If you are a do-it-yourself real estate investor like I am and if you are successful doing it — Soon the day will come when you need outside help. You’ll discover, same as I did, that there are not enough hours in a day or in a month to do all the things that must get done. When you find yourself working eighty hours a week, it’s time for you to start looking for help.
HIRING HELP IS EASY – THE RULES ARE COMPLICATED
Hiring a handyman to do your job sounds innocent and straight forward enough, however, there are serious pitfalls for the unsuspecting. Usually us property owners and ·landlords fit into the category of “Unsuspecting”. That’s the reason I think you’ll benefit a great deal from learning how to overcome potential problem areas.
To begin, let me start by saying that the government wants every worker to be an employee and they want you to be an employer. See how simple they make it. By the way, government means both State and Federal taxing authorities. The reason they like the employer/employee arrangement is because they have a lot better control over employers. It’s easier for the government to get their taxes. Employers are even required to have special I.D. numbers for payroll reporting. The government says employee income taxes are the responsibility of the employer. The employer is charged with the responsibility of collecting them and getting the tax money to the government.
This way the government has all the worker’s tax money collected “up front”. They never have to chase it or listen to excuses why it’s not paid. Employers are required to deposit payroll taxes in the bank. Like most landlords, the government clearly understands the value of a bird in the hand.
Many workers, especially the piece-meal or part-time handyman types would rather not pay taxes “up front”. Many don’t make a great deal of money and simply don’t feel like advancing payroll taxes and waiting for their legitimate refund at the end of the year. Others claim they work for themselves and that they should be the ones responsible to the government for taxes. Many handymen will not work unless you pay them gross payments i.e. no taxes withheld. These workers claim they are independent contractors working only for themselves.
Receiving pay by the hour is not normal for regular contractors — Employees usually get paid by the hour. Contractors, on the other hand, will generally bid a flat sum amount to do a job. When they finish, they expect to be paid in full. It’s also customary for contractors to present billing statements showing the services rendered and the total amount of their charges due. Employees don’t need to do that.
LEARNING TO TELL THE DUCKS FROM THE SWANS
As you can plainly see from the different payment arrangements, it’s not always clear sometimes what your handyman is! Is he an independent contractor or is he really an employee? What he or she is — determines whether or not you must withhold taxes and social security from paychecks. It also determines when you must purchase worker’s compensation insurance. The law says – All employees must be covered by their employer’s worker’s compensation policy. It might be smart to carry worker’s compensation for independent contractors. However, it does look a bit odd because they are supposed to carry their own insurance.
Ignorance might be bliss — But it can also be quite expensive. If you hire a handyman and treat him like an independent contractor, that is, you don’t withhold payroll taxes and FICA (social security) from his paychecks. Chances are everything will ‘be just fine unless something goes wrong. What mostly goes wrong is you fire him or worse yet — He falls off your roof. He then goes straight to the nearest state employment office and files for unemployment pay or disability benefits. Naturally he forgets to tell the state office that you and he had mutually agreed to the no payroll tax withholding. He might even forget to mention that the independent contractor idea was his to begin with. He will likely claim — He was only your humble employee. The nice lady at the desk will ask for your version, however, remember what I said earlier. Government people want clear cut employers and clear-cut employees. They don’t have much compassion for folks who aren’t one or the other.
Let’s say your independent contractor is judged to be an employee when he fell off your roof. Also we’ll say you were so sure about his independent contractor status that you didn’t purchase worker’s compensation insurance. Right now my friend — You’re in very deep “Pucky”. Many employers cover their independent contractors with worker’s compensation insurance for just this reason. In my judgment, that tends to look like you secretly harbor some thoughts that your handyman is really a duck and not a swan.
We’ll cover the common law factors they use to determine the relationship between you and your worker another time. However, for now, I want you to fully understand — The deck is already stacked in favor of employee status.
Tags: Develop a Business Plan First by FixerJay
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