How Do YOU Pay?

casey344

We have a small dock building company in SC with one employee based crew and another sub-contract crew. The sub crew lead man was an employee for 5 years, got laid off when we were slow and was brought back on as a sub 2 years ago. He only does work for us and we feed him one job after another. In his 2 years as a sub for us he has not had more than a couple soft weeks.

We are trying to find a fair and structured way to pay the sub.

For example, yesterday the lead man called to ask if I had figured his pay for the job they are working on. I had not run them yet since I did not think they would be done that day. I or someone else usually inspects their work before issuing payment. The job is 1 hr away and I had other things planned for that day. He said they were not done but would like to be paid for what they had done so far. Admittedly at times I have paid them for work without inspecting it, and for portions of the job they had done. In allot of these cases one of us in the office has talked with the homeowner and they have said what a great job they were doing and how happy they were with the work.

I would like to define the payment schedule so that we know what is expected of each other. I have reservations about making it too strict since someone with his skills are very difficult to come by, he was a framer who we trained as a dock builder. He and his crew generate more profit than our employee based crew.

For those of you in similar situations, how do you pay your sub-contract crews?

MVH

I think you should look up some of the litmus tests that are out on the internet to determine if someone is a sub or employee. I think in your case, it should be easy to determine.

Mike

__________________
Mont Vista Company, LLC
Alpine, Apache Junction, Gold Canyon, and Mesa, Arizona
Apache Junction Builder
Gold Canyon Builder

dirt diggler

Doubt anyone with brains would answer this on a public forum

You need to re-word the question for what is

Look for some articles on "Etiquette of Under the Table Deals"




It sounds like you're more or less just 1099'ing this guy. He doesn't at all sound like a subcontractor.



BTW - if he's so valuable - why not have he and his crew on full-time???

__________________
Thanks in advance!!!

casey344

He is free to sub to whomever he chooses, although I am happy he only does work for us. We 1099 him at the end of the year and he does the same to the people on his crew.

Nobody is getting shorted for taxes ... we have simply been fortunate to have enough work to keep him busy.

dirt diggler

The Employee vs. Sub Topic is a booooooooooooooring one.

Go google it or something ....


just because he has the freedom to choose other work does not make him a legal sub. There's 20 other criteria to meet as well

you're not getting it....

you're misclassifying employees. Your guy is turning around and doing the same thing by the sound of it with his guys.


Not criticizing you or anything ... just saying that's the way it is ... don't make a 4 page thread about it (there's tons of threads on this booooooooring subject)

__________________
Thanks in advance!!!

MVH

Just to make it easier:
Employee vs Independent Contractor
Construction IRS

Mike

__________________
Mont Vista Company, LLC
Alpine, Apache Junction, Gold Canyon, and Mesa, Arizona
Apache Junction Builder
Gold Canyon Builder

localtradesman

I pay my subs net 10....my book man writes the checks. Thats the way it is! After years of working with subs....I have learned my lessons. I always pay though. No excuses from me ever!! They all like to be paid on time. I know too many contractors that pay when they get a draw. This is not how I roll!!

L. B. Condulet

He is in fact an employee and if you have not been withholding his taxes, you could be required to pay all his (and his crew's) withholding taxes plus penalties for the last 2 years. I'm not surprised his crew is more profitable than your "employee based" crew, you've been evading taxes.

Anyway, I won't belabor that point since I'm probably a bigger criminal than you. Most contractors are a little shady, so let's not get too uppity about your "subs"...

As far as how you're paying, it seems like there's no need to change. He seems pretty square and hasn't ripped you off yet. If on occasion you give him some money before completion, that seems OK, it helps maintain good relations. As long as he holds up his end of the bargain, things seem fine the way they are.

Mike Finley

I really do hope companies like yourself get royally screwed when the IRS catches up with you someday.

Why don't you ask him? He's running his own business isn't he? I'd think he would determine how his customers pay him for his services.

Floordude

Since he is a "sub-contractor" What does your specific contract with him on this job say as far as payment?? If he is working full time for you, and all the other aspects you outlined, it is clear this employee, is being mislabelled a sub, for your benefit. You better hope he never files unemployment and you as his last payee!!! The **** will hit the fan!

Guys, this is how wages are surpressed in the bidding process, and employees are bidding jobs at employee wages, without any business sense or know what overhead is.

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**Education is the key to success. Learn more, earn more.**
http://www.AustinFloorguy.com

Floordude

Not to mention, workmans comp costs.
That is actually 3 years IRS Form: SS-8

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**Education is the key to success. Learn more, earn more.**
http://www.AustinFloorguy.com

MVH

You and me both. I think people would be shocked at how many undocumented workers there are employed in construction. I lump them in with the illegals.

He shoots, he scores!


Mike

__________________
Mont Vista Company, LLC
Alpine, Apache Junction, Gold Canyon, and Mesa, Arizona
Apache Junction Builder
Gold Canyon Builder

casey344

I will speak with our accountant to be sure our arrangement changes if it indeed needs to. I'm sure we aren't the only GC confused by this sub v.s. employee deal. Are accountants ignorant to this sorta thing? I know ultimately its our responsibility but when it comes to the this sort of thing we rely on his knowledge and experience.

It doesn't make it right, but I know for a fact we are not the only local dock contractor paying their subs this way.

Our sub does work directly for homeowners but I am pretty sure we occupy the lions share of his schedule. We are not his "last employer", he framed houses between our laying him off as an employee and our current arrangement. He came back to us after being taken advantage of by a few house builders who wouldn't pay.

We began sub-contracting to him because we did not have enough contracted work to keep him employed. Laying them off was an emotional time we simply did not want to repeat. At the time this was the best way to keep the commitment open with no promises. Having to tell these guys we had no work for them and no more money in the bank to keep them working around the yard doing odd jobs was tough.

I just looked through our bookwork, their first job as a sub was Oct. '06 (13 months ago) not the 2 years I said originally.

Are you allowed to pay employee's by the job instead of by the hour?

L. B. Condulet

Certainly, as long as you withhold the proper taxes.

Bone Saw

All I can say is that is one unethical "accountant" to say the least, but that's not to say that unless you have some sort of ironclad agreement with him, (to take the heat, should the heat come) to roll with it. You might want to consider removing this thread alltogether, my .02

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Custom Decks & Carpentry LLC.
Chester County Custom Decks
Custom Deckbuilder Mainline
Philadelphia Deck Builder
Custom Decks & Carpentry on Facebook

Double-A

Casey, talk with your accountant and understand something when you do. His is a numbers game. By telling you this is an OK thing to do, he might be basing that on the odds of a problem with the IRS becoming a reality... slim to none, but still a possibility.

You have to decide what type of business you run and why you run it that way. His job is only to give you the best advice, as he sees it at the time.

Time in prison, a quick name change to 'Sally' and losing his country club membership can all influence how he assesses risk and might change his advice for future clients, but until that time, his advice may or may not meet your ethical standards.

As for how you pay your subs... Take Finley's advice. Talk to your sub and find out how they want to be paid on every job. You're not a bank, and you should not finance his poor planning. He needs to learn how to run his business well if he hopes to survive.

What happens to him if you close up shop tomorrow? Will he become one of the 99%'ers?

__________________
"My clients’ wishes are the center of my attention." -- David Guido, a contractor in Woodstock, N.Y.
New York Times, July 20, 2006

casey344

I'm not passing blame to the accountant ... to clarify things we have never had a formal conversation about our subs. He knows we have them and I think that's all. I just figured if this is such dangerous territory he would have been bright enough to tell us.

I have already left him a voice-mail and will follow-up and follow-through with fixing this. Thank you all for your input ... how we pay them has taken a back seat to getting this in order.

Double-A

You're a good man Casey. Getting the crap beaten out of you in here and still smiling like a grown up.

Good job.

__________________
"My clients’ wishes are the center of my attention." -- David Guido, a contractor in Woodstock, N.Y.
New York Times, July 20, 2006

Ed the Roofer

I am actually inspired at the positive reaction you took.

Good luck and I hope your budget allows for you to handle the additional tax and liability and workers compensation burden.

I truly hope that you follow through.

If you want to maintain the subcontracting relationship with the other party, begin with agreed amounts for the contracted work rather than on an hourly T & M basis. T & M exclusively smells too much like hourly wages to an auditor.

Secondly, he must provide you with cerificates of liability insurance and workers compensation insurance.

Thirdly, he must be a at will subcontractor. He can choose to accept or decline any of the work.

It would be to your benefit to put these jobs out for bid by others, even if you do wind up always using him. Who knows, you may find someone else dependable too.

Also, for his sake, he needs insurance coverage on his guys. No doubt about them. They are employees. You may be held liable for them if anything ever does happen, injury wise or audit wise.

Ed

Grumpy

I have subs and employees, and unlike many of these guys, I don't feel someone is an employee if you are their sole customer. And YES it will pass the IRS's test. Let me give you one big example that certainly wouldn't fly under the IRS's radar... Home Depot. Yes, Home Depot used to SUB all their windows, siding and roofing out to two companies. These two companies had one customer each and that customer was home depot. Those companies were RMA and I think IP USA I could be wrong about the IP USA but it was something similiar.

Still on the big box example, there are many contractors whos only source of revenue is doing work for big boxes. Some even frequent this forum.

Just because someone has only one customer DOES NOT make them an employee. If this person is a legitimate corporation and this person has his own employees, uses his own tools, and vehicles, pays his own taxes... he is not an employee. However that's just my opinion as based on the IRS's own rules and conversations with my accountants.

How you pay him is based on how much he needs to pay. Certainly what you pay him should be somewhat in line with what your own costs (total including insurance and other burdens) would be plus a little bit extra for the subs profit. The sub should cost you more than your own employee crew in theory.

How do I pay? Well, I have a negoiated piece work rate. A square foot of this, a lienar foot of that. This only applies to the average type job. If the job is odd or unique then they bid it. The sub knows before he starts what he is going to get paid unless we come into some unknows, which he gets paid extra for anyways. I do not like having suprises once a job is done.

I also have employees. I have a hybrid system of piece work and hourly which I pay for installs. I do this to control costs and keep the employees form "milking" a job.