# Newbie Questions



## FlooringGuy (Mar 19, 2010)

I'm looking at doing contracting fulltime. I have a few questions regarding the backend of starting up. I know these are questions you guys probably see everyday and I have friends I could ask but I think by asking people I am not closely associated with I will get no B.S. answers.

Background knowledge: I have all my tools, truck, registration and liability insurance. I have no debt from this.

My questions:

1) I have a guy who has helped me on most of my jobs. I pay him well but he is dragging his feet on getting his own insurance so I can call him a sub. I know this is risky business but I feel bad because he is a hard worker and currently unemployed. How should I handle making him legimate and is this even worth looking into? I don't think I can afford paying all the insurances and paperwork for calling him an employee and would prefer him to be a subcontractor. Anyone have any experience with this?

2) Should I start an LLC? Who do you talk to in order to set this stuff up or even find out if it is worthwhile. I don't mind putting money out there to start off right but I don't know where to go and not get a fiscal run around. 

Any help would be much appreciated. I'm ready to hear how dumb I am too but atleast I'm asking.


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## Contracts (Apr 3, 2010)

Have you considered treating him as 1099?


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## Framer53 (Feb 23, 2008)

Contracts said:


> Have you considered making him a 1099 employee?


No such thing. He is either an employee or a sub.

IRS has strict rules in this regard.


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## 1mancrew (Nov 17, 2008)

1099 employee? Now there's a contradiction.


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## Contracts (Apr 3, 2010)

Framer53 said:


> No such thing. He is either an employee or a sub.
> 
> IRS has strict rules in this regard.


How can you come to that conclusion without knowing how he plans on using this person or how often?


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## Silver02TDI (Mar 29, 2010)

I'm not from the US, so I don't know how things are there. But, here is our experience up North. We had all subcontractors. Last year, we figured, given the subcontractor vs employee rules here in Canada, we were best off converting some of them to employees (those that work only for us, use our tools, do not have their own business registration/insurance, and are paid hourly -i.e. assume no financial risk working for us). We couldn't pay them the same rate though hourly on payroll as we were to their business though. To illustrate, we had one guy with his own corporation, comp, insurance, tools, etc that we were paying to his business $23/hour. He wanted to go on payroll and dissolve his business. Factoring in all of the payroll deductions, his $23/hr translated to $18.50 per hour on payroll, so that is what we're paying. Cost neutral for us, and for him as well (except for the 1.4% employment insurance he now has to pay). If someone is exclusively working for you only, they are an employee by any definition in Canada. They need to go on payroll. Just adjust the hourly rate accordingly, since you can't afford to pay the same rate on payroll as you do when he's a sub.


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## Trim-man (Mar 13, 2010)

"have a guy who has helped me" sounds like a helper to me, probably going to sound like an employee to the IRS.........if your starting out or been around a while they are some one you want to keep happy. I would advise getting the needed WC insurance etc. and making him an employee, you're going to need it in the future anyway. The other thing is the jobs must pay for the insurance and all other costs anyway no matter who provides it. If he provides his insurance then you must pay him more, so as I see it there is really nothing saved. In the end everything must be paid whether you pay or he pays.


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## FlooringGuy (Mar 19, 2010)

If I make him an employee does that mean I have to provide health insurance and 40 hrs a week? I figure if he sets himself up as a sub then he can work for whoever else he wants. He does not really have any specialized knowledge or any real skills thatt make him useful other than the fact he is available whenever and for however long. Plus he has been milking unemployment for over a year and I don't want to hire him if that means I have to pay for his unemployment for a year and a half.


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## PREMIER INSUL (Sep 15, 2009)

Why don't you just hire hime through a temp service? Thats what I do for my guys.


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## d-rock (Oct 17, 2009)

talk to a couple of accountants, but as far as I know, he should not be 1099. If you pay someone as a sub, they should be just that. They should have their own insurance and worker's comp. They should have their own company. You pay his company, not him. There is no 1099 involved. If this guy does not have a company with proper insurances, then he is an employee and you should put him on the books. If you're not doing this, and he gets hurt on your job (for example) he can sue your pants off and client. If he does major damage on the job, liability may not cover you b/c he is not classified properly. Take it from me, just do it by the rules, it's less headaches, less worries and downright easier.


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## AFOREMA1 (Jun 25, 2009)

I am pretty sure the IRS will look at him as an employee not a sub if he works only for you or a predominantly for you. So check into that first.


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## FlooringGuy (Mar 19, 2010)

Thank you guys for all the replies. I talked to him the other day and told him he needs to get insurance to continue working with me. I told him he needs to register and eventually start his own thing so I don't have to be responsible for his income and such. He dragged his feet and never called me back. I replaced him on my next job with a friend who is a fellow contractor. I think that it is the type of situation where I treated him too good and he wants to keep making money without taking any risk. Unfortunately, I am not interested in taking risks with him anymore.


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## d-rock (Oct 17, 2009)

FlooringGuy said:


> Thank you guys for all the replies. I talked to him the other day and told him he needs to get insurance to continue working with me. I told him he needs to register and eventually start his own thing so I don't have to be responsible for his income and such. He dragged his feet and never called me back. I replaced him on my next job with a friend who is a fellow contractor. I think that it is the type of situation where I treated him too good and he wants to keep making money without taking any risk. Unfortunately, I am not interested in taking risks with him anymore.


 Gotta be honest, if it was me I would've walked as well. It's your company not his. In my non humble opinion, you either be a business owner or stay home. Don't insult him for not wanting to pay insurance costs for your company. **** or get off the pot.


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## Silver02TDI (Mar 29, 2010)

d-rock, we don't know all the details. We were in the same boat. We had guys that only wanted to be subcontractors, because of the better pay, and the fact that there are no source deduction for income tax, pension, and employment insurance for subcontracts (supposed to pay it at tax time annually, but they think they can avoid filing taxes forever). Anyway, they wanted to be subs, so we wanted them to become true subs and register themselves, use their own tools, etc. but they didn't want to do that either because it costs money. Luckily, work had died down for a bit so they found work elsewhere, and when it got back to full swing, we called those back that either were fully registered, or willing to go on payroll. The problem naturally resolved itself for us.


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## alabamafrog (Mar 14, 2010)

I’m learning about this myself. My Dad has been a general contractor for over 10 years, he is set up as a sole proprietor and pays all of his help as 1099 sub contractors but pays them x amount per day every Friday and makes them use their own trucks and tools.
When I started my company I decided to try and do it right form the beginning.
I set mine up as an LLC and hired 2 part time helpers and set them up on payroll. The tax thing was a nightmare and still gives me fits from time to time, monthly Federal, and 2 different state systems for my employees plus my quarterly taxes. I do not have worker comp yet, I’m still trying to figure that one out. I was told that with only 2 part time employees I don’t need it but I also have heard that I do. Sometimes we go weeks without working a day, rarely do we get over 30 hours a week but I hope it keeps picking up.
This trying to do things right is a real pain in the rear!


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## Taylordhome (Apr 16, 2010)

I have found that buying them insurance is cheaper than paying workmans comp. I have paid for some of my subs insurance and helped them get their own companies started. Then, on the rare occasion, they get off their butts and bring jobs to the table.


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## wlt3355 (Sep 22, 2008)

Taylordhome....

I assure you that buying a sub insurance or buying anything for a sub is not going to pass the smell test to the IRS, this is going to constitute them being considered employees, which in turn is going to make you liable for any back wages, ot, etc... just know this for certain, as we spend considerable time and effort in trying to keep this delicate balance in check. this will smell like an employee


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## Taylordhome (Apr 16, 2010)

Well, I don't actually buy it for them. I write them a check and suggest that they get insurance.
This keeps my insurance from going up and I still get to work with them from time to time. This is especially true of my favorite electrician. I don't work with him all the time, but if it were up to him, his company wouldn't have insurance. That is a big no no for me and my company.


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## ottagosoon (Nov 4, 2008)

*1099?*

1.He has his own tools, licensing and insurance.
2. Comes in in the morning, you give him instructions to pick up material at a supplier, install that material and call you when its done. I think he is a independent contractor. 1099

If he comes in with his own tools, licensing and insurance and you and he go to the same job and he holds the other end of the board, he is an employee. taxes withheld.

My thinking only.


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## CARPENTERDON (Jun 30, 2005)

> FlooringGuy wrote: *"If I make him an employee does that mean I have to provide health insurance and 40 hrs a week?. . .and I don't want to hire him if that means I have to pay for his unemployment for a year and a half."*


No, there are no requirements for you to provide ins. or 40 hours. And you don't have to pay his unemployment, unless he works for you the required amount of weeks to file for and collect unemployment. Since he's currently collecting unemployment, if he registers his own business or becomes an employee of yours, he will lose his unemployment benefits.

My guess is that he was enjoying the best of both worlds. Collecting unemp. and working under the table for you?!

If a company has no more than 2 employees then WC is not required.


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