i need some advice…can someone help me lay out the pros and cons of employees vs. subcontractors. i currently (and have been since 2002) use subcontractors. i am thinking this might be a mistake…but why? also i only have one full-time and one part-time.
reason i am asking is in relation - not only to taxes but insurance (workers comp) and liability.
thanks for your help. got myself in a real mess right now, and i don’t want to repeat my mistake!
robin
If you want to follow the law, you don’t get to choose how you classify your help; the IRS form SS-8 determines how you get to classify your help. It will all be based on how you run your business. Basically it says that if you exert any control over your help [B][I][U]more than [/U][/I][/B]giving them the jobs for the day, they are [B][I][U]employees[/U][/I][/B]. If they are given any training, instruction, equipment, uniforms, vehicle, etc to complete your work, they are employees. Subcontractors are supposed to have all equipment and the knowledge of how to complete a job without any help from you. For example, when a cleaning company calls us to clean a job for them, I handle everything on the cleaning end. I am their subcontractor. If you have helpers work along with you on jobs, using your equipment and being instructed on where to clean, you are using them like an employee. If you look up the form, the rules are pretty specific.
Most of the competiting window cleaning “companies” in my area, Northwest Indiana, cheat this law. How can I be so sure? I have employed many of these companies’ cleaners over the years. Most of these guys are one-man shows with 1-4 helpers. They get away with it because they don’t do a whole lot of work, or at least don’t report all of it to the IRS, so they fly under the radar.
The main benefits to the window cleaning company are:
- They save on employment taxes which employers have to match, not just withold. This tax responsibility then falls upon the window cleaner to file quarterly. Does everything get reported and paid? It’s been my experience that most window cleaners are not great accountants.
- They save on workers comp, which, as you alluded to, can become a huge problem if an accident happens. If you use contractors, they are required to carry their own insurance. The list of employers that enforce that is probably a short one.
- They save on professional payroll service expenses. If they do their own payroll, it saves time. Time is money to us all.
The main benefit to the helper is a check without taxes taken out.
Generally, the customer also benefits by getting a lower price but at an increased risk. If an accident happens, and the contractor is not properly insured, the customer’s business or property insurance would be liable for any personal injury or property damage. A surprising number of people are willing to roll the dice (“Ah, nothing’s gonna happen. They told me they will be careful.”).
When all of these savings are blended together, these companies can bid jobs less than me, even with their helpers doing the work, and still make more profit. This is very frustrating.
Currently there is a movement in Indiana that is getting pushed through the legislature that could increase my unemployment insurance rate from 1.9% to 10%. It would apply to the first $14,000 of payroll versus the first $7000 of payroll that it is now. What this means to me is an ADDITIONAL $1,400 PER EMPLOYEE. With an average of 15 employees, that will mean $21,000 more in taxes that I will have to pay. I guess that’s what I get for following the rules. Who among us would want to take a $21,000 cut in pay for the same work?
I have contemplated switching my employees to contractors but my accountant said I’d get “flagged” right away because of our sales. It’s hard to be in between a small and a big operation. We can’t go back, so we will go forward. With our large number of cleaners our competitive advantage is our ability to provide service to so many customers. Small operations can only be in so many places at once. We will continue to capitalize on this advantage which will hopefully soften the affect of the employee vs contractor issue.
I know plenty who skate this law also, its not fair to the customer, employee or the industry.
Why no responses? 
The topic of what kind of soap to use will garner 100 responses but this topic gets only 2 responses. Insurance and taxes are a huge issue to a legitimate business. With all the experienced window cleaners on this site I would have expected some input. Either I was so thorough that no one could add anything other than agreeing with my post or I committed the sin of exposing the 800 lb gorilla in the room. :eek:
For those of you who abuse the contractor classification regarding your help, and I mean this with all due respect, I hope the Fabricating Debris Dog bites you in the sack.
I am relatively new to the business end of window cleaning. Ive been a cleaner for 14 years but just went into business for myself last July. I will be faced with the same dilema as you here very shortly. I when mulling over this question went back and reviewed my own business plan that I prepared when I started my business. I decided I will be hiring empoyees because it fits into the equation for where I want to be in 10-15 years. Ultimately I want my business to be functioning even when I am not present. Your question can be answered by asking yourself the question why did I start a window cleaning business and what do I want my function to be in this business in the future!
