The way a golf club assigns, pays and supervises caddies can determine whether a caddie is classified as an employee or an independent contractor. Because a caddie will rarely have any significant business or financial risk in connection with his or her activities as a caddie, the factors relating to the control and direction of caddie activities are of greater importance.
Assignment/Selection of Caddies
The selection and supervision of caddies should remain exclusively with the members. The club may establish a priority list in the event a club member has no preference, but the club member should be free to select caddies out of line.
However, in practice, most clubs have the starter assign a caddie to a member at the beginning of a round of golf. In this case, members must understand that the starter is merely proposing a caddie as a member service.
The caddie should have the freedom to choose not to go with a particular member, and the member should have the freedom not to use a particular caddie. The club should not schedule or assign caddies in any manner.
Rate of Compensation
Ideally, the rate of compensation for the caddie should be left to the complete discretion of the members. Although the club may suggest an appropriate fee schedule for caddies, members should be free to determine the actual amount of compensation to be paid to each caddie.
The caddie’s employment status will not be affected by the fact that the club allows members to charge caddie fees to their account. Provided the club does not exercise any control over the amount paid, acting as the agent of the member in paying the caddie will not create an employment relationship. Caddies and members should understand that the club undertakes no obligation on itself to pay for caddie service.
Supervision and Evaluation of Caddies
To avoid the appearance of an employment relationship, all decisions concerning caddie duties, and the manner in which those duties are performed, must remain strictly with the member. Clubs that permit members to grade a caddie’s performance do not run a substantial risk of creating an employment relationship if they subsequently refuse to permit a caddie to serve members on the basis of adverse grades. Indeed, the club may use caddie evaluations to benefit a caddie by pointing out areas where performance can be improved.
Training/Standards of Conduct
Mandated and organized training by the club should be avoided. Standards for personal conduct, including sobriety, dress codes, and personal decorum, do not generally create an employment relationship, particularly if the standards are applied to all persons on the premises, including club members.
However, clubs are cautioned that caddies should avoid wearing clothing provided by the club, e.g., a polo shirt with the club logo, to avoid the appearance of an employment relationship. Similarly, laundering of the clothing by the club should be avoided.
Again, application of the Section 530 safe harbor may preserve independent contractor status regardless of the impact of the general rules.
Factors in Evaluating Employment Status: The 20 Factor Test
For at least 30 years, the IRS has used a list of 20 factors to evaluate whether a worker is an employee or an independent contractor. These factors were published in 1987, but appeared in the Internal Revenue manual, used by IRS auditors, at least 10 years earlier.
Although some factors are more important than others, no single factor is determinative, and the weight given to each factor may vary from case to case.
1. Instructions: May the club require the worker to comply with instructions about when, where and how to work?
2. Training: Does the club require training?
3. Integration: Are the worker’s services an integral part of the financial success of the club’s activities, or are they a separate economic business?
4. Personal Services: Is the worker required to render services personally?
5. Assistants: Does the club employ and pay assistant pros, instructors or shop clerks?
6. Continuing Relationship: Does the worker have a continuing relationship with the club?
7. Hours: Does the club have the right to establish shop hours, lesson times, or caddie shifts?
8. Full-time Required: May the club require the pro or caddie to devote full time to its activities?
9. Location of Work: Is the worker required to perform services on the club’s premises, even if they could be performed elsewhere?
10. Order of Work: May the club establish an order or sequence in which the worker performs services?
11. Reports: Is the pro required to submit oral or written reports to the board or membership on a regular basis?
12. Compensation: Does the worker receive a regular weekly or monthly salary instead of compensation for a particular task?
13. Payment of Business Expenses: Does the club reimburse business expenses incurred by the pro or caddie?
14. Materials: Does the club provide the worker with materials necessary to do the work?
15. Significant Investments: Does the club furnish office equipment, space and other assets necessary to accomplish the work?
16. Profit or Loss Risk: Does the club pro have only an insubstantial risk of profit or loss from any capital investment?
17. Multiple Clients: Does the worker normally perform services for more than one client?
18. Availability: Does the worker normally make his or her services available to the general public?
19. Right to Discharge: May the club discharge the worker without incurring liability?
20. Right to Terminate: May the worker terminate the relationship with the club without further liability to the club?
Unfortunately, the rules for determining who is an employee or independent contractor can still seem unclear. Over the years, efforts to clarify the rules have been unsuccessful. Yet, clubs must continue to make a good-faith effort to classify workers properly.
By adhering to the guidelines presented above and by consulting with knowledgeable counsel on this matter, clubs should be well positioned to protect themselves and their workers from IRS scrutiny. And, as always, NCA is ready to assist member clubs should further questions about work classifications arise.
Additional information about independent contractor compliance can be found in NCA’s Club Director Reference Series monograph, “Independent Contractor Compliance for Clubs.”