# Contractors and subs paying employees on 1099



## TNTRenovate (Aug 19, 2010)

Our state is more strict than the IRS. The state is the one you have to watch out for.


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## iDAHOchris (Feb 11, 2012)

same here


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## A&E Exteriors (Aug 14, 2009)

What's your guys' take on the following scenerio?

I am considering a framing gig, on the road building schools. I would be 1099'd, carry gen lib, supply saw, framing gun, and hand tools. 

Pay would be per job, based on hourly rate x estimated hours to complete job. 

They supply hotel, fuel, generator(s), compressor(s), set the hours would be required to work at least 6 10's, no biggie there, but i've heard of people getting reamed/ reprimanded for not working Sundays.
Would you consider that a sub or employee position?


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## RobertCDF (Aug 18, 2005)

That is by definition an employee position.


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## Tom Struble (Mar 2, 2007)

Randy Bush said:


> Can a sub up there get a excemption on W/C like we can here?


maybe I can get a state exemption,but w/c carrier of the gc i work for won't


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## A&E Exteriors (Aug 14, 2009)

RobertCDF said:


> That is by definition an employee position.


Even if I can pick and choose projects? I'm just curious, naturally you would lose favor the choosier you are.


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## TNTRenovate (Aug 19, 2010)

RobertCDF said:


> That is by definition an employee position.


I agree that it would meet a lot of the IRS's guidelines for determining an employee, but it doesn't "meet" any real definition. Again, the IRS looks at more than just who sets the hours and pays for certain materials and supplies.



A&E Exteriors said:


> What's your guys' take on the following scenerio?
> 
> I am considering a framing gig, on the road building schools. I would be 1099'd, carry gen lib, supply saw, framing gun, and hand tools.
> 
> ...


The fact that you are not working for them full time for any real extended period of time would be considered by the IRS. The real sticky part is how are they paying you for the hotel and gas. Are they reimbursing you? If so, this is a red flag to the IRS. Again, it doesn't mean that it disqualifies you as a 1099, just means they are going to look at it with a finer toothed comb.

The generators and compressors would make since if you are traveling to that location. It's not like they are supplying all of your tools. They are supplying those things that would be an inconvenience to haul over a long distance. Again, not something that would define you as an employee, but it would make the IRS look a little closer.

The thing that would get me is you are getting paid hourly with no real profit or overhead included. Your hourly wage shouldn't be what you are paid plus your overhead and expenses. Your hourly wage should be part of the over all contract.

With all that being said, and the fact that I am not a CPA, I wouldn't touch the job as a 1099. Purely due to the payment method and the fact that they are paying for the hotel and gas. If the IRS ever did rule you were an employee both you and the employer would have some back taxes to pay.

I want you to know that I am not speaking from a google search. I was employed by a gentlemen many years ago as a salesmen. I worked on a 1099 for three months and then was brought on as an employee. When it came tax time, my account said that I was not a 1099, but an employee during those three months. We met no criteria to justify a 1099. I went back to my employer and explained that he owed several thousand dollars in taxes, not me. He met with his CPA, told me he would pay me half of what was owed to the IRS. That's right, cut me another check to pay me to pay his taxes.

We refused the offer and I was fired the next day. We did end up winning the battle, paid our side of the taxes and he was audited by the IRS going back 5 years. He had to pay fines, penalties and taxes on everyone he did this too.

Fast forward a few years, I am a business partner as a low voltage electrical contractor. At first is was just me and my partner. But as we grew we needed some part time help. We had some friends that worked in the industry on their own so we 1099 them the right way. Per project, per their estimate. Problem was my business partner liked it so much, he offered them full time work as a 1099. For three years he operated like that. I explained to him that we were not doing it legit and that if we got caught the IRS would have a field day with us. During the third year, the state comes knocking on the door. You guessed it, they found that they were all employees and that we owed the back taxes along with $10,000 in fines and penalties. Sucked, but I sat by and let it happen. It was my fault, even though I was the 40% partner. I didn't stand up and demand that it be done the right way or walk. 

I will never make that mistake again. Sorry for the long post, just wanted you guys to know where I was coming from. :thumbsup:


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## THINKPAINTING (Feb 24, 2007)

In a heavily regulated over taxed and fees up the ying yang like Ma putting someone on payroll is nuts. The smaller payroll you have the more you will pay, unemployment insurance alone is a killer. 99% of home improvement contractors here have no one on payroll.

I agree it would be great if everyone played by the rules but in a country where anyone can cross a border illegally start a business and be protected by our government , education, food stamps, medical care most guys here legally are doing everything they can just to eat so they really don't give 2 sh*ts about getting caught.

I am and will continue to be fully legit but I do understand why 1099 is done. I just had my WC audit and I still cannot sit down...:laughing:


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## J F (Dec 3, 2005)

http://www.irs.gov/businesses/small/article/0,,id=99921,00.html


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## A&E Exteriors (Aug 14, 2009)

The hotel is paid for by them in advance, and I'm not real sure on the gas, I'll have to look into that more. Their next project is local, so there would be no hotel or gas, I was once a W-2 employee for this guy, he no longer has any W-2 carpenters. All signed contract subs. 

Could this be where the term contract employees comes from?


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## ScipioAfricanus (Sep 13, 2008)

A&E Exteriors said:


> What's your guys' take on the following scenerio?
> 
> I am considering a framing gig, on the road building schools. I would be 1099'd, carry gen lib, supply saw, framing gun, and hand tools.
> 
> ...


Employee position with the added benefit of setting you up to get really screwed down the road. 

Andy.


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## jimmys (May 1, 2009)

AND, no benefits! Boss man getting the good end of this stick.
Jim


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## TNTRenovate (Aug 19, 2010)

jimmys said:


> AND, no benefits! Boss man getting the good end of this stick.
> Jim


Feeding your family???


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## A&E Exteriors (Aug 14, 2009)

jimmys said:


> AND, no benefits! Boss man getting the good end of this stick.
> Jim


Benefit is that 6k and change for a 24 day frame isn't to bad when it all goes to me....especially this time of year.


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## Douglasbeale (Feb 12, 2012)

d-rock said:


> Recently submitted a bid for a project and was told by estimator at GC office I was highest of 3 subs. He also said all 3 bids were within 15% of eachother. Now, lately I've been talking to many unemployed carpenters looking to work for us and they all say right up front "No 1099 please, cash or books. I'm in trouble with the IRS. Been working with 1099 for a while." This has been the common theme with most of them. Doing some research and snooping i'm finding that many or most are paying men with a 1099 to avoid W.C., G.L. and tax costs etc.
> 
> With that info, I broke down my bid and re-did it based on paying carpenters with a 1099 and guess what? My number matched the lowest bid. So, nevermind trying to offer benefits and paid holidays to talented people or workers comp etc. Seems the GC's just want the lowest number and they will figure out a way to build it. Obviously business is about risk and competition but this employee misclassification is ruining the playing field and i really wish something was done about it.
> 
> What say you?


It's Been like that for years around here (Connecticut) The "Sub" must carry his own Comp though or the contractor has to pick it up.


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## Tom Struble (Mar 2, 2007)

A&E Exteriors said:


> Benefit is that 6k and change for a 24 day frame isn't to bad when it all goes to me....especially this time of year.


all goes to you? how does that happen?:blink:


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## A&E Exteriors (Aug 14, 2009)

Tom Struble said:


> all goes to you? how does that happen?:blink:


That would be my contract amount, my overhead would be very small for this sort of thing and no real extra expenses would be incurred.


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## 3Seasons (Feb 11, 2012)

A&E Exteriors said:


> Benefit is that 6k and change for a 24 day frame isn't to bad when it all goes to me....especially this time of year.


If 6k is your Profit withOUT wages then that's fine.

*If that includes your Labor that sucks.* You have a JOB, quit thinking you're a contractor.


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## A&E Exteriors (Aug 14, 2009)

3Seasons said:


> If 6k is your Profit withOUT wages then that's fine.
> 
> If that includes your Labor that sucks. You have a JOB, quit thinking you're a contractor.


I'm a sub contractor jack ass. I work for 5 different contractors. I wouldn't complain clearing 5,000 to 5,500 for a month of labor only, especially in the middle of winter. Hell,  haven't even signe the contract yet. Get off your high horse I play by the rules.


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## A&E Exteriors (Aug 14, 2009)

So sorry you have so much overhead, I don't. I'm starting to like this one man show thing. And if I don't sign, there's 50 other carpenter that will.


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## 3Seasons (Feb 11, 2012)

A&E Exteriors said:


> *I'm a sub contractor *jack ass. I work for 5 different contractors. I wouldn't complain clearing 5,000 to 5,500 for a month of labor only, especially in the middle of winter. Hell, haven't even signe the contract yet. Get off your high horse I play by the rules.


Not according to my business plan. I have employees that make over $1,500 week, plus insurance, workmens comp, paid days off, etc...

If you are making less than that with no benefits then you have a bad job. This is where many subs are messed up.

Can you honestly say to yourself you own a successful business?


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## A&E Exteriors (Aug 14, 2009)

3Seasons said:


> Not according to my business plan. I have employees that make over $1,500 week, plus insurance, workmens comp, paid days off, etc...
> 
> If you are making less than that with no benefits then you have a bad job. This is where many subs are messed up.
> 
> Can you honestly say to yourself you own a successful business?


So good for you, if yu are paying your employees 78,000 per year plus benefits for simple straight line commercial framing please send me an application as I'm willing to relocate. However I'm betting your full of crap. 

All depends on your definition of success, I live in an area whose labor rates come in 21% below national average and I make more than I ever have, I know my bills are paid and the cubbords full with 2 vehicles in the driveway. Is there a set dollar amount somewhere that defines success


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## Tom Struble (Mar 2, 2007)

but you do know you are not ''clearing'' 5 grand right? i mean you do pay quarterlies no?


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## 3Seasons (Feb 11, 2012)

A&E Exteriors said:


> So good for you, if yu are paying your employees 78,000 per year plus benefits for simple straight line commercial framing please send me an application as I'm willing to relocate. However I'm betting your full of crap.
> 
> All depends on your definition of success, I live in an area whose labor rates come in 21% below national average and I make more than I ever have, I know my bills are paid and the cubbords full with 2 vehicles in the driveway. Is there a set dollar amount somewhere that defines success


My top 3 employees earned over 100k last year plus benefits. Union cost per hour for an employee is *$73.00 per HOUR*, that's my cost.

I don't do framing as my only gig, the money sucks. Framers are a dime a dozen regardless of what anyone says. A good finish carpenter is a whole different matter.

Bills are paid and food in the pantry is not success. What about a pension plan, health insurance, disability ins, paid vacations, etc... you don't have a clue what owning a successful business is about.


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## Warren (Feb 19, 2005)

3Seasons said:


> My top 3 employees earned over 100k last year plus benefits. Union cost per hour for an employee is *$73.00 per HOUR*, that's my cost.
> 
> I don't do framing as my only gig, the money sucks. Framers are a dime a dozen regardless of what anyone says. A good finish carpenter is a whole different matter.
> 
> Bills are paid and food in the pantry is not success. What about a pension plan, health insurance, disability ins, paid vacations, etc... you don't have a clue what owning a successful business is about.


Wow!

That is one high horse. Be careful not to fall off.


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## A&E Exteriors (Aug 14, 2009)

Tom Struble said:


> but you do know you are not ''clearing'' 5 grand right? i mean you do pay quarterlies no?


5 is about what I will clear. After taxes and my microscopic overhead.


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## Warren (Feb 19, 2005)

How are you clearing 5k on 6k total?

The SE tax alone is almost a grand.


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## A&E Exteriors (Aug 14, 2009)

3Seasons said:


> My top 3 employees earned over 100k last year plus benefits. Union cost per hour for an employee is $73.00 per HOUR, that's my cost.
> 
> I don't do framing as my only gig, the money sucks. Framers are a dime a dozen regardless of what anyone says. A good finish carpenter is a whole different matter.
> 
> Bills are paid and food in the pantry is not success. What about a pension plan, health insurance, disability ins, paid vacations, etc... you don't have a clue what owning a successful business is about.


We all gotta start somewhere, and I am way better off than my available alternatives, trust me I recently tested the job market and yuk. However, I'll hang some trim for 100k. , I do case, base, crown, double crown, chair rail (rounded corners upon request), wainscoat, wall frames, fluted casing to mimic stone pillars with 7 layer decorative cornices above that. 

It is you that doesn't have a clue about me my friend. Don't tell me I'm not gonna make enough framing something simple when your framers don't make that.


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## Reading pa (Nov 12, 2011)

3Seasons said:


> I want to hire all subs with 1099's. I'm sick and tired of having employees.
> 
> Are there any experts where I could seek advice? Any course I could buy or hire someone fore their expertise to implement this? Thanks.


So what is it. Sub or employees you say you pay over $1,500 a week. Then you said that you are in the union. If you are in the union then how do you use sub and 1099 them. You get your guys for the hall don't you. You are full of shi!!


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## iDAHOchris (Feb 11, 2012)

3Seasons said:


> My top 3 employees earned over 100k last year plus benefits. Union cost per hour for an employee is *$73.00 per HOUR*, that's my cost.
> 
> I don't do framing as my only gig, the money sucks. Framers are a dime a dozen regardless of what anyone says. A good finish carpenter is a whole different matter.
> 
> Bills are paid and food in the pantry is not success. What about a pension plan, health insurance, disability ins, paid vacations, etc... you don't have a clue what owning a successful business is about.


 As long as someone has a goal and strives for it EVERYDAY, he or she is a success.Dont take this wrong but the story above, that sounds like a big fat lie


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## A&E Exteriors (Aug 14, 2009)

Warren said:


> How are you clearing 5k on 6k total?
> 
> The SE tax alone is almost a grand.


What can I say,I have deductions.


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## Reading pa (Nov 12, 2011)

3Seasons said:


> My top 3 employees earned over 100k last year plus benefits. Union cost per hour for an employee is $73.00 per HOUR, that's my cost.
> 
> I don't do framing as my only gig, the money sucks. Framers are a dime a dozen regardless of what anyone says. A good finish carpenter is a whole different matter.
> 
> You pay $73.00 hour for a finish carpenter. What do you charge $200.00 hour. Because you pay $73.00 + everything else you said you give them that like $130.00 hour as hole


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## 3Seasons (Feb 11, 2012)

Reading pa said:


> 3Seasons said:
> 
> 
> > My top 3 employees earned over 100k last year plus benefits. Union cost per hour for an employee is $73.00 per HOUR, that's my cost.
> ...


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## iDAHOchris (Feb 11, 2012)

A&E Exteriors said:


> What can I say,I have deductions.


 Ya I got 3 myself


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## Tom Struble (Mar 2, 2007)

3Seasons said:


> Framers are a dime a dozen regardless of what anyone says.


...I KNEW IT...:cursing:


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## 3Seasons (Feb 11, 2012)

iDAHOchris said:


> As long as someone has a goal and strives for it EVERYDAY, he or she is a success.Dont take this wrong but the story above, that sounds like a big fat lie


I'm talking about business success. This guy don't know sqaut about business.


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## A&E Exteriors (Aug 14, 2009)

3Seasons said:


> I'm talking about business success. This guy don't know sqaut about business.


Says you, I'm just playing the hand I was dealt.


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## iDAHOchris (Feb 11, 2012)

3Seasons said:


> I'm talking about business success. This guy don't know sqaut about business.


 So was I


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## Tom Struble (Mar 2, 2007)

3Seasons said:


> I'm talking about business success. This guy don't know sqaut about business.


thanks Mr. Gates:clap:


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## 3Seasons (Feb 11, 2012)

Tom Struble said:


> ...I KNEW IT...:cursing:


Sorry, but that's the way most contractors see it. I can get Irish (butchers) carpenters, Mexican framers, Romanian framers for almost nothing. 

With that said, in the past I've paid big money to framers when doing complicated room additions with barrell ceilings, cofferred ceilings, etc... but those guys charge an arm and a leg for most work.


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## HomeSealed (Jan 26, 2008)

My comments earlier were directed toward the statements about "subs", rather than the illegal practice of improperly classifying employees. There are too many guys running around putting in consumers heads that if a company uses subs, then they are playing with fire, which is bogus... I do agree though, that the practice of paying employees by 1099 is wrong. They'll get caught sooner or later.


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## Tom Struble (Mar 2, 2007)

i know guys that have been doing it for many years:no:


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## HomeSealed (Jan 26, 2008)

Tom Struble said:


> i know guys that have been doing it for many years:no:


and it'll hurt that much more when they do get busted... It can't speak for other areas, but they seem to be tightening up on it around here.


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