Supervising Subs?

Melissa

Do you supervise your subs? Even when you don't need to be there? We do with some but not all and some to different degrees then others. Like for demo, we have one of our guys go and supervise the entire time. He'll help a little or try to find something else to do, but is this a waste of money? What do you guys do?

R&S Exteriors

Technically you can't supervise a sub-contractor. Only his/ her final work.

Quote:

Who is an Independent Contractor? A general rule is that you, the payer, have the right to control or direct only the result of the work done by an independent contractor, and not the means and methods of accomplishing the result. http://www.irs.gov/businesses/small/...=99921,00.html

The IRS could declare that they are actually your "employee's" and not sub-contractors and then you would be responsible for all insurance's, workers comp, taxes, etc

You need to get good Subs, sign an agreement and let them do their work. I personally would not work for a GC who had someone watching me all day long. IMO

Grumpy

Constant supervision? No. We call them first off each morning to make sure everything is on schedule. If there is some change for what ever reason, we adjust. While the work is being done I like for the estimator to show up, and/or the production manager only for a few minutes. When the job is done there is a final inspection to make sure everything is clean and accurate.

R&S is correct according to the IRS you aren't supposed to train or work with a subcontractor. I know it's bullcrap but it's the rules. We give a pretty detailed scope of work explaining WHAT we want done, just like an architect gives a scope of work. This is how we get around that rule. The work has to be done according to our scope.

Mike Finley

No way. Maximizing R.O.I in your business means to take it where you can get it. In being able to pay someone else to do something why not try to take advantage of what you are actually paying for? R&S makes a good technical point too, and we all know it is a technical point but it does make a good point of the way it should be working anyways.

I can see how you would want somebody on site during demo, it makes perfect sense since unlike almost everybody else I don't think demo is for morons with muscles. Give me a nimble guy or two who understand how a wall was built, how electrical and plumbing was most likely run over the moron with 21 inch biceps any day.

mdshunk

I appreciate it if the person that hired me breezed in for a minute each day to answer a question or two, but that's about all I need. Sometimes, I don't even need that if it's a straightforward job such as new work normally is. Most of the time a cell phone number for a person to call when a question crops up is sufficient.

Double-A

Scope of work or not, we have someone there when they show up to go over the work, answer questions, point out pitfalls, etc.

We don't babysit. Point, talk, run. We're always close by if questions should arise. For demo, we have one of our folks on the job at all times just for CYA.

We had someone take down a wall unnecessarily once.

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IHI

If I wanted to be there i would'nt hire subs...kind of defeats the purpose IMO. There's nothing wrong with shooting the breeze for a couple but the folks you hire should have a clue about wtf is going on, otherwise your taking a huge risk even hiring them to work for you if they're 1 minute away from wiping the drool from their mouth and strapping on a helmet

A brief stop either prior work beginning when subs are scheduled or an hour after subs show up is all that's needed unless something off the wall and unable to solve over a phone pops up.

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Melissa

I understand your point, but it would be absolutely ridiculous if the IRS tried to say these guys are our employees just because they are supervised.

HA! You're a crack up!

Thanks for the tips guys! I agree we need to either find better subs or have more trust in the one's we have. They do great work, they're lic'd, ins, bonded, etc, etc, but some of the guys they send out look pretty shady, and the houses we work on are in expensive neighborhoods. I visited the jobsite last Friday afternoon, and one of the tile guys had all gold front teeth. and barely spoke English. Sweet as can be (well I brought ice cream so that was probably why ) but still ya know? I don't know. All I know is we need to make some money

Melissa

I should probably clarify what I meant by 'supervising'- we're not actually standing over and telling them what to do and we're not in there business at all (unless we're helping them carry demo stuff out or something like that). We're just there in case something goes wrong, or something gets uh... er... stolen But good point about the IRS. Thank you. Because I really never thought about that.

Grumpy

Ya know large commercial buildings usually have a full time on site superintendant who's sole job is to be there to answer questions and periodically check up on the subs and make sure things are going according to plan. It's been my experience that on jobs so large that move so quick, this person is really needed.

However that person isn't there to tell me what to do and how to do it. Infact it's been my experience that they really have no clue. I mean after all how can one person know all details of all trades. But if I am looking at a print and need clarification on something, he is my go to guy. Or if I need to know when another trade is doing something so I can coordinate, he's the guy to ask.

ch0mpie

I realize this may not apply as readily for the home improvement business, but here I go anyway. As I've told you guys before, on top of my handyman business, I work as an inspector for a geotech engineering company. The company often subcontracts drilling and excavation work and sends me out for "full-time, controlled inspection". Sometimes the company is hired by gc's for the sole purpose of providing "full-time, controlled inspection" for there subcontractors. This is not a regular come to the site for 15min and look around inspection; basically I supervise, I'm not supposed to help (but I often do), I can't tell them what to do (but I can call my boss who will call there boss, who will call them, and tell them what I said, so ussually they just ask me what to do), and on rare occasions I perform quality control tests or collect samples for lab testing. The thought is that any mistakes in a borehole or excavation can be covered up by workers, and no one will know about it until it is way too late.

R&S Exteriors

Melissa I was not trying to be technical or snide. The IRS is very ridiculous and this is a "hot" item with them right now. They are auditing alot of contractors and assessing huge fines. Here is a case from just a month ago

Quote:

IRS independent contractor reversal and fines could topple Southwestern erector's business July 12, 2006 - A small and relatively successful Southwestern tower erection and maintenance company is staving off bankruptcy after the Internal Revenue Service disallowed the independent contractor status of some of its subcontracted labor and assessed the company $36,700 in back taxes and penalties last May after investigating a nine month period during 2005. Commingling of crews flagged in audit Although the erector said that his independent contractors provided their own vehicles, tools and paid their own expenses, the IRS took exception, stating that they did not meet the tests for independence - specifically identifying the company's commingling of its employees with the subcontracted technicians on certain projects. Further enforcing the IRS's assessment was the project's requirement for the contractor to provide a supervisory employee to specify the means and methods for accomplishing the installations in order to be in compliance with the project specifications for the subcontracted antenna and line installation work. Read whole story by clicking on link http://www.wirelessestimator.com/t_c...gename=I%20con

Behavioral control is one of the main factors the IRS uses to determine if you have subcontractors or employees

And it's not just Audits that can get you into trouble. If a Sub you use gets mad at you they could report you to the IRS and allege that they are actually employee's but your treating them like subs and the IRS would investigate.

Also if a Sub gets hurt and does not carry workers comp on himself or let it lapse on his workers he could allege, that since you have been supervising his work, that he is actually your employee and would probably win. Then you would not only owe the back taxes to the IRS they would get you for not having workers comp. And Sue

Another factor is benefits. I read in another thread, forget who, likes to carry the insurance for his subs. That is a big no-no. The IRS looks at that as a factor and leans toward the "sub" being an employee

Quote:

Employee Benefits if you receive benefits, such as insurance, pension, or paid leave, this is an indication that you may be an employee.

Your best defense is to have Written Contracts with all your subs and then let them do the work

Quote:

Written Contracts a written contract may show what both you and the business intend. This may be very significant if it is difficult, if not impossible, to determine status based on other facts.

Sorry about the long Post just want everyone to stear clear of the IRS. They are not our friend.

Teetorbilt

All big co's have supers for inspection purposes and as a liason to the subs. I perform the same function, I can see where there could be a fine line here although it's never been a problem.

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R&S Exteriors

True. It usually is not a problem until it is a problem and then it is a BIG problem. The IRS is not ethical and they are not rational they just want to screw as many people as they can to get unjustified "back taxes". They don't care if it is going to bankrupt someone or not.

Home office deductions is another area where the IRS is really going after people. As a matter of fact my tax software comes up with a "flag" if you take a home office deduction letting you know that the is one of the biggest reasons IRS will pick to audit a return. I do all my paperwork at home, but I do not even take the deduction because of this.

joasis

My accountant keeps me on the straight and narrow, and his opinion is when the sub has an EMPLOYER ID NUMBER, Withholds taxes, pays the government, maintains workman's compensation insurance, has their own invoices, business cards, and other indications of being self employed, the IRS has trouble trying to say they are anything but sub contractors. God forbid if the IRS says they are your employees at a $55 an hour rate and make you pay the withholdings based on that amount...geez....it would wreck any small business.

As to the home office, we do not claim one for the reasons stated above. Why look for a small deduction and risk the audit?

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Mike Finley

Big wives tale.

Do a recent search about the billions of lost revenue the IRS can't collect because it is understaffed for audits. Historically and statistically in the last 10 years tax audits have been the lowest ever. The home office deduction is a wives tale from the 80s.

R&S Exteriors

I never said the IRS audits a high percentage of people.The IRS audits about (2% or 1.5 million returns). That is low. So they use certain "Red Flags" to decide who they are going to Audit. We are already highlighted because we are self employed and they audit a much higher rate of self employed then salaried employees.

Quote:

High-Risk Tax Audit Areas - Self Employment Because the IRS believes most under-reporting of taxable income and abuse of tax deductions occurs among those who are self employed, these individuals are audited by the IRS far more frequently than employees collecting a salary.

Do some searches on IRS audits and you will find it is NOT an old wives tale that a home office deduction could cause you to have a greater chance of being audited. The IRS website even had it listed in 2004 when I did allot of research on business taxes.

Quote:

http://money.cnn.com/2005/01/31/pf/t...udit/index.htm

Just trying to give out some tax advice not passing on Old Wives Tales


Also here is the guide that IRS auditers use when they audit us. Might be useful to read

Quote:

http://www.irs.gov/pub/irs-mssp/build.pdf Internal Revenue Service Construction Industry Audit Technique Guide (ATG)

R&S Exteriors

You also have a MUCH GREATER chance of an audit if the IRS a "TIP" from an informant

Which is what I said about an unhappy subcontractor. They report you for treating them like an employee and your chances of an AUDIT go way up.

Jon F

Dang. This all makes me want to start a career flipping hamburgers. I hope I never get audited.

Mike Finley

R&S I think you suffer from a typical syndrome which is overly fearing the power of the IRS. It's similar to the cold war syndrome, that great myth that Americans were lead to believe that the Soviet Union was in much more of a position of power than the sad truth which was it was on the verge of collapse. I think much of the strangle hold the IRS has is self-granted by tax payers, thinking they are much more then they are.

My wife is a CPA, I have a CPA for an accountant, I rub elbows with dozens of CPA, the wife is on the board of directors of the Colorado Society of Accounting so I get past a lot of the "what you hear" type of stories and get exposed to more of the reality or what you don't hear stories. I put a lot more credibility on insiders and tax professionals than editors of magazines like Money who have an interest in creating interesting stories to sell magazines. Have you ever read the stories they run about how to hire a contractor? I'm betting you are able to shoot holes through those stories pretty easily since you are in the trades yourself.

Jon - Don't lose any sleep over it, I've been self-employed for 17 years and never faced an audit, if I do I could careless. That's why I have an accountant, that's why her signature is on the tax returns also, and that's why I have boxes of records in the basement. By the time it's over they would probably be offering me a refund for deductions I didn't take and could have. I'll stick by the advice I'm given by tax professionals which is if you have a legitimate deduction to take it. If you have nothing to hide you have nothing to worry about.