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When Does A Subcontractor Become An Employee?

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  • When Does A Subcontractor Become An Employee?

    I am sure that this a really dumb question for most here. But being a one man company, I have yet to have to hire anybody and that has worked just fine - I enjoy working alone and the challenge of it. But what if I need some help sometime? When do you cross the line from a sub to an employee? I want to follow the law but what are some guidelines to go by, if any? What if some is hired for part of a day?

    I have been hired as a sub many times and I always thought the whole thing was kind of vague and fishy. When I was Amish, everyone is supposed to be self employed, so that no one has to pay workers comp and self-employment tax (most Amish are exempt from paying into S.S.) - every company is a LLC and has no employees. This was kind of vague too. I don't want to be vague in return - I want to know what I am doing.

    If I have an Electrician, Plumber, etc. come in, I have the customer tell them what needs to be done and have them hire them. But if its carpentry work, I'm in charge - so is that help a sub or an employee?

    Anyway, after reading about this in Remodeling, I thought that now is the time to understand this, not under pressure. And since I do all of my own taxes, I really need to get it.
    Last edited by Jason Laws; 02-20-2016, 05:48 PM.


    " ... I will liken him unto a wise man, which built his house upon a rock: And the rain descended, and the floods came, and the winds blew, and beat upon that house; and it fell not: for it was founded upon a rock" (Matthew 7:24-25 KJV).

  • #2
    https://www.irs.gov/Businesses/Small...ed-or-Employee
    Donald on the basis of his net worth valuation-

    "...feelings, even my own feelings, and that can change rapidly day to day"

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    • #3
      Thanks - that was helpful. So far, it would seem, even a half a day worker would be an employee and that many times when I was hired, I was an employee, as well. Building houses from start to finish and being told how to do it, would suggest an employee relationship.


      " ... I will liken him unto a wise man, which built his house upon a rock: And the rain descended, and the floods came, and the winds blew, and beat upon that house; and it fell not: for it was founded upon a rock" (Matthew 7:24-25 KJV).

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      • #4
        Jason I have strict rules set by my accountant on this very subject. Put simple I only write out two types of checks. One is to a personal name that is always and employee and I must receive a W4 and withhold. Second type is written out to a legitimate Inc, LLC, etc. must be licensed in their trade and I must have a copy of their current liability and comp cert. Of course I can write out a check to a supplier but I never do. It's simple and there's no gray area. You're either a company or an individual.

        Gary

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        • #5
          Gary, do you always have to provide them (an employee) with health insurance, even for a temp worker?


          " ... I will liken him unto a wise man, which built his house upon a rock: And the rain descended, and the floods came, and the winds blew, and beat upon that house; and it fell not: for it was founded upon a rock" (Matthew 7:24-25 KJV).

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          • #6
            What matters is what you do and what your state requires you to do.

            http://www.maine.gov/labor/labor_laws/
            Donald on the basis of his net worth valuation-

            "...feelings, even my own feelings, and that can change rapidly day to day"

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            • #7
              Originally posted by MarkMc View Post
              What matters is what you do and what your state requires you to do.

              http://www.maine.gov/labor/labor_laws/
              Yeah, I understand that it matters what I do and what my state requires me to do. I am asking about if our nationwide healthcare law has to applied in every situation. I didn't think that it was up to each state to apply that, but that is why I am asking. I don't use health insurance at all, so I don't sit around thinking about it.
              Last edited by Jason Laws; 02-21-2016, 01:08 PM.


              " ... I will liken him unto a wise man, which built his house upon a rock: And the rain descended, and the floods came, and the winds blew, and beat upon that house; and it fell not: for it was founded upon a rock" (Matthew 7:24-25 KJV).

              Comment


              • #8
                Originally posted by LIHR50 View Post
                You're either a company or an individual.
                You can be both (sole proprietor) and that has nothing to do with who is an employee and who isn't.

                Jason, read the IRS and state info as recommended. In general, a sub is someone who is licensed, insured and running a legit business doing business with many customers.

                BTW, many people mistakenly assume that paying by the hour makes it an employer/employee relationship. Not so. I sometimes pay an architect or engineer or lawyer by the hour. That doesn't make them my employees. On the other hand, if you pick up a guy in the parking lot at HD and pay him by the hour as a laborer, he is likely your employee. If it quacks like a duck, it IS a duck.

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                • #9
                  Originally posted by dgbldr View Post

                  You can be both (sole proprietor) and that has nothing to do with who is an employee and who isn't.

                  Jason, read the IRS and state info as recommended. In general, a sub is someone who is licensed, insured and running a legit business doing business with many customers.

                  BTW, many people mistakenly assume that paying by the hour makes it an employer/employee relationship. Not so. I sometimes pay an architect or engineer or lawyer by the hour. That doesn't make them my employees. On the other hand, if you pick up a guy in the parking lot at HD and pay him by the hour as a laborer, he is likely your employee. If it quacks like a duck, it IS a duck.
                  Thanks, that would be how I have understood things, thus far. I am set up a sole proprietor with the IRS but you really don't have to much in Maine, unless you have an employee.I have been reading more as to test whether someone is an employee or not - if anything, I keep seeing how I was an employee may times, when I was treated as a sub (too much control on their part). How have you handled the health insurance thing for employees?
                  Last edited by Jason Laws; 02-21-2016, 01:32 PM.


                  " ... I will liken him unto a wise man, which built his house upon a rock: And the rain descended, and the floods came, and the winds blew, and beat upon that house; and it fell not: for it was founded upon a rock" (Matthew 7:24-25 KJV).

                  Comment


                  • #10
                    Jason, I don't provide health ins. I believe a small business with less than 50 employees is exempt from the obamacare fine.

                    dgbldr, It's obvious that Architects, lawyers, engineers, accountants, etc. are licensed professionals and are not employees. The IRS or State is not going to question that relationship.
                    Gary

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                    • #11
                      Originally posted by LIHR50 View Post
                      Jason, I don't provide health ins. I believe a small business with less than 50 employees is exempt from the obamacare fine.
                      Thanks - that's good news for me.



                      " ... I will liken him unto a wise man, which built his house upon a rock: And the rain descended, and the floods came, and the winds blew, and beat upon that house; and it fell not: for it was founded upon a rock" (Matthew 7:24-25 KJV).

                      Comment


                      • #12
                        I am a bit unsure about the topic of how much you boss or give orders to a person to consider them a sub or an employee. Let me give you an example.

                        I am currently doing a kitchen. So we need electrical upgrades. The electrical company sends out an estimator to look the job over and give us a bid on the work. The company is hired to do the work. They send out a guy to do the work who shows up with a piece of paper that says install 4 counter outlets and dishwasher and disposal outlets. He has no idea where they go since the cabinets are not installed yet and he was not given a set of drawings that we provided the contractor, he does not know where the breaker box is, does not know if he is using white or brown or black outlets since his paper does not say so. He asks me for directions? So if I give him those does it make him an employee? Of course not since I am not paying him for any of the work.

                        Now the guy that the homeowner brings over to do the window painting while I am there does the same basic thing. Asks me where the paint is, will he be in the way of work if he does the painting now, do I know where the stir sticks are. I tell him what to do, that he is expected to clean up when done, etc but I am not paying him so I do not consider him an employee or a sub. But I am bossing him around.

                        I think even if I had hired the guy for 4 hours of painting I would not consider him an employee for more than that one time. I am not going to give him any insurance, give him any tax forms, take any taxes out of his pay. Let him worry about that. Now if it becomes a regular thing that weekly he is working for me that is a different thing.

                        I thought there was something about you don't have to do taxes and such until you hit a certain amount paid to a guy but that may be wrong.

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                        • #13
                          Beezo I keep it very simple and as I said there's no gray area. If a homeowner hires someone, say an individual day laborer he picks up off the corner that's the homeowners problem not mine. (that will never happen) but if it did it's all on the homeowner from pay to supervision.

                          I've required W4 for part-timers that I've only hired for one day and issued a check. Have I paid part-timers cash? absolutely. There's not a small business on the planet that doesn't or hasn't, but for the most part I'm on the up and up.

                          It's very expensive to hire legally and most small guys probably can't or are greedy and take the chance their cash employees don't get hurt or a disgruntled employee doesn't report them to the the state labor board.
                          Gary

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                          • #14
                            Originally posted by LIHR50 View Post
                            Beezo I keep it very simple and as I said there's no gray area. If a homeowner hires someone, say an individual day laborer he picks up off the corner that's the homeowners problem not mine. (that will never happen) but if it did it's all on the homeowner from pay to supervision.

                            I've required W4 for part-timers that I've only hired for one day and issued a check. Have I paid part-timers cash? absolutely. There's not a small business on the planet that doesn't or hasn't, but for the most part I'm on the up and up.

                            It's very expensive to hire legally and most small guys probably can't or are greedy and take the chance their cash employees don't get hurt or a disgruntled employee doesn't report them to the the state labor board.

                            Following this thread I wondered if and when the word "hurt' would come up - as in "workers compensation" and liability.
                            There now, LIHR50 said it.
                            Who pays for defending the lawsuit of the injured (or killed) person on the job site if there is no workers compensation or other legally binding arrangement?
                            CAVEAT EMPTOR - let the buyer (of improperly arranged labor) beware
                            TSOrganize
                            www.TSOproducts.com
                            Transport Store Organize

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                            • #15
                              My understanding of this issue, based on conversations with insurance agents, is that workers comp insurance is a big concern. (This is in NY state.) Basically if the person I've hired doesn't carry his own WC policy then he's an "employee" and my WC insurance carrier is going to charge me on his pay.

                              I too am a one man, sole proprietor operation. I had WC for years only using it very occasionally as I rarely sub to anyone else. In the end, I decided to drop the WC coverage and now the customer pays the subs directly. This cuts me out of the legal obligation of covering them with any kind of insurance. I still bill for the time I spend overseeing and meeting with them, but the financial arraignment is between the customer and them.

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