Can Businesses Avoid Minimum Wage Requirements by Bartering Services?

If you're considering bartering services for the financial benefit of your business, make sure you're following these legal guidelines, as well as these tips to ensuring your business is protected.

In an effort to protect their bottom lines, business owners give much consideration to the costs of running their day-to-day operations. As part of this consideration, business owners often pay particular attention to staffing requirements and employment expenses. This may result in experimenting with alternative hiring arrangements, such as utilizing independent contractors and engaging in the practice of bartering services. Though hiring independent contractors and engaging in bartering can be effective ways to save on staffing costs, it is incredibly important that those hired are properly categorized and compensated.

Because the line is often blurred between independent contractors and employees, it is essential that employers understand the difference to avoid trouble down the road. This is particularly true when they are considering bartering services. Employers must also properly report any “income” received as part of the bartering service. Otherwise, the employer may run afoul of minimum wage laws or income reporting requirements and be subject to government investigations and litigation, which can have catastrophic results for the business.

Is it Permissible for Businesses to Barter Services?

The idea behind bartering is that an independent contractor offers a business owner goods or services in exchange for something from the business. For example, a gym may offer a contractor a gym pass in exchange for the contractor performing certain repair work at the gym. These situations are often contractual, short-term, and leave each party with a benefit- though actual money does not change hands. Because no employer-employee relationship exists, these arrangements are not generally subject to minimum wage laws.

The value received from the bartered services or goods, however, may need to be reported by both parties. Barter exchanges (organizations whose members contract with each other to exchange goods or services) are required to file a Form 1099-B for mostly all transactions. Contractors that do not barter through a barter exchange, but who trade services, are not required to file Form 1099-B. However, they may be required to file Form 1099-MISC. Further, if a business owner utilizes bartering, he or she will be required to report the fair market value of goods or services received. Generally, this income is reported on Form 1040, Schedule C, or Form 1040, Schedule C-EZ. (See generally, Accordingly, if moving forward with such an arrangement, the parties should consult with a tax professional to ensure that the value received through bartering is properly reported.

Though bartering of services is permissible in certain situations, in employer-employee relationships, employees are always entitled to be compensated for the hours they work. The U.S. Department of Labor and the U.S. Supreme Court require all employees subject to the FLSA to be paid at least the federal minimum wage. (See DOL Fact Sheet 13).  Similarly, Article II.34(a) of the Ohio Constitution requires every employer to pay their employees at least minimum wage. Notably, Article II provides that “[w]here an employer is found by the state or a court to have violated any provision of this section, the employer shall within thirty days of the finding pay the employee back wages, damages, and the employee's costs and reasonable attorney's fees. Damages shall be calculated as an additional two times the amount of the back wages…” Accordingly, failure to comply with these minimum wage requirements can be costly to the business owner.

The wages paid pursuant to this rule must also be in the form of monetary compensation. Specifically, Ohio Revised Code § 4111.01, also known as the Ohio Minimum Fair Wage Standards Act, provides that a “wage” is “compensation due to an employee by reason of employment, payable in legal tender of the United States or checks on banks convertible into cash on demand at full face value, subject to the deductions, charges, or allowances permitted by rules of the director of commerce under section 4111.05 of the Revised Code.”

The only statutory exception to the Act is a provision allowing an employer to deduct the reasonable cost of furnishing the employee board, lodging, or other facilities. See R.C. 4111.01 and R.C. 4111.02; Manifest Sols. Corp v. Watkins, No. 13CV-894, 2014 Ohio Misc. LEXIS 18000, at *16 (Oct. 6, 2014). However, this exception does not extend to bartered services.

In short, bartering with employees is a violation of the minimum wage requirements under Ohio law. Further, incorrectly designating an employee as an independent contractor when utilizing bartering services can result in significant damages and/or fines to the employer if the employee is not adequately compensated. If the impermissible arrangement occurred over a prolonged period of time, or involved many employees, the result could be devastating to the overall success of the business.

How Can Business Owners Protect Themselves When Considering Bartering Services?

Because business owners can be subject to severe fines and/or sanctions for mislabeling their employees when bartering, they should meet with an attorney to ensure that they are properly categorizing their staff and complying with minimum wage laws. If they are bartering with a properly categorized independent contractor, then the business owner will not have to pay minimum wage for such services. Instead, they will be bound by the contractual agreement, and may have to file other tax forms to account for the value received from the services. In such situations, it is recommended that the business owner meet with a tax professional to ensure that the income received from the arrangement is adequately reported.

For more on the importance of properly classifying employees and contractors, see How to Avoid a Giant Bill by Misclassifying Employees as Independent Contractors

This article is meant to be utilized as a general guideline for bartering for services. Nothing in this blog is intended to create an attorney-client relationship or to provide legal advice on which you should rely without talking to your own retained attorney first.  If you have questions about your particular legal situation, you should contact a legal professional.

Mark Turner and Cindy Menta can be reached at and or by phone at 440-571-7773. 

Are your policies and documents protecting your business or getting you sued? Check 10 areas of your business for legal risks and get instant feedback from experienced attorneys right now by taking a short online quiz at Or schedule a confidential, no-cost CM6 Vulnerability Check with Gertsburg Law Firm. CEO Alex Gertsburg will walk you through the minefields in your documents and key processes and tell you how to fix them yourself. Call 440-571-7774 or e-mail to schedule your CM6 Vulnerability Check today. Explore the full CoverMySix legal audit suite at

  • Email
  • Next up: CareerBoard Partnership to Provide Exclusive Benefits for COSE Members
  • More in HR
  • CareerBoard Partnership to Provide Exclusive Benefits for COSE Members

    The Council of Smaller Enterprises and CareerBoard are partnering to provide exclusive access to an online recruiting site that will provide quality applicants to COSE members through job posting and distribution products that maximize value and reach.

    The new site—which can be accessed at—features intelligent technology that will do far more than wait for a quality candidate to search and find a job. Available jobs will be actively marketed to more than 400,000 potential candidates.

    “We know that talent drives organizations,” says CareerBoard President Richard Padgett. “This is a unique opportunity in that COSE is well known as an organization intensely focused on the needs of small business owners and there are job candidates who are specifically looking for that type of employer. This is an outlet for those business owners who don’t have a department dedicated to attracting talent to reach those people.

    The site is based on tried and tested CareerBoard software that delivers more than 1 million applications every month and has been specifically enhanced for COSE to provide features expected on a leading job site. The addition of proactive features such as smart alerts and behavioral intelligence tools, CareerBoard ensures qualified job seekers across the country and local employers find each other. And, with 40% of all U.S. job searches taking place on mobile devices, the enhanced COSE mobile site fully supports the needs of today’s job applicants.

    COSE and CareerBoard are also pleased to offer a special, discounted rate for COSE members. COSE’s small business members are able to place a 28-day ad for just $175 or a one-week ad for only $50.

    “There are no excuses for not being able to hire that next person who will be able to help you grow your business,” says COSE Executive Director Steve Millard. “We’re making it very easy for you to put together the right staff.”

    CareerBoard has been an online job board recruiting local talent for employers and a consistent source of local employment opportunities in Northeast Ohio since 1997. This partnership provides a cost-effective local online recruiting solution that is capable of delivering quality candidates in every job category. For more information about CareerBoard, visit

  • Email
  • Next up: CareerBoard President Discusses COSE Partnership
  • More in HR
  • CareerBoard President Discusses COSE Partnership

    COSE is proud to announce a partnership with CareerBoard that will help meet the job staffing requirements of small businesses.

  • Email
  • Next up: COSE MEWA Is a Return to Pre-Affordable Care Act Days
  • More in HR
  • COSE MEWA Is a Return to Pre-Affordable Care Act Days

    COSE's new health benefit option, the COSE Health and Wellness Trust, is a lot like how health insurance looked in the days before the Affordable Care Act.

    COSE's new health benefit option, the COSE Health and Wellness Trust, is a lot like how health insurance looked in the days before the Affordable Care Act.

  • Email
  • Next up: COSE MEWA Is a Return to Pre-Affordable Care Act Days
  • More in HR
  • COSE MEWA Is a Return to Pre-Affordable Care Act Days

    COSE's new health benefit option, the COSE Health and Wellness Trust, is a lot like how health insurance looked in the days before the Affordable Care Act.

  • Email
  • Next up: COSE WebEd Series: Anatomy of a Perfect Wellness Program
  • More in HR
  • COSE WebEd Series: Anatomy of a Perfect Wellness Program

    Did you know 80% of a company’s health insurance claims come from only 20% of its employees? Ensure a healthier workforce at your business by following these steps to creating a perfect wellness program.

    With an aging population, chronic disease on the rise and insurance premiums increasing, most employers know by now the benefits of a wellness program. But many are often still faced with the challenges of starting one or effectively engaging staff in a plan that works. During a recent COSE WebEd Series webinar titled “Anatomy of a Perfect Wellness Program,” hChoices President Steve Pelton explained what features need to be included in a company wellness program.

    According to Pelton, 80% of a company’s claims come from only 20% of its employees. So, connecting with the group of people at greatest risk of suffering from health-related issues (and therefore filing health-related claims) is in everyone’s best interests, but doing so can be sometimes difficult.

    Pelton identified the following obstacles companies are facing when it comes to successful wellness programs:

    • motivating the well, not the sick by only offering the bare minimum, such as biometric wellness screenings once a year;
    • inadequate access to health monitoring with secure tracking;
    • insufficient educational opportunities;
    • difficulty building awareness and engagement; and
    • limited time and resources

    Change the conversation

    Companies need to overcome these obstacles by changing the conversation and the tactics used around wellness. Instead of talking with employees about needing to change what claims are filed, managers need to be talking with their staff about why their health is important. It must be an employee-centric approach to discussing wellness.

    An effective, successful wellness program will always be:

    • Inclusive: It can’t only be available to people on the company’s healthcare plan or only for the employees themselves. A good program will be available to everyone in the company, as well as their dependents.
    • Multidimensional: It must include not only the aspects of wellness related to physical health, but should also have financial wellness components.
    • Targeted: Cookie cutter programs don’t address the specific needs of the participants or the employer. Meet participants where they are; some people might already be on the track to good health, while others need more motivation and resources.
    • Personalized: Included in the program should be things that have been needed or wanted in the past by both the employees and employer. Technological algorithms can help deliver a personalized plan that will work best for individual companies.
    • Responsive: Ensure wellness program information is user-friendly and can be accessed across all forms of technology. This will increase participation and is another way to reach out to dependents.
    • Fun: Companies should use challenges, incentives and other engaging tactics to create a buzz about their program.
    • Available 24/7: If people can access it whenever it’s convenient for them, they’re more likely to do it.
    • Visible: The data needs to be made available so that both employees and employers know their effort is paying off. Share results and help spread the effectiveness (and therefore increase participation) of the program.

    Secure third-party help

    Pelton strongly recommends instituting the assistance of a third party to accomplish all of these steps. A HIPPA-compliant outside broker can hold the data on employee health and assist in the company’s wellness goals using technology, employee education and social engagement. He also suggests that companies secure testimonials from people participating in their wellness programs to promote effectiveness and drive participation.

    COSE has partnered up with hchoices to offer a turnkey wellness program called Y’s Choice, which includes such aspects as:

    • health assessments;
    • wellness challenges;
    • reporting and incentive tracking;
    • coaching and dietary consulting;
    • wellness portal and custom learning system; and
    • discounted memberships to YMCA.

    Pelton also explained the Workplace Wellness Grant Program through the Ohio Bureau of Workers Compensation, which provides $15,000 to employers wanting to institute a wellness program.

    Like what you see here? We’ve got webinar coverage on a variety of other topics, too! View previous COSE WebEd Series webinars by clicking here.

  • Email
  • More in HR