Paying Employees

David Do you meet with all your subcontractors? Or have someone you can trust to meet with the subcontractor



I just wanted to note what i have undergone with somebody>



Somone contacted me to set up a deal under the table, we have agreed on so&so amount of cars, he pays me up front for first five i do. I only talk to him by phone but other than that he doesnt know who i am or anything about me. If i were a dishonest person he would basically have a bad investment.



There is no paperwork between us, but I am only a part time mobile detailer.

The only thing there really is between us is free enterprise and the oppurtunity for their company to make 50%-150% on top of what he pays me.



So really is it a good thing for a franchise or large company to build a strong relationship with their subcontractors? or is it just a money thing?
 
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?
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It doesn't have to be LLC vs S corp. LLC has to do with Liability, S vs C corp vs SP has to do with tax treatment



An LLC can be an S corp, it can be a C corp. I think becoming an LLC makes a lot of sense. its good to limit your liability. I also think an S corp makes a lot of sense for a small business. Taxes are easier, you don't have double taxes associated with C corps. With an S corp, you can also pay yourself dividends, which are taxed at a lower rate. You first pay yourself a reasonable salary (and it better be reasonable, or the IRS will conduct an audit), then you can pay yourself a dividend with the remaining money, which is taxed at a lower rate.



As I said in my above post, the choice to go independent contractor vs employee is a tough choice. If you are training them, providing them with supplies, and telling them when to work, they are probably an employee. If you want to make them your employee, that is fine, and probably the best route. Its just a matter of figuring out what expenses you are going to have related to that employee, insurance, FICA, workers comp, unemployment. There is a lot of work to do. You need to get an Employer Identification number, know what paperwork your employees need (W-4, I-9, etc).



Detailing might be your job, but accounting my soon become your hobby. Its certainly not impossible, and thousands of people have done it before. As I said before, once you do a bit more research talk to a CPA in your state who understands your state laws, and can look at your business and tell you what is right for you.
 
Yes. All the subs work under 1 fixed location when working for my company. Therefore, I see, talk and monitor everything they do throughout the day.
 
I have experience working on both sides of David's system, as a sub-contractor a few years ago, and presently subbing out work myself. It's completely legal and works very well in the marine industry since most jobs are done by foot. Generally I charge ~$3 per linear foot to do a basic wash/dry on a boat. I "hire" a sub to wash that boat for ~$1/ft. It's not bad money for them considering it takes a little over a minute for each foot on a regularly kept boat. Most of my boats are in the 40-60ft range, so it comes out to just about $40-50/hr on average. He is set up with a license to do the work on his own, and he can do whatever side work he chooses so long as he doesn't steal my clients. Pay them well and they won't do you wrong, and then they can handle their taxes on their own as 1099 misc. It's the ideal way to run my business in my opinion.
 
David, if I do the sub contractor route, then I do not have to pay Workers Comp, is that what your saying? What about insurance on my shop then, does it cover if the sub contractor screws something up or does he have to have full coverage insurance? If so then do I need to pay it or what?

Sorry for all the questions, I just want to make sure I am choosing the correct way and learn all I can before talking to a CPA so I can at least have somewhat of an understanding.
 
Short Answer: No Workers Comp. No tax witholdings. That's their responsibility. You keep Insurance on your business. It covers everything except them getting hurt.
 
So my insurance covers any damage they cause to the vehicle as long as the vehicle is under my roof in my shop or lot? If that is the case then this seems to be the best route to go... Now as for LLC, it seems that I need to get my LLC taken care of and change a few things and possibly add S Corp later down the road once things are up and running smoothly...???
 
It might be a grey area? I'd speak to an Ins. agent about it. If anything ever happened, I'd just pay it myself anyways and deduct it from their income on a scheduled basis.
 
Here is a link to the IRS form # SS-8



http://www.irs.gov/pub/irs-pdf/fss8.pdf



Might want to consult an attorney as well. I know in PA this is very difficult to do.



Another step that would probably help would be to charge your subs rent for the space they use in your shop, similar to how hair dressers rent chairs in salons.
 
You may need/want to speak with an accountant about 1099's. I have been doing it with my small business (not auto related) and have been informed for my situation that I should not be using 1099's. GA DOL apparently is working closely with the IRS and if the person/dba you are issuing a 1099 fits criteria of an employee (it's their only job, is X% of your labor, etc) they will label this person as an employee and track back 3 years to charge you the business what you should have been paying as if they were an employee.

Ron
 
David Fermani said:
If anything ever happened, I'd just pay it myself anyways and deduct it from their income on a scheduled basis.
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If you're suggesting deducting money from wages to pay for a damage one of your guys did to a vehicle, I'm suprised you'd be allowed to do that in the USA. Here in Canada, not a chance, you can't deduct wages for ANYTHING like that, not even if the employee stole from you.
 
That's exactly what I'm suggesting. You broke it....you pay to fix it. No such thing as "Payroll Deduct" huh?

I've noticed that many of the things we've discussed ends up leading to the conclusion that Canada has some pretty different rules from the US. With them being just across the water from me, I would have never thought it was that much different?
 
Another reason to use sub-contract labor!!



This might work in high profile corporate America, but I'd be willing to bet that most detail shop owners/operators could care less about these rules. And their employee would be willing to pay for what they damaged in order to keep their job.
 
David Fermani said:
Another reason to use sub-contract labor!!



This might work in high profile corporate America, but I'd be willing to bet that most detail shop owners/operators could care less about these rules. And their employee would be willing to pay for what they damaged in order to keep their job.
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Totally agree. The rules are pretty backwards because you can fire someone w/o cause but you can't recover damages from them.
 
WAS said:
If you're suggesting deducting money from wages to pay for a damage one of your guys did to a vehicle, I'm suprised you'd be allowed to do that in the USA. Here in Canada, not a chance, you can't deduct wages for ANYTHING like that, not even if the employee stole from you.
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I'm pretty sure it is legal to do so but only if you have a pre-signed contract spelling out all the details signed as a condition of employment.
 
WAS said:
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.
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THIS. I've investigated this since the mid-90's and it's pretty much impossible to do legally here. There was another shop that got caught doing it here and he got absolutely ruined by CCRA over it. IIRC the employer gets held responsible for ALL deductions owing + interest + penalty. They don't screw around with this stuff
 
ShineShop said:
THIS. I've investigated this since the mid-90's and it's pretty much impossible to do legally here. There was another shop that got caught doing it here and he got absolutely ruined by CCRA over it. IIRC the employer gets held responsible for ALL deductions owing + interest + penalty. They don't screw around with this stuff
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And to be quite honest, I don't know if it's a bad thing. From a business perspective, I can see why a business owner would want to simpy sub-contract everyone. Bottom line, it's cheaper. But then to put the onus on a sub-contracted employee (who I imagine isn't getting a lot of money) to fork out all those expenses and then still be expected to live on the remainder of what was minimal pay to begin with.... Basically what happens is the sub-contractors skip out on WCB, they skip out on CPP, and they might even try and skip out on taxes, to try to make the best living they can. At least if you pay an employee the minimum wage, in most areas around $10.00 an hour, their EI, CPP and WCB are all paid for, mostly by the employer and in part by the employee.
 
ShineShop said:
I'm pretty sure it is legal to do so but only if you have a pre-signed contract spelling out all the details signed as a condition of employment.
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Eh, I wouldn't want to try it personally. I know of businesses that did this that got slapped down by HRSDC.
 
WAS said:
And to be quite honest, I don't know if it's a bad thing. From a business perspective, I can see why a business owner would want to simpy sub-contract everyone. Bottom line, it's cheaper. But then to put the onus on a sub-contracted employee (who I imagine isn't getting a lot of money) to fork out all those expenses and then still be expected to live on the remainder of what was minimal pay to begin with.... Basically what happens is the sub-contractors skip out on WCB, they skip out on CPP, and they might even try and skip out on taxes, to try to make the best living they can. At least if you pay an employee the minimum wage, in most areas around $10.00 an hour, their EI, CPP and WCB are all paid for, mostly by the employer and in part by the employee.
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I could easily boost an employees pay by $2 an hour if they switched to IC but lie you said they would lose a lot of benefits.
 
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