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Old 12-30-2018, 12:18 PM
 
319 posts, read 220,395 times
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For those of you that have/had a small service oriented business, in what category did you hire help; employee or independent contractor and why? And/Or how has it worked out for you thus far.

My wife and I started a service business a few years ago and it has done really well. We consistently have to turn away business which is bitter sweet. We have always been happy with keeping it small (us and 1 or 2 others), because we typically stay busy all year, especially during the summer which can turn into 7 days a week. Recently we've been considering relocating to another state. We would like to keep the business in our current state and open up another location where we are considering moving. At the very least, we may JUST keep the summer clients, which would make things a lot easier, but I specifically would like to keep the year round cash flow as additional income. We have always been nervous about taking the steps to hire help as it takes a lot to trust someone with what we have exhausted ourselves to create. I know there are pros and cons to employees vs independents but I would like simplicity as much as possible and avoid paying employee related taxes. We would like to pay quite a bit more per hour compared to local competition, however, we would be responsible for employee related taxes which make it hard to really pay more.

Additionally, as consumers that may have a company visit your home on a regular basis, how do you feel about independents being contacted to do the work under the company you have hired?

Last edited by castaway365; 12-30-2018 at 12:20 PM.. Reason: Addition
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Old 12-31-2018, 08:20 AM
 
Location: East of Seattle since 1992, originally from SF Bay Area
28,766 posts, read 51,675,060 times
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I had a small family business for 16 years, starting at about $75,000 gross revenue by myself, as high as $275,000 and 3 employees at the peak before the recession. There are companies that will handle payroll and taxes for a small fee, though eventually I took it over myself. I always paid well over minimum wage, and hired most through the local art institute (graphics/sign business). Many of those years I had one full-time and 2 part time people. Trust is a big issue, you have to keep a close eye on things, because you never know when even a well trusted employee of several years will suddenly take advantage and rip you off. Fortunately for me that only happened once. A few times when swamped I got help from a local temp agency and in most cases it was a waste of money. What I found was that my customers (98% other businesses) appreciated being able to work with the owner. The only occasional contractors I used were for major installations requiring heavier equipment such as boom trucks or manlifts, and even then I was on the jobsite.
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Old 12-31-2018, 08:58 AM
 
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OP, if you're serious about this, you need to hire some people now and see how they work out. See who you trust, who does a good job, who is a self starter, etc.

However, what is to keep these employees from just doing the business on their own? Are you providing equipment or supplies that they can't buy on their own?

As for 1099 vs employee, if you will be using someone every week, put them on payroll. If it is an occasional job where you need extra help, you can put them on a 1099. That's a very general guideline. For payroll, it's easy to use an online service, we use Intuit's payroll.

Do you carry liability insurance? What if something goes missing from a client's home or if something is broken?

Instead of keeping ownership of the business, have you considered selling it? Less worries.
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Old 12-31-2018, 11:02 AM
 
319 posts, read 220,395 times
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Quote:
Originally Posted by KaraG View Post
OP, if you're serious about this, you need to hire some people now and see how they work out. See who you trust, who does a good job, who is a self starter, etc.

However, what is to keep these employees from just doing the business on their own? Are you providing equipment or supplies that they can't buy on their own?

As for 1099 vs employee, if you will be using someone every week, put them on payroll. If it is an occasional job where you need extra help, you can put them on a 1099. That's a very general guideline. For payroll, it's easy to use an online service, we use Intuit's payroll.

Do you carry liability insurance? What if something goes missing from a client's home or if something is broken?

Instead of keeping ownership of the business, have you considered selling it? Less worries.
We require non compete agreements to be signed by employees or contractors, as well as clients. It would cost them thousands on average to break the agreements. For employees, equipment and supplies must be provided. For independents, they carry their own insurance, equipment, supplies, etc.

We use Intuit. My point of concern is cost for us. We would like to pay $15 an hour on average, with a leader being payed around $18 dependent on their cleaning experience. This is significantly higher than other local businesses. However, after we pay our state required taxes for employees, it would be like paying over $3 (roughly $18/hr and some change for $15 per hour employee) more per hour for each.

That is what my wife would like to do, however, it's nice to have long term income IF we can figure out something that works. We have debated keeping seasonal clients (summer) only which makes things more simple, but the off season accounts for three times that income.
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Old 12-31-2018, 11:05 AM
 
319 posts, read 220,395 times
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Quote:
Originally Posted by Hemlock140 View Post
I had a small family business for 16 years, starting at about $75,000 gross revenue by myself, as high as $275,000 and 3 employees at the peak before the recession. There are companies that will handle payroll and taxes for a small fee, though eventually I took it over myself. I always paid well over minimum wage, and hired most through the local art institute (graphics/sign business). Many of those years I had one full-time and 2 part time people. Trust is a big issue, you have to keep a close eye on things, because you never know when even a well trusted employee of several years will suddenly take advantage and rip you off. Fortunately for me that only happened once. A few times when swamped I got help from a local temp agency and in most cases it was a waste of money. What I found was that my customers (98% other businesses) appreciated being able to work with the owner. The only occasional contractors I used were for major installations requiring heavier equipment such as boom trucks or manlifts, and even then I was on the jobsite.
Yes, agreed. Which is why we are willing to pay more. I know that this does not COMPLETELY eliminate the likelihood of deviant behavior, but it does reduce it to a large degree.
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Old 12-31-2018, 11:33 AM
 
346 posts, read 527,283 times
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Is it possible to just keep your summer clients from the old location and every summer, either you or your wife, return and stay for the summer season until you make sure that an employee pans out and is capable and trusted by yourself and your clients to handle everything on their own? This way you have direct control over both the new location and the old during that time of year while going through this transitional period.

Also, and I'm sure you already have professional accounting help-- but it bears repeating, be careful in the distinction of an employee and a contractor. If the IRS determines the 1099 recipient should have been treated as a payroll employee subject to P/R taxes then you of course can be on the hook for past taxes. I'm sure you knew this already but someone else out there may be willing to chance it. To those persons I would tell them to heed the advice from their CPA.
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Old 12-31-2018, 04:29 PM
 
319 posts, read 220,395 times
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Yes, I'm beginning to see that may be our only option at best.
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Old 12-31-2018, 04:42 PM
 
Location: USA
131 posts, read 70,616 times
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Quote:
Originally Posted by sideman View Post
Is it possible to just keep your summer clients from the old location and every summer, either you or your wife, return and stay for the summer season until you make sure that an employee pans out and is capable and trusted by yourself and your clients to handle everything on their own? This way you have direct control over both the new location and the old during that time of year while going through this transitional period.

Also, and I'm sure you already have professional accounting help-- but it bears repeating, be careful in the distinction of an employee and a contractor. If the IRS determines the 1099 recipient should have been treated as a payroll employee subject to P/R taxes then you of course can be on the hook for past taxes. I'm sure you knew this already but someone else out there may be willing to chance it. To those persons I would tell them to heed the advice from their CPA.

The IRS would be the least of your worries....

The State AND Federal Department of Labor 'could' and would audit you for the past 2 years and find you negligent!! This could be huge!! All those unpaid overtime hours plus a 50% penalty on top. A workplace injury and worker's comp claim (which you're not paying insurance for) might be enough to put you out of business.

So many small businesses risk everything by breaking the rules. Paying employees cash, not keeping records, not withholding taxes or paying worker's comp insurance, labeling an employee as a contractor when they're not.

On the other hand, the majority of small businesses fail and do so pretty quickly.
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Old 12-31-2018, 05:14 PM
 
319 posts, read 220,395 times
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Quote:
Originally Posted by SE1SG View Post
The IRS would be the least of your worries....

The State AND Federal Department of Labor 'could' and would audit you for the past 2 years and find you negligent!! This could be huge!! All those unpaid overtime hours plus a 50% penalty on top. A workplace injury and worker's comp claim (which you're not paying insurance for) might be enough to put you out of business.

So many small businesses risk everything by breaking the rules. Paying employees cash, not keeping records, not withholding taxes or paying worker's comp insurance, labeling an employee as a contractor when they're not.

On the other hand, the majority of small businesses fail and do so pretty quickly.
If you're not speaking from a hypothetical standpoint, then you're getting too far ahead. To be clear, I have not violated any laws/rules, nor do I plan to. I'm a "by the book" person and am simply trying to gain different viewpoints on hiring employees vs. independent contractors. I was leaning more towards independent contractors so that I am not responsible for their share or unemployment taxes, state taxes, etc. Additionally, I wouldn't HAVE to have insurance for them, however I like to C.M.A. when it's related to business.

Other than that, you're right! Thanks!

Last edited by castaway365; 12-31-2018 at 05:19 PM.. Reason: Typo
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Old Today, 08:14 AM
 
3,453 posts, read 2,452,127 times
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Quote:
Originally Posted by castaway365 View Post
We require non compete agreements to be signed by employees or contractors, as well as clients. It would cost them thousands on average to break the agreements. For employees, equipment and supplies must be provided. For independents, they carry their own insurance, equipment, supplies, etc.
Are you sure about this? How do you prevent a cleaning person from cleaning for a living? It's not like they have technical proprietary knowledge.

In many states, non-competes aren't even allowed. How would it cost them thousands? Seems like it would cost you thousands to sue them and they would probably win.

Also, one of the definitions of an independent contractor is someone who does the same work for other customers, so how in the world would that hold up? The fact that you made them sign a non-compete could definitely open the door for them to say you are exerting enough control for them to be reclassified as an employee.

And lastly, your non-compete has to have consideration. My son just went through this. His old boss thought he had a non-compete arrangement, he didn't, but the final proof was that he didn't pay him to not compete. His new boss had recently finished a non-compete where his old company paid him $100,000 not to compete for 3 years.
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