amounts (including Social Security taxes which are capped) start fresh with every additional job unless you advise your employer differently. And it’s not just your own second job: if your spouse takes on a job for the summer, like Ann LePage, the wife of Maine Gov. Paul LePage, who took a job as a waitress to help make ends meet, you may also need to make changes in order to avoid too much or too little withholding. If your new job is a part-time gig and you have another more permanent job, you may need to make another adjustment after summer ends. For more on completing your form W-4, click here.
6. You may need to pay estimated state and local taxes. While there are exemptions available for the filing of federal income taxes, those same exemptions might not be available for state and local tax purposes. In fact, some state and local tax authorities impose a tax on the first dollar of earned wages with no personal exemptions. If you are subject to state and local taxes and do not have withholding from your pay, you may need to make estimated tax payments to avoid penalties and interest come tax time. If you’re not sure about the rules, check with your tax professional or your state and local tax offices in advance.
7. Your pay has to be in cash or cash equivalent. With a part-time or seasonal job, you may not have a lot of bargaining power when it comes to compensation and benefits, but that doesn’t mean that you should allow yourself to be taken advantage of. As part of the Fair Labor Standards Act (FLSA), you must be paid in cash or cash equivalent. Food and lodging may count (and may also be taxable). But don’t get suckered into company-centric pay arrangements: by law, your employer cannot pay you with a coupon or token that can be spent only at your employer’s establishment. Further, when figuring pay, employee discounts do not count towards the requirement that you be paid at least minimum wage.
For 2016, the federal minimum wage is $7.25 per hour. State minimum wage laws vary and may require a higher pay rate (you can see a chart of state minimum pay rates as of 2016 here).
8. In most cases, you cannot be asked to work for free. Every year, I see advertisements for workers where the primary benefit is the experience. Here’s a quick tip: experience doesn’t pay the rent. Typically, asking you to work for free is prohibited by law – but that doesn’t mean that folks won’t try. For purposes of compensation, if you are paid by the hour, you must be paid minimum wage for all hours worked (see above for rates). That means that your employer cannot pay you for some hours and not for others: that includes required attendance at training programs or orientation. If you are going to be paid less than your normal hourly rate during a probationary period, make sure you understand the details in advance – and remember, that’s still work time so you should be paid at least minimum wage. In almost every case, there is no such thing as a “free” trial period.
Employers like to get around the rules by slapping an internship label on a job. Typically, unless an internship earns you college credit or apprenticeship credentials, you must be paid for your services no matter what they call you at the office. Unpaid internships are not supposed to be an excuse to exploit free labor. If, as an intern, you are performing services such as clerical work or assisting customers, or otherwise taking over for a paid employee, you are likely subject to the minimum wage and overtime requirements under the FLSA. A good rule of thumb: an unpaid internship is supposed to primarily benefit you, not the other way around.
9. There is no limit on the number of hours employees may work – but you have to be paid overtime. Make sure you establish your expected workload ahead of time and understand who you need to notify if that changes. That’s tough when you’re the newbie (as someone who got all of the worst shifts at the Piggly Wiggly, I know this firsthand) but it’s important for planning purposes. Your employer cannot refuse to pay you for overtime because of scheduling mistakes or misunderstandings – but they can fire you – so make sure you understand the rules ahead of time. Under the FLSA, an hourly worker who puts in more than 40 hours in one week must be paid at least 1.5x the worker’s normal rate for every hour worked overtime (state overtime rules may also apply). If you’re a covered worker under the law, it is not enough to simply offer you comp time for your services. There are exceptions for some jobs – typically salaried professionals who are not compensated hourly – so, again, be sure to ask about overtime and compensation in the beginning stages.
10. Benefits may be available. Employees are often eligible for tax-favored benefits – and that doesn’t necessarily mean that part-time or seasonal employees are exempt. Remember: employees can be full time or part time, seasonal or year-round, temporary or permanent, so just because you’ve signed on for summer doesn’t mean that you automatically don’t qualify for benefits. Eligible benefits might include health insurance coverage, gym memberships, banking plans, commuter and transit benefits, employee discounts, and vacation time. And don’t forget about retirement or other incentive plans: I qualified for Gap’s stock plan as a part-timer during law school.
Be sure to ask about benefits up front, including any vesting periods (typically, the time you have to wait before you qualify for benefits). At some companies, if you don’t sign up during the proper enrollment period, you are barred from doing so for a year or more.