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I am not sure if this is the correct place for this post but I thought maybe someone would have some insight on my idea.
I am thinking of producing a product that once produced and sold successfully. At the time I never hired anyone and was limited to what I could produce myself. I think I would like to go bigger this time but I don't want to have to deal with the unknowns of what the government may force employers to do in the future that could cause me to loose money on employees.
The idea is this. I want to offer to purchase the components that need to be hand made from those interested in producing them for me. I would train people to produce my components and set specific requirements for me to buy them from them. Kind of like some of the work at home offers you hear of but I would do it for real. They would buy the parts from me or any other source that I approve of to produce the components. If they did not have the needed tools and special set-up work space needed to produce the components they could rent a space from me.
If they don't have the funds to purchase the materials to produce the components themselves I would offer a credit type account where they could purchase them from me and have the cost deducted from the price I pay them for the components.
So daily or weekly they would come to me with finished components. I would inspect them and buy those that meet my requirements up to the limit of I had ordered from them. I would deduct what they owe me for parts and pay them a set rate per component.
They would not be my employee. I would not set work hours or even specify where the work would be done. I would just be purchasing something they made.
Would this avoid the government seeing them as employees?
I was thrown off by the title of your post. It doesn't seem to describe your desire to hire contractors rather than employees. I think you left out the word "hire".
In my opinion you would be better off subcontracting the component assembly to other manufacturers. You would likely pay a little more but you would have better control of the process.
1) You could spec a component and bid it out.
2) Quality control is on the supplier.
3) You would not have to "train" new contractors every time one of your garage assembler workers decides he needs a new job.
4) You will get 30 day net terms with a supplier, probably not with a garage guy.
5) Using a supplier reduces the risk of someone claiming employee status if you cross the line with the IRS rules.
6) You will not have to deal with "personal problems" using a supplier. What if Joe Smukatelli decides to go on a three day bender and says "I will make the parts next week"? What if Joe decides he is going to pawn the raw material to get some crack money? What if Joe's kid decides to give the raw material to his friends at school?
Take a look at this to see if your plans conflict with the rules.
I am not sure if this is the correct place for this post but I thought maybe someone would have some insight on my idea.
I am thinking of producing a product that once produced and sold successfully. At the time I never hired anyone and was limited to what I could produce myself. I think I would like to go bigger this time but I don't want to have to deal with the unknowns of what the government may force employers to do in the future that could cause me to loose money on employees.
The idea is this. I want to offer to purchase the components that need to be hand made from those interested in producing them for me. I would train people to produce my components and set specific requirements for me to buy them from them. Kind of like some of the work at home offers you hear of but I would do it for real. They would buy the parts from me or any other source that I approve of to produce the components. If they did not have the needed tools and special set-up work space needed to produce the components they could rent a space from me.
If they don't have the funds to purchase the materials to produce the components themselves I would offer a credit type account where they could purchase them from me and have the cost deducted from the price I pay them for the components.
So daily or weekly they would come to me with finished components. I would inspect them and buy those that meet my requirements up to the limit of I had ordered from them. I would deduct what they owe me for parts and pay them a set rate per component.
They would not be my employee. I would not set work hours or even specify where the work would be done. I would just be purchasing something they made.
Would this avoid the government seeing them as employees?
This is a convoluted plan for something is all the time. You give a machine shop, or whoever else you want, a print with what they want and then they produce it. If you want the shop to buy the material from a specific vendor you specify that on the print or spec. If you want them to get it from you then you provide the material and pay only for assembly. Renting space to them will get them closer to called a employee.
Location: East of Seattle since 1992, 615' Elevation, Zone 8b - originally from SF Bay Area
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I would be more concerned about other issues you will face in addition to the department of labor.
They will have to do 1099s for what they buy from you, and you will have to do 1099s for what you buy back. When those hit the IRS in the various tax returns it's likely to trigger scrutiny, if not an audit. In some states like ours, you will also have to pay B & O tax on the revenue from the items you sell, and both you and your buyer/sellers will need to have business licenses/resale permits to avoid paying sales tax on both the parts and the finished products. Your local departmnent of labor and industries/workmen's compensation may take issue, because no one is paying them for industrial insurance in the case of an injury by those doing the assembly.
I would be more concerned about other issues you will face in addition to the department of labor.
They will have to do 1099s for what they buy from you, and you will have to do 1099s for what you buy back. When those hit the IRS in the various tax returns it's likely to trigger scrutiny, if not an audit. In some states like ours, you will also have to pay B & O tax on the revenue from the items you sell, and both you and your buyer/sellers will need to have business licenses/resale permits to avoid paying sales tax on both the parts and the finished products. Your local departmnent of labor and industries/workmen's compensation may take issue, because no one is paying them for industrial insurance in the case of an injury by those doing the assembly.
You are right on a very few points. I purchase the parts needed to build my items wholesale. No one has to do 1099's for that. Happens everyday in every business on earth. As an example, I know a man who buys materials from a local hardware store. He has a sales tax license so he can purchase them without paying sales tax because he is using the material to build a product to sale. He builds the product and sells some of them back to the hardware store wholesale without sales tax so they can retail them. No 1099s required. Any business or person in business for themselves are required to pay tax on their profits so if I choose to make a profit on the material I was selling them I would as well. They would have to pay tax on the profit they make when they sell the finished product to me. Since they are self employed there is no worker's compensation needed.
Location: East of Seattle since 1992, 615' Elevation, Zone 8b - originally from SF Bay Area
44,563 posts, read 81,147,605 times
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Quote:
Originally Posted by Rightly Divided
You are right on a very few points. I purchase the parts needed to build my items wholesale. No one has to do 1099's for that. Happens everyday in every business on earth. As an example, I know a man who buys materials from a local hardware store. He has a sales tax license so he can purchase them without paying sales tax because he is using the material to build a product to sale. He builds the product and sells some of them back to the hardware store wholesale without sales tax so they can retail them. No 1099s required. Any business or person in business for themselves are required to pay tax on their profits so if I choose to make a profit on the material I was selling them I would as well. They would have to pay tax on the profit they make when they sell the finished product to me. Since they are self employed there is no worker's compensation needed.
Where there is a question as to whether they are buying a part or you are providing a service, they will do a 1099. In my case, I sell wholesale parts that I manufacture and get many 1099s from customers, I have a pile of them now to process with my taxes. If they do a 1099 you have to declare it as 1099 income or risk audit when the IRS gets it from them but there is no match on your return.
Where there is a question as to whether they are buying a part or you are providing a service, they will do a 1099. In my case, I sell wholesale parts that I manufacture and get many 1099s from customers, I have a pile of them now to process with my taxes. If they do a 1099 you have to declare it as 1099 income or risk audit when the IRS gets it from them but there is no match on your return.
My father and I to a lesser extent have bought and sold wholesale for 30 plus years. Never had a 1099 required at all. We maintain sales tax license numbers for those in our state who buy from us but no 1099. 1099 is for when you hire someone to do contract work for you. Not when you make a wholesale purchase. At least that what our CPA has always told us.
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It doesn't seem to describe your desire to hire contractors rather than employees. I think you left out the word "hire".
