Employee/Contractors Question

I have been thinking a lot lately about overhead and efficiency. I spend a LOT of time doing all the business BS that I am frankly terrible at and would prefer someone else do.

What I am struggling to understand is some of the comments I have read on here in regards to employees and contractors.

I know, for my business, the very last thing I want is an employee. I have seen lots of people make comments about hiring contractors, and just as many people say you can't do that, those people would be seen as employees by the government.

What got me thinking about this was a company I used to work at. They had a full time maintenance staff, but that staff was so busy maintaining, that they hired out a lot of work. For this example, I'll use electrical. They had a crew of guys, that were contractors working for another company, install and update any electrical that needed done. To the point that in the 5 years I worked there, I saw the same guys. Day in and day out. Installing, updating, any and all electrical that needed done.

What is the line between an employee and a contractor? A contractor can do everything but make your physical product?

In my short time in business I have seen every aspect before and after the physical making of product being handled by contractors working on site at companies. Or am I just misunderstanding, and this is the difference in rules that large companies can play by vs the rules that small companies are expected to follow?

(We both get away with different things?)

We work like the electrician you describe all the time. The big difference is another company gets paid for the work. And they get paid for the whole job and they control how it gets done.
Why are you against employees of I may ask?

Sent from my SM-N975U using Tapatalk

Depending on how much of it you have is it possible to just hire someone through a temp agency? Since they are an employee of the agency the government would not have a problem with that and you would be able to audition a possible employee of the future.

"What is the line between an employee and a contractor? A contractor can do everything but make your physical product?"

It is my understanding if someone works at your place using your stuff they are an employee, though there are folks calling them contractors all over every day. I think if they don't pay their taxes or get injured you will get the bill and fines.

Dualkit said:

Depending on how much of it you have is it possible to just hire someone through a temp agency? Since they are an employee of the agency the government would not have a problem with that and you would be able to audition a possible employee of the future.

Click to expand...

Second that. Work out a deal with an employment agency. They can manage your employee as their own. It will cost you but less than the risk involved in an employee if you are thoroughly against growing your company much larger than a couple person operation.

There are as many definitions for independent contractors as there are work settings.
In the world of workers compensation with which I'm familiar, there are general rules. It makes a big difference, since when a worker is injured on the job, if he or she is an independent contractor, then their injury would not be compensated under the employer's workers compensation policy.


In general,

1. The worker is licensed and has a company name. .
2. The worker advertises in the Yellow pages and/or, modernly has a website
3. Has his/her own tools.
4. Sets his/her own hours.
5. Is paid by the job.and has a contract for each job.

Other agencies such as the federal government may have more of less the same rules but generally will be different from the workers compensation rules.

Just recently in the California election this issue came up with regard to Uber and Lyft drivers on their Proposition 22. A yes vote meant that such drivers whose work was based on Cell Phone Apps and had their own vehicles could remain as independent contractors. The proposition passed mainly because if the drivers wee to be classified as employees, the industry would be shut down and many people who have no cars depend upon them heavily.

So, who is an independent contractor? It all depends.

Newman109 said:

There are as many definitions for independent contractors as there are work settings.
In the world of workers compensation with which I'm familiar, there are general rules. It makes a big difference, since when a worker is injured on the job, if he or she is an independent contractor, then their injury would not be compensated under the employer's workers compensation policy.


In general,

1. The worker is licensed and has a company name. .
2. The worker advertises in the Yellow pages and/or, modernly has a website
3. Has his/her own tools.
4. Sets his/her own hours.
5. Is paid by the job.and has a contract for each job.

Click to expand...

Pretty much this ^^^^^^^^

I will add one though:

6. The worker must have a bank account with the business name.

This is because you can not legally 1099 them for any form of payment made out to anything other than their business name.

wheelieking71 said:

6. The worker must have a bank account with the business name.

This is because you can not legally 1099 them for any form of payment made out to anything other than their business name.

Click to expand...

Are you sure about this ? In California, you don't need a fictitious name for a business if you are an individual and use your own name. And I know you can send 1099's to people for such things as commissions, which they can earn as individuals.

Dualkit said:

Depending on how much of it you have is it possible to just hire someone through a temp agency? Since they are an employee of the agency the government would not have a problem with that and you would be able to audition a possible employee of the future.

Click to expand...

This is exactly what we do.^^^^^^^^^

But we're in Kansas. Which is very employer friendly. I think each state may have different rules regarding this practice.

Here the fairly simple test is do they have other sources of income. I have two that pass that test and are paid hourly. They submit an invoice and pay their own WSIB (workmans comp). I like it because I do not have to pay stat holidays (%^$#% excuses to pick mans pocket 12x a year) or vacation, they have no tenure triggering a severance payment etc. It only works if they initiate/want it (because they like the write offs they get) as only they can claim/prove they have other income.

What are you trying to circumvent by hiring a contractor and what do you look to gain or just basically eliminate? I've been a private contractor since I sold my shop in 06-07 and have not even considered going back to work as a general employee. I pretty much do everything from programming to factory management, just depending on the clients needs.

For larger companies this is quite useful. For one I carry my own liability insurance so if I come in and wipe out a $100K spindle my insurance pays for it. For smaller companies it can be a toss up. You can't be having a bad day and just walk out and shitcan a contractor like a normal employee without repercussions, then the same goes for the contractor. If i'm having a shit day I dont have the luxury of giving the boss a one finger wave and moving on to the next shop starving for help.

Working with contractors does make business a little easier (Most of the time). You both sit down and define what the job details are going to be, create the contract, get it notarized then get to work. After that basically you get a bill monthly from the contractors company (In my case im self incorporated), You pay the bill and that's the end of it. Yeah, you still carry your building insurance as well as product liability along with whatever your states pushing down your throat.

In the 13 or 14 years I've been a contractor for the most part everything has gone smoothe. I had one company in Salt Lake that makes rock climbing gear stiff me on a factory layout job but it was only a few weeks worth of work and I enjoyed the location so it wasn't too big of a deal.

If you’re looking to reduce overhead and insurance cost then look into getting your employees self incorporated. They'll make more money and you’ll spend less.

In general,governments get less "take" from a contractor than an employee,consequently ,your setup needs to be fully compliant ....in this country ,there are something like 50 points of test that differentiate a contractor from an employee in Taxation law........and you had better get it right.Thats only the Federal taxation...then there are state laws on payroll tax,workers compensation,industry levies etc........so you need a specialist employment lawyer.

EmanuelGoldstein said:

Are you sure about this ? In California, you don't need a fictitious name for a business if you are an individual and use your own name. And I know you can send 1099's to people for such things as commissions, which they can earn as individuals.

Click to expand...

In AZ? Yes. At least according to my CPA. And, seeing as how I have zero interest in going through an IRS audit, I'll take his word for it.

I temped for 2 years when I started out, and hired temps for a good 7 years to get help.

There are still a lot of good agencies, you need to find ones that are appropriate for the positions you are hiring for.

Some agencies are the van full of immigrants agencies, which is fine if you need ditches dug ar a building demo'ed

Others are full of senior engineers, which might have some machinists[for instance]

TAC temps
Oxford
LJ Gonzer
Tech Aid[only see Canada now]

Mostly east coast

They get 30 percent on top, covers SS, etc and profit

Dualkit said:

Depending on how much of it you have is it possible to just hire someone through a temp agency? Since they are an employee of the agency the government would not have a problem with that and you would be able to audition a possible employee of the future.

Click to expand...

I tried this for a while. It works fine except that the best people aren’t at the temp agency.


Sent from my iPhone using Tapatalk

wheelieking71 said:

Pretty much this ^^^^^^^^

I will add one though:

6. The worker must have a bank account with the business name.

This is because you can not legally 1099 them for any form of payment made out to anything other than their business name.

Click to expand...

EmanuelGoldstein said:

Are you sure about this ? In California, you don't need a fictitious name for a business if you are an individual and use your own name. And I know you can send 1099's to people for such things as commissions, which they can earn as individuals.

Click to expand...

It must be set by state laws? I worked as a contractor for an engineering firm. I used their equipment, charged them by the hour. I did keep time cards, and I would copy the time cards for 1-4 weeks, depending on hours I worked, and got a company check from them made out to me. Gave me a 1099, filed it, paid a bunch in taxes and that was that.

Lots of good input, I appreciate it guys. I've been following along and reading.

DPPMFG said:

Why are you against employees of I may ask?

Click to expand...

I'm not against employees, I just don't want them. There are a lot of reasons why, being self employed I don't have to deal with MOST of the headaches I would if I had employees. My shop setup isn't conducive to employees, my cash flow isn't conducive to having employees, unless they are temps or part time, my WORK isn't conducive to employees I have a customer that is a 3rd party sales person. They bring me stuff that no one else will touch. The weird stuff. A part print from 60 years ago with a material noone has heard of, a DIN standard that takes an hour to find that is an esoteric abomination for a particular process from an industry that doesn't seem to exist anymore. So my machine shop stuff, I need to focus on, because finding help doing that will be expensive, and rightly so! It's everything else that takes so much time!

Dualkit said:

Depending on how much of it you have is it possible to just hire someone through a temp agency? Since they are an employee of the agency the government would not have a problem with that and you would be able to audition a possible employee of the future.

Click to expand...

I've considered this, but I think I want to search for contractors first, people with established business's who are at least good enough at what they do to keep a business going! Of course, that may not be possible for some of it...

kustomizer said:

"What is the line between an employee and a contractor? A contractor can do everything but make your physical product?"

It is my understanding if someone works at your place using your stuff they are an employee, though there are folks calling them contractors all over every day. I think if they don't pay their taxes or get injured you will get the bill and fines.

Click to expand...

The injured aspect is something I worry about...

2outof3 said:

Second that. Work out a deal with an employment agency. They can manage your employee as their own. It will cost you but less than the risk involved in an employee if you are thoroughly against growing your company much larger than a couple person operation.

Click to expand...

Lot's of employment agencies around here.

Careful with your recommendations though If I decide to grow my company to the point I need extra help, if I hire employees I won't need that Flex unit

Newman109 said:

There are as many definitions for independent contractors as there are work settings.
In the world of workers compensation with which I'm familiar, there are general rules. It makes a big difference, since when a worker is injured on the job, if he or she is an independent contractor, then their injury would not be compensated under the employer's workers compensation policy.


In general,

1. The worker is licensed and has a company name. .
2. The worker advertises in the Yellow pages and/or, modernly has a website
3. Has his/her own tools.
4. Sets his/her own hours.
5. Is paid by the job.and has a contract for each job.

Other agencies such as the federal government may have more of less the same rules but generally will be different from the workers compensation rules.

Just recently in the California election this issue came up with regard to Uber and Lyft drivers on their Proposition 22. A yes vote meant that such drivers whose work was based on Cell Phone Apps and had their own vehicles could remain as independent contractors. The proposition passed mainly because if the drivers wee to be classified as employees, the industry would be shut down and many people who have no cars depend upon them heavily.

So, who is an independent contractor? It all depends.

Click to expand...

Thanks for that post, very informative!

wheelieking71 said:

Pretty much this ^^^^^^^^

I will add one though:

6. The worker must have a bank account with the business name.

This is because you can not legally 1099 them for any form of payment made out to anything other than their business name.

Click to expand...

Interesting, I have worked both ways as a contractor, but as the following comments point out, that may be state by state?

g-coder05 said:

What are you trying to circumvent by hiring a contractor and what do you look to gain or just basically eliminate?

Click to expand...

I spent a lot of time in November and December thinking about the upcoming year. I feel like in the last 3 months I have been in a quagmire. I am months behind on projects, and over a month behind on a couple customer deliveries (not the end of the world for me). I come into work, and I feel like I spend all day chasing my tail. I spent probably close to 10-15 hrs in September and October making phone calls, getting quotes, meeting and explaining my business to insurance people.

COVID has contributed to a lot of it, a silly example. One of my steel supplier put my salesman on furlough, and hired a third part sales person. She does a good job, but is not on site. Over a month ago I ordered a 12ft bar of 1" A2 for a project, I bet we have half a dozen phone calls and 3 or 4 emails now, and I still don't have my bar of material. I got all the other bars in the delivery... and a subsequent order.... and a subsequent order....

I've read about many guys who were in a similar situation, one man shop, who just can't seem to do everything. And so that is what makes me look to hiring out some work. I've already started to find shops to handle some of my product work. I grew up doing everything myself, I simply did not have the money to pay people to do the work for me. Now I think I need to stop doing everything and start hiring it out to contractors.

The conundrum comes, do I try to find part time help to keep the spindle running so I can be an office manager/maintenance/etc, or do I keep the spindle running and try to find some part time help to be office manager/maintenance/etc.

And before someone broaches the subject Yes, I could work harder.

I used to regularly work 70+hr weeks at my day job AND worked another 10-20hrs at home at my hobby business. My wife fired me from that job 4 years ago and told me to work from home and grow my business. The short of it, I was not a nice person to be around when I was working those hours.

My only observation is that there are services (for example ADP) that do things like payroll, and deliver some level of compliance. There have also bee articles over the years for consulting entities that provided part time people for such roles as CFO. But things like selecting insurance coverage is pretty much an "executive" task you might nto want to farm out.

But maybe see if you can out-source some of the more commodity/generic stuff.

I've been a full-time contractor for the same company for five years now. The key things are that I set my own hours, though they can request I attend meetings at certain times, and I'm not micro-managed. They give me projects and priority order, and I get them done to the best of my ability as I see fit. This works out well for me, as I have a sleep disorder, so I can get in whenever I get in, and stay as late as I want. I can skip Monday and Tuesday and then work the weekend (or not, if I'm caught up), or if I'm up to it and want to, and have enough work in the queue, I can work ten hours a day seven days a week.

I invoice and get paid for every hour I work, no more, no less. IMO it's the most fair way of doing things for everyone involved.

Here is what the State of Ohio and the IRS have to say about the difference between an employee and contractor:

https://jfs.ohio.gov/ouio/uctax/comnfaq.stm

Understanding Employee vs. Contractor Designation | Internal Revenue Service

I ran a commercial / industrial photo business from 1967 to early 1990s. I was an outside photographer for a paper mill for 25 years. Everything I did for all accounts was calculated by time and materials and billed as an example: Photography for November newsletter $xxx.xx Hours were never mentioned. I got a 1099 at the end of the year. Another client billed: Photography for advertising brochure $xxx.xx

I got a state certificate from them to exempt them paying sales tax. I paid both sides of my Social Security plus income tax. Collected from retail customers and remitted state sales tax monthly, paid quarterly payments on my income tax and social security. Over time I was a sole proprietor, in a partnership, and had a corporation. A certified public accountant is almost a necessity. I would do a spread sheet and the CPA would do the taxes. You could hire a book keeper, or a accounting service, or have the CPA staff take care of your shoe box full of receipts.

The whole time in business I was never audited. My CPA was ex Internal Revenue.

Paul