Help With Legals (loyality Part 2)

mmike032

I am just starting out on my own full time and need some help with all the legal mumbo jumbo.I have been working for myself on the side for a couple years but feel it is time to take it to the next level.First off have already got my business license but i have no kind of insurance. Dont have a clue about liability ins, or how much i need etc.. I live in GA. so im sure its different everywhere. ALso here you dont have to have workers comp unless you have 3 or more employees working. I only have 1, but i dont withhold taxes, plan on 1099 at he end of the year. I have been told this is illlegal but I dont know.Today picked up a new contractor and he said he would put me under his workers comp, which he said he would deduct 15% from my check. Does this sound right, help me out please.I am a determined to succeed, just dont understand all the bs that comes along with it.

J F

Hey Mike

15% doesn't sound bad for covering you. If a GC carries workman's comp insurance he will HAVE to pay a percentage (differs for each trade)of anything he pays you to the insurance company IF he DOESN'T have proof (Certificate of Insurance) that you have your own comp policy.

You can probably pick up a policy for under $900.00 that doesn't cover you as the owner, but will allow the GC to NOT deduct a percentage of your check to pay his insurer.

Now the fun part: ANYONE you 1099 better have their own policy or YOU will be billed to cover THEM under your own comp policy (the same policy that WON'T cover you personally, as the owner, unless you shell out much more money.)

As of now, have the GC take it out to cover you under HIS policy, until it looks like you will be doing more than $6,000 or so worth of LABOR for him...after that amount you have to start running numbers to see what will cost you more...the 15% he deducts, or buying a policy and paying a percentage on everyone YOU pay (the standard policy will cover you up to a certain amount paid to your 1099 subs (be careful who you classify as a sub too...the irs doesn't like employees who are classified as subs).

Now my head hurts.

J

Jay

J F

Also, you should be able to pick up a $1M liability policy for under $1,500 I would guess as a trade contractor (trim).

J

mmike032

in other words i need workers comp with any # of employees or subs. How does the irs know if they are an employee or a sub.and I should wait untill i have earned over 6000 before looking into ins.thanks for the help keep it coming . I have a sister in law who has accounting degree and has been helping me but im not sure she understand all that goes into running construction buss.

Ed the Roofer

Relevant Information from an old post.

Ed


The test for common law employment

Employee or independent contractor
The list that follows gives 20 factors or "tests" used by the IRS when determining whether a person is an employee or an independent contractor.
The question of "who controls the details?" appears to be the primary basis on which the determination is made.
No single factor or small group of factors can be taken as conclusive evidence of the presence or absence of control. To determine a workers' status, all the factors must be evaluated. The weight given to the individual factors is not equal, and some factors may not apply to certain occupations.
No one factor is sufficient to determine status without consideration of the others. Although many of these factors are open to interpretation as they are written, the language used here is taken exactly from IRS documents. (IRS Publication 937, Employment Taxes and Information Returns, p. 4.)
Because final determination is made on a case-by-case basis, often in a court of law, it is very difficult to know in advance how a ruling would be made on any specific employer/contractor.
Following these factors is an examination of the four service provider categories:
1) employees
2) independent contractors
3) statutory non-employees
4) statutory employees.

1. Instructions
   An employee must comply with instructions about when, where and how to work. Even if no instructions are given, the control factor is present if the employer has the right to control how the work results are achieved.
2. Training
   An employee may be trained to perform services in a particular manner. Independent contractors ordinarily use their own methods and receive no training from the purchasers of their services.
3. Integration
   An employee's services are usually integrated into the business operations because the services are important to the success or continuation of the business. This shows that the employee is subject to direction and control.
4. Services rendered personally
   An employee renders services personally. This shows that the employer is interested in the methods as well as the results.
5. Hiring assistants
   An employee works for an employer who hires, supervises and pays workers. An independent contractor can hire, supervise and pay assistants under a contract that requires him or her to provide materials and labor and to be responsible only for the result.
6. Continuing relationship
   An employee has a continuing relationship with an employer. A continuing relationship may exist even if work is performed at recurring although irregular intervals.
7. Set hours of work
   An employee usually has set hours of work established by an employer. An independent contractor generally can set his or her own work hours.
8. Full-time required
   An employee may be required to work or be available full-time. This indicates control by the employer. An independent contractor can work when and for whom he chooses.
9. Work done on premises
   An employee usually works on the premises of an employer, or works on a route or at a location designated by an employer.
10. Order or sequence set
    An employee may be required to perform services in the order or sequence set by an employer. This shows that the employee is subject to direction and control.
11. Reports
    An employee may be required to submit reports to an employer. This shows that the employer maintains a degree of control.
12. Payments
    An employee is paid by the hour, week or month. An independent contractor is usually paid by the job or on a straight commission.
13. Expenses
    An employee's business and travel expenses are generally paid by an employer. This shows that the employee is subject to regulation and control.
14. Tools and materials
    An employee is normally furnished significant tools, materials and other equipment by an employer.
15. Investment
    An independent contractor has a significant investment in the facilities he or she uses in performing services for someone else.
16. Profit or loss
    An independent contractor can make a profit or suffer a loss.
17. Works for more than one person or firm
    An independent contractor is generally free to provide his or her services to two or more unrelated persons or firms at the same time.
18. Offers services to the general public
    An independent contractor makes his or her services available to the general public.
19. Right to fire
    An employee can be fired by an employer. An independent contractor cannot be fired so long as he or she produces a result that meets the specifications of the contract.
20. Right to quit
    An employee can quit his or her job without at any time incurring liability. An independent contractor usually agrees to complete a specific job and is responsible for its satisfactory completion, or is legally obligated to make good for failure to complete it.

In a recent journal article in the CPA Journal. April 1992. pp. 48-55.) Alan R. Sumutka, CPA and Associate Professor of Accounting, shared his conclusions that the 20 factors are not weighted equally.
After analyzing a number of court cases, Sumutka concluded that eight of the factors are primary and can provide "very persuasive evidence of employee status" (p. 48).
What is important is whether the service provider or the service recipient has the right to control the details of the work to be performed.
Evidence of employee status is provided if the service recipient has the right to:

• Require compliance with significant instructions (IRS Factor 1).
• Set the hours of work (IRS Factor 7).
• Set the order or sequence of services to be performed (IRS Factor 10).
• Discharge the service provider (IRS Factor 19).
• Hire, pay and supervise assistants as the nature of the work requires (IRS Factor 5).

Or if the service provider:

• Has no ability to realize a profit or loss (IRS Factor 16).
• Has no investment in significant tools, materials and other equipment when such items are necessary to accomplish the task and are usually provided by the service provider (IRS Factor 14).
• Has no significant investment in facilities when they are necessary to accomplish the task and they are customarily provided by the service provider (IRS Factor 15).

If the answer to any of these factors is "yes," the IRS would probably make a case for an employee relationship between the service provider and the service recipient. If the answer to these eight factors is "no," and the answer to any of the remaining IRS factors is "yes," there is still cause for concern.

tnt specialty

The GC is full of it! He can't "cover you".....

He's gambling his odds of an audit that would result in a penalty from his insurance co. for hiring a contractor with no wc insurance.

Or he's just plain old naive......

Depending on the state your in, it's most likely illegal to boot!

Ed the Roofer

Incorrect.

Upon an audit, if the insured companys auditor finds any uninsured parties on the payroll, either as w-2 or 1099 version employees, then the insured party who hired those indivciduals would be responsible for those tradesmens proportionate insurance billings based on the designation of the work they were classified as doing per the SIC, Standard Industrial Classification.

As an after the fact audit, it just may be a mute point for the auditor, but the potential misuse of improperly paying an uninsured party could present grave and substantial liabilities.

Ed

mmike032

yes im pretty sure he can cover me bc i do decks for another gc and he also does the same thing. We agree on a price then he adds ins. on top of that so i still make what we agree on. Nice guy huh, I think so. Is there a certain amount of liability i have to have bc 1 million sounds like an awful lot considering i am only doing interior trim and decks most of the time, As for wc do i have to pay a % of what i make each week or per year. This sounds like it cuts a lot out of my profit, and to add it in to the bid i dont think i would ever get a job to do.

J F

Ed is correct.

J

dirt diggler

YOU NEED TO TALK TO THE FOLLOWING:

1) an attorney
2) an accountant
3) an insurance agent

and wtf - you think something is "illegal" - but you "don't know"

you BETTER get a GRIP on what you are doing.

as for the GC deducting 15% - you're probably getting railed in the tail. If you ARE NOT required to carry workers comp - then CHANCES ARE (again, laws vary state to state) he will not be paying for it at his audit. If you are required to carry workers comp - then you should, welp, get it.

tnt specialty

dirt diggler's got it......

Ed; You need to take DD advice also....

The situation is/will become, (among other legal issues), employee vs. subcontractor.....

Knowingly hiring a sub w/o wc is illegal. Period. (Uunless, of course the sub legitimately has no employees). The applicable ins. co. would most likely have recourse with the insured, (GC that's pulling the crap).

Just do the right thing...

"Life's too short to play with your food"

DavidNTX

WC Insurance is for more of a reason than it is required by law. It is to protect you, the employer from a lawsuit if an employee gets hurt. It also protects the employee from medical costs if he/she ever gets hurt.

Do you carry insurance on your vehicles only because it is required by law?

I'm sure you could probably get a better deal on your insurance paying for it yourself but you will probably be required to put down a large down payment.

The GC can cover anyone on his policy that he is willing to pay for.

mmike032

did a little calling around today and all agents i asked said 15% was fair. THe lowest qoute i got was 10%, and good pay in installments no big down payment.However is there usually a certain amount of general liabilty one must have or just what you think you might need. I got a qoute for 100,000 for around 650 for the year.I feel 100,000 is plenty considering im only doing trim work, I here about 1mil$ policys but woudlnt that be a little overkill for me.