Sub Or Employees?

Flimmer

Boy in all the articles I read about this, It seems the government and the insurance companies don't want this and are trying to make it tough on General contractors. By making it difficult to get insurance and a pain with all the audits you have to deal with. I may be wrong but they sure try to scare you with these articles they write. I see that your subs cannot work with just you or you will get charged back taxes, and the insurance guys can charge you Workers comp as well.

The question I ask is how do you tell your sub to go do other work? I heard that you should only use a particular sub 40% of the time.

If you guys can add anything to help make sure I don't screw myself, please do.

I also heard that if your sub has his insurance that they will leave you alone. So I guess it is VERY important to get the certificate of insurance from the agent himself and not the contractor. This could be another Myth.

Any help from Sub only builders would be great. Or the subs as well, probably know what to do. Anyone.

Thanks Flimmer

jmic

Flim,
If you don't run your buiness strictly by the books ie... Insurance w/c for employees, witholding taxes for Uncle Sam you may as well go on the corner of Main Street pull your drawers down and bend over cause sooner or later something will happen and you're gonna get screwed anyways.
Someone gets hurt on the job, big hospital bills, no insurance and he's down setting up an appointment with a Bad Azz attorney. And if that don't happen you'll get caught by a ins. or IRS audit. Really gotta cover up that Azz.
Joe

jmic

Flim,

If an individual is truly a sub contractor you wouldn't have to be concerned about the sub working for you less than 40% of the time. If you have someone working for you that gives you a cert. of ins. but works for you 100% of the time and takes day to day directions from you, he's not a sub contractor in the eyes of the gov. Period!

Mike Finley

Those IRS testing questions basically spell out what is a sub and what isn't. Rmember those questions are what the IRS calls a simple test. They are a guideline. What it would actually come down to is an agent would look at your two business relationships and it would be pretty easy to see if he really is a sub or not. Let common sense dictate it and you won't get in trouble.

Flimmer

Jmic, of course I would have insurance, and pay taxes(as little as possible ). I hope that the question didn't give the impression that I don't follow the rules. It is quite the opposite, I am trying to make sure I come out of the gates firing in all cyclinders.. I want to make sure this is not a problem for me and that I do it right.

Unfortunately, I know some companies that do just what you said. These particular subs do come and go whenever they please, but they still do 95% of their work for these companies.. I don't beleive that it is an advanage over our company, but this is what they do.

Teetorbilt

If you dictate hours worked = employee
'' payscale = ''
If you provide tools = ''
If you provide a workplace (shop) = ''
These guidelines have flexibilities as well.

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Grumpy

A sub is someone with their own tools and vehicle and insurance. An employee is someone who uses my tools, vehicles and insurance.

In addition I have all my sub sign an agreement agrring to their and mine responsibilities.

Woodcrafter74

So tell me if this passes the IRS sniff test.

I have a friend who runs a handyman business and is insured. I use him for bigger jobs where I need extra hands. He brings his own vehicle and his own smaller tools, but will use my larger saws, compressors, nail guns, etc. I ask him what days he's available to work and I never give him a starting time. Over the course of the warmer months (April - Oct), he'll probably work with me 40% of the time. When he's on site, we usually work side-by-side and I generally give the directions.

What do you think? Please say Sub.

jmic

I think you'de have your hands full convincing an IRS auditor that he was a sub

Grumpy

Actually if he signs a sub agreement, submits his bill to you in the form of an invoice, not a time sheet, and he/you can prove you are not the only person he works for then it will probably pass. He would be considered a temporary independant contractor. I have a few guys like this who work with my crew on larger jobs so it doesnt take too long to finish.

----Edit: Oh the other thing is MAKE SURE TO 1099 HIM AT THE END OF THE YEAR, especially if youa re paying his person and not a corporation.

Woodcrafter74

Thanks for the input. And yes, we're going to work it so that he submits an invoice listing services rendered. It's probably still a grey area, but we'll probably go that route.

Mike Finley

I'm not too sure how gray the IRS would consider that, it sounds very black and white to me. This is a pretty cut and dried failor of the IRS sub-contractor test. You can't direct the work, that's spelled out pretty clearly, that makes him an employee. A sub has to do the minute to minute work it takes to do a project at his own direction. You can supply him with a detailed scope of work and project qualifications but he has to determine how he will do it, in the end he just delivers the finished product that will match what you hired him to do.

From the IRS

Behavioral Control
Behavioral control deals with whether you, as the employer, have the right to direct and control HOW the work is done. You do not have to actually direct or control how the work is done—as long as you have the right to direct and control the work. Instructions and training provided to a worker are important factors to beconsidered under behavioral control.

Subcontractors Instructions
If you give the worker detailed instructions on how work is to be done, the worker may be an employee.Instructions can cover a wide range of topics, for example

Pearce Services

Mike,

I agree with your interpretation, but I can not believe that in any legitimate GC/Subcontractor relationship, your not going to have a fair amount of direction.

Trades like plasterers may do a whole project without any interaction at all, but unless your prints and specifications are bullet-proof, you would need to continuously interact with most other tradesman, especially on a remodel job, where you do not know what will need to be done until the project is in process.

I think this is a very difficult thing to categorize, and think it would be easier if they made the penalty of having employees less significant.

I make my regular subs come up with a business name registered with the town they live in, and a business checking account. my checks are payable to the business name, not their personal name.

Mike Finley

I agree to a degree, however that reply is in regard Woodcrafter's question:If taken for what it sounds like, that fails the test pretty easily. However like I posted earlier, there are multiple criterias to the test, also you have to be audited and so on for any of it to become more than just something to talk about.

In regards to a fair amount of direction as said, it all depends on what the direction really means. When I need a plumber to come in and run a new hot and cold across the room and hook it up to a new shower valve. Do I stand over him and tell him, use a 90 here, lets move the pipes an inch over here as he is doing it, or do I show him or make on the wall where I want the valve located, where I want the drain located and then he runs the lines and does it all according to code? If I want him to specifically do something it becomes part of the the job spec, not standing next to him directing him as he is doing this, and especially not everyday, 5 days a week.

There is a fine line and a lot of it involves common sense. When somebody starts suspecting they might be stepping over the line, such as Woodcrafter has suspected, they are usually right and it's based on pretty legitimate circumstances and not just on a feeling. I also believe you can fail the IRS test on one facet of the test and not on other facets and not be in trouble.

noreast05

I am working on a spec sheet for 1 of 3 upcoming projects. My spec sheets spell out exactly how I want things done. This is everything from foundation to finish. When I am finished it will be put in a 3 ring binder left in the temp. onsite office with the lead for all to review. Each section is given to the appropriate sub along with his/her contract.

Sure I might be telling them how I want it done, but I won't tell them how to do it....... . If I want the entire roof covered in Ice & watershield that is my choice as the GC (Consumer) of the subcontracted roofing company. But I won't tell them how to apply it, what time to show up, what time to quit,when to eat when not to eat. On the same note if they apply it incorrectly they will fix it. Kind of contradicts itself.

I am the GC, the consumer for my consumer.

If the consumer you work for everyday says they want something done a certain way...... and are willing to pay for it to be done thier way........ but.... will not paying you until it's done their way ...........what does that make you......... an employee of the consumer?

Grumpy

This brings up something interesting. An employee of mine's father runs a roofing company. He cuts every corner you can think of... all employees are listed as subs. WC? What WC? You know the routine. Anyways I am told he gets audited every year by the IRS and never has gotten busted.

Woodcrafter74

Again guys, thanks for the input.
Mike, where can I get the rest of the IRS read?
I definitely want to keep it legal.

noreast05

http://www.irs.gov/businesses/small/...=99921,00.html

Plumbnuts

We have all subs (with the exception of the owners). I am audited by insurance every year and was just audited by state umemployment. They really look at the liability insurance certificates. I also worked for a very large builder and was audited by the IRS our field subcontractors were not an issue. I don't pay until there is proof of insurance and they sign a contract and workers' comp waiver if needed. The beauty of being a sub is that they can and do work for others. 1099's are sent out to any sub that is not incorporated.

makfence

I think this is a very interesting thread. The same rules would apply no matter what type or where you do your business. I`ve heard so many different opinions over the years, I don`t know what to believe. It would be nice If we could come up with the correct conclusion. mac.

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