Paying Employees

[Shawn F.]

I am geting to the point where I will have an employee helping me out on my details to knock more out in a day or knock some time out on a large SUV and truck but need to know how to go about paying them. How do you guys go about paying your employees? I am not sure if I should do it hourly, by the job, percentage of each job, or what? I will be helping him most of the time so it will not be him working alone. I'd eventually like to do two jobs at once with one on one car and one on the other whether it's mobile or I pick the vehicles up and bring them back to my place...



Any information, suggestions or opinions would be GREATLY appreciated here!

 

[tssdetailing]

Will you be hiring an experienced detailer or just a guy seeking a job? If you have to invest a lot of training time in them, I would do minimum wage. If they are bringing experience to the table, figure your employee payout shouldn't exceed 20% of your business income. (that is what i've been told by my brothers, who both own companies with many employees, one is construction, the other in landscaping).

 

[Shawn F.]

He is semi experienced. Once I show him a few things I can trust to let him do his thing and not worry. I would say that after about a handful of vehicles (7 or 8) he will be well on his way and doing things the way I prefer them to be done. As for 20% income, that doesn't seem like very much especially with no benefits but maybe I am wrong?

Thanks again!

 

[tssdetailing]

:lol:In this business there is tons of profit. To really make "Real Money" you need to have a crew.



Here is Last months breakdown for me.



Gross Sales. $37,542.61

Payroll. 15,461.00

Electric. 405.00

Phone/Internet 103.65

Chemical Supplies 1700.00

Heat. 303.00

Lease. 1219.00

Insurance 845.00

Wife 1600.00 money to shut her up so I can make more lol:lol:



And there were a few other small exspenses but you get my drift. You can make money if you do it right!

This is one of my favorite posts on this forum, b/c it really shows the breakdown of a big company. As you can see, Barry is shelling out almost 24% for employees

 

[Envious Eric]

I dont know man, maybe I am doing the math wrong, but dont you take the payroll/gross to find the %? that would be about 41%. Barry certainly does have a good thing going, especially since he only physically works on 4-5 cars a month now. I wish I was at that point where I can pick and choose what cars I wanted to work on, and charge more than I currently do for doing so! Not yet, but one day I will get there....hopefully sooner than later!



SHaun F -



I would either pay hourly at 12-15/hr or pay a flat rate per car (piece work). If you charge say 100 per car for a wash and wax, then pay him 30-40 per car and you still make $60 on it while you are doing something else making $60+/hr. That is the way I am looking at expanding right now. That way, you will keep your employee loyal and willing (because of the higher than $10/hr pay rate) and you can make more off of him.



for instance, I will be training someone to wash cars, spray wax them and do interior work for me while I am elsewhere doing correction work. i will pay piece work rate per car. There will be an understood quality level for each service and the faster he can get it done, the more per hour he makes, its up to him. If he can upsell a job, a certain amount more will be added.



so lets say I have 5 cars for him to wash at $10 each (piece work rate). I can get an ONR wash on a sedan done in 35-40 minutes inside and out. Thats about 15-18/hr, not too bad for washing cars right....but if he is slow and lethargic, and it takes him 1.25 hours, then its only about 8/hr...so there is incentive to get it done faster, all the while still being quality (to stay employed)...plus it drives up sales on the day so that he can get to more cars to make more, hence I make more!

 

[WAS]

20% is kind of low on wages. If your $200 detail takes 4 hours, you can afford to pay about $8.75 an hour (since you also have to calculate your employer portion of deductions). I've been told by a reputable individual that I respect as a detail shop owner that wages should not exceed 30% to 35% of gross revenue.



More importantly than figuring out how much you're going to pay your employee is HOW you plan on paying them. Do you have accounting software ? How do you do your books today ? You got a company bank account with company cheques ?

 

[David Fermani]

Set them up as Sub-Contractors and give them a % of the job. You'll end up saving lots of money, paying your people more and having them work harder. Get with your attorney & accountant for coaching on how to set this up.

 

[tssdetailing]

I dont know man, maybe I am doing the math wrong, but dont you take the payroll/gross to find the %? that would be about 41%.

GRAH! oops.

 

[WAS]

Set them up as Sub-Contractors and give them a % of the job. You'll end up saving lots of money, paying your people more and having them work harder. Get with your attorney & accountant for coaching on how to set this up.

How legal is that long term though ? Will you not get in trouble at some point for evading paying your employer percentage of federal deductions ? And what about Workers Comp fees ?

 

[David Fermani]

How legal is that long term though ? Will you not get in trouble at some point for evading paying your employer percentage of federal deductions ? And what about Workers Comp fees ?

So far, over 17 years and counting. No worries.

In summary -

*All workers have DBAs

*All sign Sub-Contractor agreements

*We pay their DBA, not them personally

*They are responsible for their Workers Comp & Taxes

*They are 1099 misc yearly

*All have their own tools & products

*Each chemical supplier invoices their business, not us

*Paid per vehicle - not hourly or salery

*Free to come and go - no set hours or schedule

*Can work for any Contractor they wish

 

[Envious Eric]

Set them up as Sub-Contractors and give them a % of the job. You'll end up saving lots of money, paying your people more and having them work harder. Get with your attorney & accountant for coaching on how to set this up.

they have to have their own DBA/license in order for this to work, and they have to prove they are out looking for other work instead of just working for you with a business name...at least that is what I was told for cali

 

[tssdetailing]

So far, over 17 years and counting. No worries.

In summary -

*All workers have DBAs

*All sign Sub-Contractor agreements

*We pay their DBA, not them personally

*They are responsible for their Workers Comp & Taxes

*They are 1099 misc yearly

*All have their own tools & products

*Each chemical supplier invoices their business, not us

*Paid per vehicle - not hourly or salery

*Free to come and go - no set hours or schedule

*Can work for any Contractor they wish

It sounds great in theory-everyone gets paid, and you make a cut on the mark up, but don't you put your reputation at risk that way?

 

[Bunky]

This is one of my favorite posts on this forum, b/c it really shows the breakdown of a big company. As you can see, Barry is shelling out almost 24% for employees

It is a labor intensive business so the labor cost should be the highest direct cost. This is why speed is important in high volume detailing.

 

[Barry Theal]

Employees are my biggest cost. When its all said and done at the end of the week you have to look at total numbers and not individual. When you have a business doing 40 - 50 g's a month you will see the benefits of it. Trust me. Just do the right thing when it comes to taxes, insurance, business liceanse and you will be ok. Its not easy as you ad employees, but once there in a groove and you look at this as a business and not what cool car can I post next, you will be better off. Many people get wrapped up in trying to be the next big shot, instead focus on your area and what needs to take place.



By adding one employee you have to factr in a whole lot more.



One employee needs:



Insurance, More Taxes, training time, and a fw others, but you can't look at them as a hourly number. You can't look at it like Im paying my employee 10 an hour and if he works 8 hours he makes $80.00 a day. If you made 400 hundred on a job you made 320. Wrong way to look at it. You have to look at insurance on top of the wage. Also factor in workerscomp. Which is not cheap. There are so many varibles, but it is costly. I am at the point where things are rolling and a labor percent has gone down, as well as now everything is pretty much delivered in 55 gallon drums for chemicals. Once you take the first couple hits it will get better.

 

[WAS]

So far, over 17 years and counting. No worries.

In summary -

*All workers have DBAs

*All sign Sub-Contractor agreements

*We pay their DBA, not them personally

*They are responsible for their Workers Comp & Taxes

*They are 1099 misc yearly

*All have their own tools & products

*Each chemical supplier invoices their business, not us

*Paid per vehicle - not hourly or salery

*Free to come and go - no set hours or schedule

*Can work for any Contractor they wish

Very interesting setup. This would NEVER work here in Canada, you'd get shut down very quickly, as you'd be viewed as avoiding EI / CPP / Workers Comp / other deductions that you as an employer pay into.

 

[David Fermani]

It sounds great in theory-everyone gets paid, and you make a cut on the mark up, but don't you put your reputation at risk that way?

Not in any way. You're still operating the business and controlling the workflow and precedures. Just having a sub-contractor doing the work instead of an employee. Costs are actually much more controlled as each person is financially responsible for their material usage. They aren't going to be stealing and being careless with their own supplies/equipment. And if they do it doesn't cost you anything.

 

[Shawn F.]

Old thread I know but I'd like to BUMP this back up and get some more opinions here! I am now in a fixed location/shop so things may change. I need to do this the LEGAL way, nothing under the table but then again need to decide if I will pay by the hour or what and if so then how much. Any tips on how I should decide and how to go about this?



Thanks again in advance!

 

[Tel0004]

If you are thinking the Independent contractor route, David posted an excellent way to do it, that should very easily hold up to IRS scrutiny.



I'll answer a bit on the subcontractor vs employee. I have a degree in Finance, but work in accounting, so I know a lot more about this than I know about cleaning cars.



The difference between an independent contractor and employee is the degree of behavioral and financial control you have over them.



There is no clear line between the two. The IRS used to use a 20 factor test, to get a decent idea on their employment status, but that has since been discontinued.



Here is a link to the 20 factor test (its still a good general example of the differences,but as I said, no longer in use)

http://www.texasworkforce.org/ui/tax/forms/c8.pdf



The IRS has a form to determine if somebody is an independent contractor or employee. Its called an SS-8, and can be found on their website. The only problem is they don't really only want you using it to solve disputes, not hypothetical scenarios.



The way David does things, they supply their tools, they can come and go when they want, they can work for competing business (I would assume), they have the ability to make a profit or loss, so they are independent. Its a great way to save some money, but I would imagine it would be tough to always have correct staffing levels. I work a job as an independent contractor (unrelated to detailing), and if I feel like taking a month off, nobody can make me come in. If employee just said they were not coming in for a month, they would risk getting fired.



I have no experience with the detailing business, so i couldn't' tell you a fair rate. Paying but the job would motivate them to work efficiently, but (especially if they were not a professional), it would motivate them to cut corners. Whatever route you go, there are tons of programs that make payroll easy. I would sit down with a CPA and let them talk to you about it. Also how are you incorporated? Sole proprietorship? LLC? I'll admit that detailing isn't exactly dangerous work, but having an employee certainly opens you up to more liability, either through his/her neglect, or if they were in an accident. The fact that you have employees might mean you want to look into becoming an LLC if you are not already to limit your liability.



Obvious disclaimer, my advise is only worth what you paid for it (nothing). I don't know your exact scenario, state laws etc.

 

[Shawn F.]

I was going to open as an S Corp or LLC but now thinking about Sole Proprietorship... I know every state is different on taxes and such and some are better to be LLC while others S Corp and so forth. With mobile detailing it was SP but still in the air on which route to go and if I should change it. So if I pay the employee by the job, I would have to list them as contractor that I hired to do the work for me and they supply everything? What about just being my employee and I supply everything and working side by side with me?

 

[David Fermani]

If you are thinking the Independent contractor route, David posted an excellent way to do it, that should very easily hold up to IRS scrutiny.



I'll answer a bit on the subcontractor vs employee. I have a degree in Finance, but work in accounting, so I know a lot more about this than I know about cleaning cars.



The difference between an independent contractor and employee is the degree of behavioral and financial control you have over them.



There is no clear line between the two. The IRS used to use a 20 factor test, to get a decent idea on their employment status, but that has since been discontinued.



Here is a link to the 20 factor test (its still a good general example of the differences,but as I said, no longer in use)

http://www.texasworkforce.org/ui/tax/forms/c8.pdf



The IRS has a form to determine if somebody is an independent contractor or employee. Its called an SS-8, and can be found on their website. The only problem is they don't really only want you using it to solve disputes, not hypothetical scenarios.



The way David does things, they supply their tools, they can come and go when they want, they can work for competing business (I would assume), they have the ability to make a profit or loss, so they are independent. Its a great way to save some money, but I would imagine it would be tough to always have correct staffing levels. I work a job as an independent contractor (unrelated to detailing), and if I feel like taking a month off, nobody can make me come in. If employee just said they were not coming in for a month, they would risk getting fired.



I have no experience with the detailing business, so i couldn't' tell you a fair rate. Paying but the job would motivate them to work efficiently, but (especially if they were not a professional), it would motivate them to cut corners. Whatever route you go, there are tons of programs that make payroll easy. I would sit down with a CPA and let them talk to you about it. Also how are you incorporated? Sole proprietorship? LLC? I'll admit that detailing isn't exactly dangerous work, but having an employee certainly opens you up to more liability, either through his/her neglect, or if they were in an accident. The fact that you have employees might mean you want to look into becoming an LLC if you are not already to limit your liability.



Obvious disclaimer, my advise is only worth what you paid for it (nothing). I don't know your exact scenario, state laws etc.

Good info!!